If you’re looking for a one-word summary of what lies ahead for the world economy in the coming year, it could well be “volatility”.
One of the biggest sources of this volatility will be geopolitics, according to the chief economists surveyed for the World Economic Forum’s latest Chief Economists Outlook.
But the situation is also nuanced, the report suggests. More positive shifts appear likely, including drops in inflation and a slowdown in interest rate rises.
Here are the key findings from the September 2023 edition of the Chief Economists Outlook.
Weak global economy in 2024?
The global economy will weaken in the coming year, according to 61% of the chief economists surveyed for the report.
Uncertainty is a key factor – as it was when the May edition of the Chief Economists Outlook was published. Fears of a global recession are falling, but concerns are rising about China’s economy, which recently dipped into deflation.
Geopolitical and domestic political issues are other unsettling factors. Nine out of ten economists surveyed for the report believe geopolitics will create economic volatility in the year ahead.
Domestic politics could also stoke economic volatility according to 79% of respondents, with the impending US electoral cycle likely a driver of this sentiment.
Regional economic outlooks
There is a “a growing divergence in growth prospects around the world,” the Chief Economists Outlook says.
Asia is seen as having the strongest growth prospects – particularly South Asia, where 92% expect moderate or strong growth this year. Over half expect strong growth, up from 36% in the May edition of the report.
However, expectations around China have slumped. Only 54% expect moderate or strong growth there in the rest of 2023, down from 97% in the May edition. And there’s little anticipation of that changing in 2024.
“Besides the slower-than-expected rebound of domestic consumption earlier this year, China’s economic prospects have been clouded by deflationary pressures and signs of fragility in the crucial real estate market,” the report says. “Trade volumes have also slumped, with imports down by 12.4% and exports by 14.5% in the year to July 2023.”
The outlook for the US economy has improved markedly since May, with around 80% of those surveyed expecting strong or moderate growth this year and next, up from about 50% in May.
Europe is facing weak or very weak growth this year, according to 77% of those surveyed. But the picture could change notably in 2024, with just 41% expecting weak growth then.
For the Middle East and North Africa, 79% expect moderate or strong growth in 2023 and 2024, up by 15 percentage points from May.
Inflation and interest rate pressures easing
Optimism emerges when it comes to the outlook for inflation, with 86% of chief economists believing the worst of the global inflationary surge will have subsided in a year’s time.
Expectations around monetary policy fall into line with this, with 93% of respondents expecting the pace of interest rate rises to slow in inflation-prone economies. There is also likely to be less synchronization of monetary policy across central banks, four-fifths of chief economists say.
“However … the mood remains very cautious,” the report adds. “Monetary policy is therefore likely to be carefully calibrated in the months ahead, as central banks navigate delicate domestic and global economic conditions,” including climate change, shifting demographics and deepening geopolitical and economic fractures.
Expectations on US inflation have improved, with 54% of chief economists surveyed now expecting moderate or lower inflation there, up from 32% in May. But Europe is still seen as heading for high or very high inflation this year, according to 70% of respondents.
China faces a different problem, with signs of deflationary pressures being reflected in the results: 81% of chief economists anticipate low or very low inflation this year, up from 48% in May.
Economic blows impact global development
Hopes of achieving the UN’s Sustainable Development Goals (SDGs) by their 2030 deadline are put in doubt by the headwinds the global economy is facing.
Nearly three-quarters of respondents think geopolitical tensions will hinder progress towards global development targets in the next three years, while 59% expect tighter financial conditions to have the same effect.
The UN’s Sustainable Development Report presents a similar picture, finding that there has been a ”worsening trend” on many SDGs since 2020, including eradicating extreme poverty and reducing food insecurity.
Annual investment is $4 trillion below where it needs to be to meet the SDGs, compared with a $2.5 trillion shortfall when the SDGs were adopted in 2015, the UN Conference on Trade and Development says.
Finding ways to mobilize finance could help turn this around. Private capital could make the biggest impact in developing countries’ digital transformation, energy, food and climate efforts, according to the chief economists, with knock-on benefits across development areas.