Pandemic uncertainty off the charts, but high uncertainty existed going into 2020

These are unusual times, but there was significant economic uncertainty even before the globe was hit with the COVID19 pandemic. (See the World Uncertainty index and the new pandemic uncertainty index. The WUI is computed by counting the percent of word “uncertain” (or its variant) in the Economist Intelligence Unit country reports. It has been created by economists at the IMF and some of the same folks at Stanford University who generate the Policy Uncertainty Indices.)

This made the global economic more sensitive to an economic shock. We cannot say how this made the situation worse, but high uncertainty lends itself to higher fear. Higher fear translates into a desire for increased protection and cautious behavior. Uncertainty will reduce our ability to form strategies to mitigate any negative shock and thus creates anxiety. The fallback financial position is to increase cash and hold higher cash levels until uncertainty is resolved.

Any V-shaped economic rule that a sharp deep recession will be offset by a sharp steep recovery is unlikely if world uncertainty is still had high levels.