Chief economists are evenly divided over the likelihood of a global recession as growth and inflation dynamics vary across regions, but most of them expect the cost of living to remain acute in many countries, according to a survey released Tuesday by the World Economic Forum (WEF).
The WEF's "Chief Economists Outlook: May 2023" report, which includes responses from leading chief economists from both the public and private sectors, revealed that equal shares of 45% of economists see a global recession this year as likely or unlikely.
However, their responses vary depending on the region. With China's reopening, Asia is expected to have the most buoyant economic activity. Half of the economists forecast moderate, 43% strong economic growth this year in the country.
Accordingly, 93% of chief economists expect moderate growth in East Asia and the Pacific. In comparison, 50% and 75% of top economists expect weak growth in the U.S. and Europe this year.
Latin America, the Caribbean and sub-Saharan Africa remain at the weaker end of the outlook, as over half of the respondents predict weak growth.
Economists marked an uptick in inflation in all regions compared to their previous expectations in January 2023.
High inflation is set to continue this year, with 90% and 68% of economists expecting high or very high inflation in Europe and the U.S., respectively, with 74% and 73% of them seeing high or very high inflation both in sub-Saharan Africa and Latin America and the Caribbean, respectively.
A slight majority also expects the Middle East and North Africa (MENA) region to record high inflation this year, while China remains an outlier, with only 14% expecting high inflation this year.
According to 79% of the chief economists, central banks will face a trade-off between managing inflation and maintaining banking sector stability. In comparison, 82% expect interest rate rises to slow in the face of financial stability concerns.
Meanwhile, 76% of economists think central banks will struggle to bring inflation to their target rates.
Bank failures
According to 76% of the chief economists, the cost of living will continue to be at crisis levels in many countries.
Cost of living pressures are particularly acute in some developing economies, where domestic price dynamics are exacerbated by currency depreciation, the WEF said in the report.
"With global wage growth struggling to keep up with prices, the risk is that vulnerable communities will be pushed further into poverty, especially under tighter financial conditions," the report cautioned.
However, despite the recent bank collapses and financial market turbulence, the chief economists express confidence in the systemic integrity of global markets.
Some 69% of the respondents characterized the recent bank sector distress as "isolated episodes with limited additional impact." In comparison, 67% say further bank failures or severe financial disruptions are somewhat or highly likely in 2023.
More than 80% expect businesses will find bank lending more challenging to secure, leading to a slowdown in investment and activity in the technology sector due to recent financial disruption.
"They 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 2023-2024," the WEF said.
"The latest edition of the outlook highlights the uncertainty of current economic developments. 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," said Saadia Zahidi, managing director at the WEF, on the findings of the report.
"These results confirm the urgent need for short-term global policy coordination and longer-term cooperation around a new framework for growth that will hardwire inclusion, sustainability and resilience into economic policy."