What does uncertainty mean? According to the Portuguese Language Dictionary (Priberam), it is a feminine noun with different meanings: lack of certainty, doubt, hesitation, indecision and imprecision. By default, the broader definition summarises a “state or character of what is uncertain”; however, in economic language it is defined as a conjecture whose course to be decided by the market (economic agents) is not predictable.
Naturally, the concept inherent subjectivity is understandable as well as the impact on economic planning; and, hence, the construction of indicators aim to analyse its incidence. The initial studies of economic uncertainty were related to the work of American economist Frank Hyneman Knight; and, in 1921, in the book called “Risk, Uncertainty, and Profit”, he concluded that it reflects a situation without any prediction in terms of possibilities. And, the difference between risk and uncertainty is the ability to measure.
Its applicability is extensive and empirical studies show that uncertainty shocks can generate negative impacts on companies and families. The main reasons recognize the lack of motivation towards investment, the inhibition of production and the propensity to consume, and reduction upon the effectiveness of monetary policy. Therefore, the essential question is: what to expect given the current context (continuity of the pandemic)?
We can assume that markets appreciation, given indexes historical maximums, are a result of speculation and/or desire of economic agents (in particular families) to reiterate their freedom. The desire and/or greed for consumption is a reality, but the truth is that the latest business results (associated with the economic reopening) have been positive. In fact, higher than expected, given structurally low-interest rates and liquidity that is beyond memory; the fruit of the massive injection of money by central banks, whose inconveniences we will discuss in due course.
Thus, it is a sine qua non condition to create confidence in economic agents to ensure the recovery and adaptation of economies. This is made explicit in the presentation of the Interim Economic Perspectives, referring to the G20 economies, by Laurence Boone (Chief Economist of the OECD): “The world is facing a serious health crisis and the most dramatic economic downturn since the Second World War. The end of this crisis is not yet in sight, but policy makers still have a lot of leeways to help build confidence”.
