Across the last few years, there has been so much going on. Things going on in Sri Lanka are at least easy enough to understand; we are close to them. Things going on in the world have been much harder to comprehend. 

There have been plenty of words coming up to explain this situation. You have VUCA, BANI, RUPT, and all sorts of other acronyms. All of these talk of volatility. 

Volatility has become the standard explanation for all the changes taking place. But volatility is a negative word. It is easy to understand negative words as negative trends, as opposed to what volatility actually means – rapid movements in both directions. 

The tariff war of 2025 is a great example of this. Tariffs were bad for the world’s trade system, no question about that. But look at what the rates actually did. They were announced, then suspended, then reintroduced at higher levels, after which they were narrowed by product classification, and eventually negotiated down on a bilateral basis, while the deadlines meant to force resolution kept being extended. 

As a result, even though that previous phrase – ‘tariffs were bad for the world’s trade system’ – was true on the surface, it didn’t always look like that.

Because the direction reversed so often, no single action ended up making sense all the time. Firms that rebuilt sourcing in early 2025 around the higher tariff rates ended up dealing with tariffs that, in practice, were far lower. 

On the other hand, firms that treated the whole exercise as reversible had to still deal with a world of much higher tariffs and critically, dramatically changing supply chains. Some of these changes were fairly predictable, at the end of the day. What was much harder to predict (and is still hard to predict) were the specifics.

Before we get into the implications, let’s apply this same argument to the current global topic – the Iran war. 

The conflict has run along basically the same lines. The first rounds of escalation were huge and had similarly huge impacts around the world. But the same was true of the first round of de-escalation. Then, that same point was true for the next rounds of escalation and the next rounds of de-escalation. One strange outcome of this whole situation is that despite the July escalations, oil prices were actually lower on average compared to June.

What didn’t happen (at least this year) were the initial doom scenarios that extrapolated the initial spikes in oil prices all the way to $ 150, $ 200, $ 300, and even crazier numbers. On the same run, the recovery to $ 70, and then to $ 60 and even $ 50, didn’t happen either. 

In a moment of volatility, extrapolating a short-term trend can be very dangerous in both directions. Volatility continues even when trends do not.

Of course, extrapolating from inside a sequence like that is understandable. The costs that actually exist at any given moment do need to be dealt with. It might even make more sense to prepare for the worst and hope for the best. Even if things turn out to be worse or better, there might not have been any real alternative than to extrapolate. After all, it’s riskier to be wrong alone than wrong alongside others!

Over time, however, the world will need to engage with volatility and not just negativity. Trends are not what are taking place these days, but spikes and valleys. Instead of drawing straight lines across numbers, the lines have been curves, and many many curves laid on top of each other so it looks closer to a scribble instead. 

How should this be dealt with? One way is to expand the time horizon of what you are engaging with. Instead of looking at a daily change, look at a weekly change; instead of weekly, monthly; and instead of monthly, quarterly, and so on. What you can do with that might not be straightforward (or anything at all) but at least you have looked at a wider scope. And when things change across those new scales, you at least have a way to understand it.

In terms of action, though, I return to agility. Agility to allow you to move fast both in and out. Agility to change your view on a whim and then change it back. Agility to move across different timescales and different rhythms. Agility in all its forms. 

The problem is that this is hard. You need a lot of existing strength to do this. You need foundations, scaffoldings, and so many other difficult starting points in order to be agile. But if volatility is the way of the future, agility must be the answer that must be built. In time, perhaps this will be far easier to engage with as well.

(The writer is the Head of Macroeconomic Advisory at Frontier Research, a Colombo-based firm that engages in macroeconomic research and advisory for corporate and investment clients on Sri Lanka, South Asia, and Southeast Asia. He can be reached at chayu@frontiergroup.info)

(The views and opinions expressed in this article are those of the writer and do not necessarily reflect the official position of this publication)