Uncertainty of Firms' Medium-term Outlook during the COVID-19 Pandemic

This study, based on original surveys conducted before and after the COVID-19 outbreak in Japan, documents firms’ medium-term outlook and its uncertainty. The results show that, the uncertainty related to the outlooks of firms, measured as a subjective confidence interval of their point forecasts, increased substantially at the onset of the COVID-19 pandemic. Uncertainty over the macroeconomic outlook declined slightly by the end of 2021, but uncertainty over the firms’ sales outlook remained high. Second, uncertainty over the firms’ sales outlook is significantly related to uncertainty over the macroeconomic outlook, even when firm fixed effects are controlled. Third, forecasts regarding the end of the COVID-19 pandemic are highly dispersed. The expectation regarding the duration of the pandemic is correlated with the macroeconomic outlook and its uncertainty, but correlations with firms’ sales outlook and its uncertainty are not observed.

This is the English version of the Japanese Discussion Paper (22-J-031) with some additional information and changes.