Macro is impossible to predict – so don’t try

A common refrain I hear from market participants – especially from purely bottom-up investors – is that macro is impossible to predict, so it’s not worth trying. I think that’s wrong. Not entirely wrong. But wrong enough to matter for how portfolios are built and risks are managed.

Let’s start with the bit that refrain gets right. The last decade has delivered repeated macro shocks that weren’t in anyone’s base case: a pandemic, multiple energy shocks triggered by wars, and the fastest inflation surge in a generation. Relationships that once looked stable – between growth and inflation, between economic policy and markets, between equities and bonds – have become more unstable.

So, if the claim is that macro is noisy, uncertain, and prone to surprise, I agree.

But the leap from “uncertain” to “unknowable” is where I part company.

Because beneath the noise, there are macro regimes. And regimes matter.

Shocks are becoming structural

Take inflation. For much of the 2010s, inflation was structurally subdued, allowing central banks to backstop markets with minimal constraint. Today, inflation is more volatile and more sensitive to supply shocks – whether geopolitical, climatic or policy-driven. That changes how central banks react, and in turn how markets price both risky and risk-free assets.

Or take geopolitics. There was a period when investors could plausibly argue that geopolitical events rarely translated into sustained market moves. That looked increasingly tenuous even before the conflict in the Middle East. The reality now is that geopolitics directly affects trade routes, supply chains. energy prices, and ultimately inflation and growth.

Moreover, these repeated shocks are not isolated incidents. They are shifts in the underlying nature of the macro environment, towards persistently elevated geopolitical risk and an increasing preponderance of supply-side shocks.

And it is in analysing those structural shifts where macro is most important.

I don’t think the real value-add of macro-economists is to predict next quarter’s GDP to one decimal place. It is to identify the range of possible outcomes around key economic variables – growth, inflation, policy – and to understand how those distributions may be shifting over time.

In other words, macro is less about point forecasts, and more about underlying regimes and scenario analysis.

What this means for portfolios

That really matters for portfolios. A world where inflation risks are symmetric around a 2% target is very different from one where inflation is persistently skewed to the upside or downside. And a world where geopolitics is background noise is very different from one where it can close key shipping lanes and disrupt global supply chains.

Ignoring those shifts doesn’t make the risks disappear. It just means you’re not prepared for them.

I also think there is a behavioural element here. Dismissing macro as “unpredictable” can be a convenient way of avoiding uncomfortable uncertainty. It’s easier to focus on company fundamentals than to engage with messy, evolving macro risks.

But investors don’t have that luxury. Macro may be uncertain – but it is also one of the main drivers of the environment in which all assets are priced.

Final thoughts

So yes, macro is harder than it used to be. Yes, it requires humility. And yes, we won’t always get it right.

But that is not a reason to stop trying.

It is a reason to think about macro differently: less as a forecasting exercise, and more as a framework for understanding risks, regimes, and the range of possible future scenarios that portfolios need to navigate.

Paul Diggle is chief economist, Aberdeen Investments.