Comment: Why it’s so hard to tell what’s coming next

Take economic output, for example. During the preceding decade, we witnessed what has become known as the "great moderation". That is not to say we weren't buffetted by a series of international shocks (including technology booms, wars, defaults and financial crises). Rather that, on average, we saw remarkably stable and strong economic growth.

However, since the onset of the financial crisis (which itself was born out of the excessive expansion of the previous decade), the volatility of output and inflation has increased dramatically. For example, in the decade to 2007 growth varied from plus 1.8% to plus 4.6% (around a 3% range) compared with minus 5.6% to plus 2.5% (a near-8% range) over the past year and a half. The decline in forecast accuracy is thus perhaps not surprising. During the course of 2008, economists gradually scaled back their forecasts for growth this year. Then came the Lehman collapse last autumn. This was a cataclysmic event, following which there were swift revisions for an outright contraction in output this year. Despite of this, the decline in output was still not fully comprehended, such is the complexity of the financial sector and its interaction with the real economy.

Even the Bank of England, with its army of economists and sophisticated models, has time after time had to revise down its expectations for growth. Three months into the credit crisis, the Bank expected growth of 2.5% in 2009; it now expects a 4% contraction. In early 2007, it expected growth would be between 1% and 4.5% (a 3.5% range) three years hence. That range has since been almost doubled, illustrating the rise in uncertainty since the crisis.

Not everything has surprised on the downside. Inflation, for example, has proved remarkably sticky, possibly because the effect of sterling's fall (from 2007) on import prices has been larger than we thought. It could also be that the recession has not generated as much spare capacity as expected, especially if the sustainable rate of growth is now lower. Questions are still being asked about whether near-term deflation or longer-term inflation is the biggest risk.

Unemployment is rising, but not by as much as the scale of recession would have suggested. Perhaps this is the result of greater flexibility — i.e. workers accepting lower pay and shorter hours. But we're not out of the woods yet — in the early 1980s downturn, which was similar in size and duration to this one, unemployment continued to rise for some five years after the end of recession.

So what does the future hold? With the Bank of England having proved willing to go further than we thought in creating money, we suspect that there is sufficient support for the economy to take us out of recession this year.

However, a higher degree of uncertainty than during the "great moderation" is likely to persist, particularly over the durability of the recovery. Another wave of panic and the need to rebalance the economy (by cutting debt and raising savings) are the two key risks to our view of recovery going forward. And, as we have learned over the past two years, such risks must not be ignored as they may now be a higher probability event that we originally thought.

George Buckley is chief UK economist at Deutsche Bank