In this article we analyse the relationship between uncertainty and economic activity. For this purpose, we use a firm-level panel data set from Turkey to form proxies for uncertainty by using expectation errors of firms about their production volumes. The identifying assumption is that the probability of making an expectation error
increases when the uncertainty faced increases. An analysis of the downturn in 2008�2009 shows that 44% of the decline in industrial production can be attributed\ to increased uncertainty. Moreover, we show that if a firm faces higher uncertainty it is more likely that it defers its investment plans.