III.1. Fluid 2022 growth forecasts since October 2021

CHAPTER III. REALITY CHECK: UNCERTAINTY AROUND 2022 GROWTH FORECASTS

Chapter III Takeaways • The 2022 growth forecasts for MENA economies have been fluid since previously published October 2021 and January 2022 forecasts, indicating improving growth expectations for oil exporting economies and worsening expectations for oil importers. • Changes in growth forecasts are common due to the advent of new information on economic performance and global trends. Like the outbreak of the pandemic in early 2020, the explosion of the war in Ukraine is yet another vivid example of unexpected shocks that shape expectations about growth prospects, but with important differences in the magnitude of the bounds of uncertainty and the direction of the changes in the forecasts. • Substantial uncertainty remains around the latest forecasts, with bounds of uncertainty varying across countries depending on their characteristics including the extent of data availability and transparency.

Chapter I discussed the World Bank’s latest growth forecasts for 2022 across the MENA region. Chapter II highlighted challenges in forecasting growth. Econometric techniques were employed to link growth forecast uncertainty with data transparency, growth volatility, conflict, commodity shocks and other global trends. This chapter concludes by exploring the implications of the findings of the determinants of forecast uncertainty discussed in chapter II on the forecasts presented in chapter I.

Chapter III proceeds in stages. First, is a comparison of the growth forecasts for 2022 published in October 2021, January 2022, and the most recent vintage of forecasts discussed in chapter I (April 2022). Next, the chapter illustrates how uncertainty affects the forecasts, by putting the January and April 2022 forecasts for the year 2022 in the context of the uncertainty that reigned in past years, and by focusing on three different scenarios of uncertainty around each forecast. More specifically, the three scenarios of uncertainty around the current forecasts correspond to country-specific uncertainty that was present in 2019 (a relatively tranquil year), the extreme uncertainty that reigned in 2020 due to the unexpected outbreak of the pandemic, and the typical (or median) uncertainty for each country during the past decade or so. The chapter concludes by emphasizing that the uncertainty surrounding the year 2022 will probably be less severe than in 2020, yet with a pronounced systematic difference between oil exporters and oil importers.

III.1. Fluid 2022 growth forecasts since October 2021

Historical evidence on forecasting suggests that more recent vintages of forecasts end up being more accurate. This is generally true, because as time goes by forecasters have more recent information available about the prospects for future growth. However, in times of uncertainty, unexpected economic shocks materialize that the forecasters could not have incorporated in any of the forecast update iterations. A prime example was the outbreak of the global pandemic in 2020. The pandemic swept through the world in 2020 and could not have been captured in the January forecasts of that year. Another example is the war in Ukraine that broke out in February 2022. Thus, there is value in comparing the