A majority of the World Economic Forum’s community of chief economists expect a global recession in 2023, see geopolitical tensions continuing to shape the global economy, and anticipate further monetary tightening in the US and Europe.
These are the key findings of the Chief Economists Outlook, launched on January 17 at the World Economic Forum’s annual meeting in Davos, Switzerland.
Close to two-thirds of chief economists surveyed believe a global recession is likely this year, with 18% considering it extremely likely. That’s more than twice as many as in a previous survey conducted in September 2022.
“With two-thirds of chief economists expecting a world-wide recession in 2023, the global economy is in a precarious position,” WEF managing director Saadia Zahidi said in a news release on the organization’s website. “The current high inflation, low growth, high debt and high fragmentation environment reduces incentives for the investments needed to get back to growth and raise living standards for the world’s most vulnerable.”
All of the chief economists surveyed expect weak or very weak growth in 2023 in Europe, while 91% expect weak or very weak growth in the US, marking a deterioration in recent months. In China, expectations of growth are polarized, with respondents almost evenly split between those who expect weak or strong growth.
Monetary policy stance to remain constant
On inflation, the chief economists see significant variation across regions, with the proportion expecting high inflation in 2023, ranging from just 5% for China to 57% for Europe.
Following a year of sharp and coordinated central bank tightening, the chief economists said they expect the monetary policy stance to remain constant in most of the world this year. However, a majority expect further tightening in Europe and the US, noting that 2023 is likely to involve a difficult balancing act for policy-makers between tightening too much or too little.
Multiple headwinds are also expected to exert a drag on business activity in 2023, with nine out of 10 respondents expecting both weak demand and high borrowing costs to weigh on firms, and more than 60% also pointing to higher input costs.
These challenges are expected to lead multinational businesses to cut costs, with many chief economists expecting firms to reduce operational expenses, lay off workers and optimize supply chains.
Challenging landscape for business
The chief economists expect the global landscape to remain challenging for businesses. All respondents expect global geopolitical trends to continue redrawing the map of global economic activity along new geopolitical fissures and fault lines.
This wider economic shift will likely reverberate through trade, investment, labour and technology flows, creating myriad challenges and opportunities for business.
One positive signal is that supply chain disruptions are not expected to cause a significant drag on business activity in 2023, the report said.
While the WEF’s Global Risks Report 2023 recently found the cost-of-living crisis to be among the world’s most urgent risks, the chief economists see the crisis potentially nearing its peak, with most expecting it to have become less severe by the end of 2023. A similar trend is evident in relation to the energy crisis, with almost two-thirds expecting some improvement by year end.
Also, survey respondents highlighted a number of potential sources of optimism at the start of 2023, including the strength of household finances, growing signs of easing inflationary pressures and continued labour-market resilience.
Contact the author at stephen.gunnion@proactiveinvestors.com