Experts are evenly divided on their economic predictions for the near future, in particular the prospects of a global recession this year: 45 percent of those surveyed said it is likely and the same proportion said it is unlikely, according to the latest Chief Economists Outlook report by the World Economic Forum.
“The latest edition of the Outlook highlights the uncertainty of current economic developments,” said Saadia Zahidi, the forum’s managing director.
The May 2023 edition of the quarterly report contained some signs of emerging optimism but the disruption in the banking industry this year has adversely affected global prospects. Almost 80 percent of chief economists believe central banks face a trade-off between managing inflation and maintaining the stability of the financial sector, and a similar percentage expect central banks to struggle to reach their inflation targets.
Although a majority (69 percent) view the recent disruption of the financial sector as an isolated episode rather than a systemic issue, they nevertheless anticipate further bank failures this year.
Since the release of the previous Outlook report in January, growth expectations have firmed up but vary widely across regions. Asia is anticipated to experience the strongest rebound, with China playing a significant role in its recovery.
In fact, the vast majority of chief economists expect a significant rebound this year in China. And more than 90 percent expect at least moderate growth in both East Asia and Pacific, and South Asia.
The outlook for other parts of the world is less optimistic, with 75 percent of chief economists expecting weak or very weak growth in Europe, and more than half expecting weak growth in Latin America, the Caribbean, and sub-Saharan Africa.
The predictions for the Middle East and North Africa region are mixed, with 36 percent of respondents expecting weak growth, 32 percent hopeful of strong growth, and 32 percent predicting moderate growth.
The regional prospects have been affected by the OPEC+ decision to cut oil production, according to the report. This is due, in part, to the resulting revision of the International Monetary Fund’s forecasts for gross domestic product in Saudi Arabia, which predict a steep decline from 8.7 percent growth in 2022 to 3.1 percent in 2023.
Although views on growth in the US have become more optimistic since January, the chief economists remain evenly split on the degree, with half expecting moderate or strong growth and half expecting weak or very weak growth.
The rising cost of living and inflation rates around the world have caused concern among economists for some time now, and the report confirms that this remains the case, with 76 percent saying they expect the cost of living to remain high in many countries.
The cost-of-living crisis is particularly acute in some developing economies, especially those in which domestic price dynamics are exacerbated by currency depreciation. In the Middle East and Central Asia, for example, food prices shot up by 46 percent between January 2020 and January 2023.
Meanwhile, 52 percent of economists expect inflation to run high in the MENA region this year, while 39 percent predict moderate rates.
The economists also expect inflation to be an issue in most of the developed world, with 90 percent expecting rates to be high or very high this year in Europe, and 68 percent in the US. China is the only exception, with only 14 percent of economist predicting high inflation in the country.
-19 pandemic disrupted supply chains around the world, forcing businesses and governments to rethink strategies and business models, and the chief economists overwhelmingly believe global supply chains will continue to evolve.
The changes they think are most likely as part of this reconfiguration include: adaption to geopolitical fault lines (94 percent); the prioritization of resilience over efficiency (91 percent); diversification of suppliers (84 percent); and an increased focus on environmental sustainability (77 percent).
China in particular is expected to be affected by this reshaping of supply chains, with 69 percent of chief economists expecting a somewhat negative effect on the nation’s economic prospects.
The changes are also expected to have some effects on other regions, although not as significant as the impact on China and mostly positive. The MENA region, for example, can expect somewhat positive effects, according to 31 percent of economists.
“Labor markets are proving resilient for now but growth remains sluggish, global tensions are deepening, and the cost of living remains acute in many countries,” Zahidi concluded.
“These results confirm the urgent need for both short-term global policy coordination as well as longer-term cooperation around a new framework for growth that will hardwire inclusion, sustainability and resilience into economic policy.”