Continued uncertainty about the global economic recovery outlook is reflected in the staggering proliferation of responses to the latest report of the world’s leading economists published by the World Economic Forum.
This report was released in parallel with the World Economic Forum’s Growth Summit in Geneva on May 2 and 3, which examines global growth prospects, global economic hotspots, competition and interdependence issues, as well as employment, skills, and equity.
In a survey cited in the report, experts were evenly divided on the outlook for the global economy, with 45 percent saying a global recession this year was likely or unlikely.
Leading economists expect growth and inflation dynamics to vary widely across regions. On the economic policy front, 72 percent expect the proactive industrial policy to become an increasingly widespread phenomenon over the next three years.
Although the majority do not see the recent disruption in the financial sector as a sign of a weak system, more bank failures and disruptions are likely this year.
According to the report, the most prosperous activity is expected to be in Asia, where the reopening of China is expected to lead to a significant recovery of the country and boost activity across the continent. More than 90 percent of top economists expect at least moderate growth in both East Asia and the Pacific, and South Asia.
Three-quarters of leading economists still expect weak or very weak growth in Europe.
Read: China’s economy growing faster than expected
In the United States, respondents were more optimistic in March and April than in January, but remain divided on the outlook, with growth prospects in the United States absent due to increasing uncertainty about financial stability, the likely pace, and the extent of monetary tightening.
In terms of inflation, there was a marked rise in all regions in the proportion of respondents who expected inflation to rise in 2023. Seventy-six percent of top economists said they expect the cost of living to remain high in many countries. Headline rates began to decline, but core inflation was more stable than many expected. A large majority of top economists expect high or ultra-high inflation this year, while China remains far apart on inflation, with only 14 percent expecting inflation to rise this year.
Financial Sector Tremors
In the wake of recent banking crashes and turmoil in financial markets, leading economists have expressed confidence in the systemic integrity of global markets.
However, two-thirds highlighted the potential for more bank failures and disruptions, while more than 80 percent said they expect companies to find it difficult to obtain bank loans as a result of tightening lending standards. They also pointed to the spillover effects of higher interest rates, particularly in the real estate sector, where two-thirds expect higher rates to lead to significant disruption in 2023-2024.
The changing face of globalization
Leading economists were unanimous in expecting further changes in the structure of global supply chains. When asked about the business strategies they expect to contribute to this reconfiguration, they highlighted adapting to geopolitical fault lines (94 percent), prioritizing flexibility over efficiency (91 percent), diversifying suppliers (84 percent), and increasing the focus on environmental sustainability (77 percent).
They also noted the growing importance of proactive industrial policy, with almost three-quarters expecting it to become a broad-based approach to economic policy worldwide.
Respondents were divided on whether industrial policy will act as an engine of innovation, but highlighted several potential concerns, including deepening geoeconomic tensions (91 percent), stifling competition (70 percent), and a problematic increase in sovereign debt. (68 percent).
World Economic Forum Director-General Saadia Zahidi said the latest release of the forecast highlights uncertainty over current economic developments.
“Labour markets have proven resilient for now, but growth remains slow, global tensions are deepening, and the cost of living remains acute in many countries.” These findings underscore the urgent need for short-term global policy coordination as well as long-term cooperation on a new growth framework that would ensure inclusion, sustainability, and flexibility in economic policy.
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