Global economic outlook darkens: WEF report

Growth in Europe is expected to be weak in 2023. PHOTO: AFP

SINGAPORE - A global recession is increasingly likely as the cost of living soars and expectations for growth are pared back across all regions, according to the latest quarterly report of the Community of Chief Economists at the World Economic Forum (WEF).

Almost three-quarters of the 50 economists in the community believe a global recession is at least somewhat likely, reiterating sentiments expressed by the World Bank last week.

Growth in Europe is expected to be weak in 2023, and moderate growth is expected in the United States, the Middle East and North Africa (Mena) region, South Asia and Latin America.

While there are expectations of improvement in the Chinese economy in 2023, this contrasts with that for the US. More than 60 per cent of those polled expect moderate growth or better in the US in 2022, but less than half are as optimistic for 2023.

Rising inflation is cutting into hopes for growth.

Except for China and the Mena region, inflation is likely to persist for the remainder of 2022, although it might moderate in 2023, says the report released late on Wednesday in Geneva.

Given the high cost of living, nine in 10 respondents expect real wages to decline in low-income economies and poverty levels to increase.

The picture is not very different for high-income economies - 80 per cent expect a further fall in real wages.

"Growing inequality between and within countries is the ongoing legacy of Covid-19, war and uncoordinated policy action," said WEF managing director Saadia Zahidi.

"With inflation soaring and real wages falling, the global cost of living crisis is hitting the most vulnerable hardest," she added.

World Bank economists said last week that many countries will not be able to avoid a recession.

The worldwide slowdown and tightening monetary policy "could give rise to significant financial stress and trigger a global recession in 2023", the World Bank said.

In its estimate, global gross domestic product growth would slow to 0.5 per cent in 2023 - a 0.4 per cent contraction in per capita growth, meeting the technical definition of a global recession.

In July, the International Monetary Fund trimmed the global growth forecasts for 2022 to 3.2 per cent and for 2023, 2.9 per cent.

Besides increasing poverty, food insecurity and energy price hikes, social unrest could be another consequence - particularly in low-income countries, said the WEF report.

The forum's chief economists are almost unanimous in their views on the growing risks of default in low-income countries, similar to the case of Sri Lanka.

While geopolitical turbulence has clearly had a role to play, the situation has been exacerbated by the war in Ukraine, which has impacted food and energy supplies and led to a sharp slowdown in Europe.

Many are expecting geopolitics to dominate macroeconomic and financial developments in the years ahead.

In the survey, almost nine out of 10 economists expect heightened geopolitical risk to have a significant impact on global economic activity over the next three years. And nearly seven in 10 expect to see geopolitical tensions affect global financial markets in the same period.

Global fragmentation will increase, noted the economists. This would reflect in technology (80 per cent of respondents) and goods (70 per cent) more than in other areas.

"Against this daunting backdrop, leaders face a catalogue of challenging decisions and trade-offs," said the report.

"The longer-term risk is that deepening geopolitical fissures continue to undermine policy coordination, weaken the global interconnectedness built over numerous decades and reduce opportunity, investment and growth potential for all," it stated.

"Domestically and globally, we are in uncharted waters in the months ahead, and the repercussions of decisions by policymakers and business leaders will be with us for years to come."

The WEF's community of economists brings together people from finance, insurance, professional services and technology industries, as well as international organisations and regional development banks.

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