The continuing uncertainty of the global economic outlook is reflected in the striking spread of responses to international organisation the World Economic Forum (WEF) 'Chief Economists Outlook' survey, in which experts are evenly divided on the prospects for the global economy, with equal shares of 45% saying that a global recession this year is likely or unlikely.
Chief economists from the public and private sectors expect growth and inflation dynamics to vary widely across regions.
Further, on the economic policy front, 72% predict proactive industrial policy to become an increasingly widespread phenomenon over the next three years, the WEF notes.
Additionally, 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, the organisation highlights.
“There has been a notable strengthening in growth expectations since the January 2023 Chief Economists Outlook, but the outlook differs sharply across regions. The most buoyant activity is expected in Asia, with China’s reopening expected to drive a significant rebound for the country and to bolster activity across the continent.
"More than 90% of the chief economists expect at least moderate growth in both East Asia and Pacific and South Asia,” it says.
Meanwhile, three-quarters of chief economists still expect weak or very weak growth in Europe.
In the US, respondents were more optimistic in March to April than in January, but are still divided on the outlook, with US growth prospects clouded by heightened uncertainty on financial stability and the likely pace and extent of monetary tightening.
Further, there was a marked uptick in all regions in the proportion of respondents expecting high inflation in 2023, and 76% of chief economists said they expect the cost of living to remain acute in many countries.
Headline rates have begun to ease, but core inflation has been stickier than many expected. The dynamics are particularly stark in Europe where 90% of chief economists expect high or very high inflation this year, while 68% of chief economists in the US expect the same.
China remains an outlier on inflation, with only 14% expecting high inflation this year, the WEF says.
“In the wake of recent bank collapses and financial market turbulence, chief economists expressed confidence in the systemic integrity of global markets. However, two-thirds highlighted the likelihood of further bank failures and disruption, while more than 80% said they expect businesses to find bank loans more difficult to secure as a result of tightening lending criteria,” it highlights.
The chief economists also pointed to the knock-on effects of high interest rates, notably in the property sector, where two-thirds expect high rates to cause significant disruption in 2023 to 2024.
Meanwhile, the chief economists were unanimous in anticipating further changes in the structure of global supply chains, the WEF points out.
When asked which business strategies they expect to contribute to this reconfiguration, 94% highlighted adaption to geopolitical fault lines, 91% highlighted the prioritisation of resilience over efficiency, 84% highlighted the diversification of suppliers and 77% highlighted an increased focus on environmental sustainability.
Further, they also pointed to the increasing significance of proactive industrial policy, with almost three-quarters expecting it to become a widespread approach to economic policy around the world.
Respondents were, however, divided on whether industrial policy will act as an engine of innovation, but they highlighted several potential concerns, including 91% noting a deepening of geo-economic tensions, 70% pointing to the stifling of competition and 68% highlighting a problematic increase in sovereign debt levels.
“The latest edition of the Outlook highlights the uncertainty of current economic developments,” says WEF MD Saadia Zahidi.
“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 emphasises.