Publications: Notes at the Margin

Why Forecast?; Trade War Impact on US Energy Prices; Economic Disaster Could Accelerate Climate Gains (April 21, 2025)

 

This week, we discuss three topics, beginning with economic forecasts. The forecasting profession has an outstanding record for accuracy during “normal” periods when nothing happens. On the other hand, their ability to foresee significant changes is dismal. We reviewed recent economic disruptions and found that forecasters generally are slow to notice significant changes and slower to estimate their full impacts. So, why forecast? Our analysis is important today as the global economy confronts what could be a severe recession.

 

Energy price projections are among the worst forecasting efforts. Such predictions today have been made more difficult thanks to US trade actions that have roiled the world economy. Many countries are boosting their imports from the United States in hopes of winning tariff relief. Along with agricultural products, oil and natural gas constitute easily acquired goods. A significant increase in US energy exports would reduce supply availability here, raising domestic prices and exacerbating the inflation created by President Trump’s tariffs. We discuss the potential impacts below.

 

Should it happen, a sharp economic downturn could have an unexpected benefit: stalling the president’s effort to raise fossil fuel use. A prolonged recession or depression would limit oil, natural gas, and coal consumption, constrain investment in new oil and gas reserves, and delay or kill the construction of fossil-fuel-reliant power plants, especially those built to support artificial intelligence. The slowdown is unlikely, however, to hinder progress in developing low-cost, more efficient renewable energy technologies, particularly in China. These technologies will move front and center as the global economy recovers from the Trump slowdown, diminishing fossil fuel use, and cutting harmful emissions beyond current projections. Historians may credit Donald Trump with accelerating the energy transition should the recession or depression be extreme and long-lasting.

 

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