Danial Norjidi
The recently released World Economic Forum’s (WEF) latest quarterly Chief Economists Outlook explores key trends in the economic environment.
As a press statement from the WEF highlights, the continuing uncertainty of the global economic outlook is reflected in the striking spread of responses to the May 2023 Chief Economists Outlook.
“In a survey featured in the report, experts are evenly divided on the prospects for the global economy, with equal shares of 45 per cent saying that a global recession this year is likely or unlikely,” said the statement.
“Chief economists expect both growth and inflation dynamics to vary widely across regions, while on the economic policy front, 72 per cent predict proactive industrial policy to become an increasingly widespread phenomenon over the next three years. Although a majority do not see recent financial-sector disruption as a sign of systemic vulnerability, further bank failures and turbulence are considered likely this year.”
This latest edition of the report is described by the WEF as building on the latest policy development research as well as consultations and surveys with leading chief economists from both the public and private sectors, organised by the WEF Centre for the New Economy and Society.
“It aims to summarise the emerging contours of the current economic environment and identify priorities for further action by policy-makers and business leaders in response to the compounding shocks to the global economy.”
According to the report, regionally there has been a notable strengthening of expectations for most economies since the January 2023 edition of Outlook.
“Perhaps unsurprisingly, the most buoyant economic activity is expected in Asia, with China’s re-opening projected to bolster activity across the continent. For China itself, chief economists are near unanimous in expecting a significant rebound this year. At the other end of the spectrum, 75 per cent of chief economists still expect weak or very weak growth this year in Europe, while for the United States, views are divergent as the country’s growth prospects are clouded by heightened uncertainty around financial stability and the pace and extent of monetary tightening.”
The study proceed to note that chief economists expect equally divergent regional inflation outlooks for 2023.
“Headline rates have begun to ease, but core inflation is stickier than anticipated and shows signs of picking up. The pressure on many households remains acute, and more than three-quarters of respondents expect the cost of living to stay at crisis levels in numerous countries throughout 2023.”
The report added that the recent banking instability has complicated efforts to deal with runaway prices. “Almost 80 per cent of chief economists think central banks now face a trade-off between managing inflation and maintaining financial sector stability. A similar proportion expect central banks to struggle to reach their inflation target.”
Meanwhile, with regards to the systemic implications of the recent financial disruption, the briefing notes that although 69 per cent of the chief economists characterise it as isolated episodes rather than signs of systemic vulnerability, they point to potentially damaging knock-on effects.
It was shared that these include a squeeze on the flow of credit to businesses and the prospect of significant disruption in property markets in particular.
“Turning to broader structural shifts in the global economy, almost three-quarters of the chief economists surveyed expect assertive industrial policy to become increasingly widespread over the next three years,” continued the report.
The study further noted that respondents highlighted a number of concerns with this development, with significant proportions cautioning that it will deepen geoeconomic tensions (91 per cent), stifle competition (70 per cent) and lead to a problematic increase in sovereign debt levels (68 per cent). Industrial policy is also expected to contribute to ongoing changes in the geography and composition of the global economy.
In addition, the report said that when asked about the business strategies that are likely to determine the shape of global supply chains over the next three years, the chief economists highlighted adaptation to geopolitical faultlines (94 per cent), prioritisation of resilience over efficiency (91 per cent), diversification of suppliers (84 per cent) and an increasing focus on environmental sustainability (77 per cent).
Speaking on the study, Managing Director of the WEF Saadia Zahidi said, “The latest edition of the Outlook highlights the uncertainty of current economic developments.”
“Labour markets are proving resilient for now, but growth remains sluggish, global tensions are deepening, and the cost of living remains acute in many countries. 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,” she added.
