Chief Economists Expect Global Economy to Weaken This Year: WEF Survey

As the top leaders from across the world gather here for their annual congregation, a survey of chief economists on Monday forecast a weakening of the global economy in 2024 and accelerated geo-economic fragmentation. Warning of more economic uncertainty on the horizon, the Chief Economists Outlook report of the World Economic Forum (WEF) said the global economic prospects remain subdued.

It said that the global economy continues to grapple with headwinds from tight financial conditions, geopolitical rifts and rapid advances in generative artificial intelligence (AI). More than half of chief economists (56 per cent) expected the global economy to weaken this year, while 43 per cent foresee unchanged or stronger conditions. The outlook for South Asia and East Asia and Pacific, however, remained positive with a strong majority expecting at least moderate growth in 2024.

China emerged as an exception, with a smaller majority (69 per cent) expecting moderate growth as weak consumption, lower industrial production and property market concerns weigh on the prospects of a stronger rebound. Globally, a strong majority also said labour markets (77 per cent) and financial conditions (70 per cent) will loosen over the coming year.

Although expectations for high inflation have been pared back in all regions, regional growth outlooks vary widely and no region is slated for very strong growth in 2024. "The latest Chief Economists Outlook highlights the precarious nature of the current economic environment," WEF Managing Director Saadia Zahidi said. "Amid accelerating divergence, the resilience of the global economy will continue to be tested in the year ahead. Though global inflation is easing, growth is stalling, financial conditions remain tight, global tensions are deepening and inequalities are rising, highlighting the urgent need for global cooperation to build momentum for sustainable, inclusive economic growth," she added.

In Europe, the outlook has weakened significantly since the September 2023 survey, with the share of respondents expecting weak or very weak growth almost doubling to 77 per cent. In the US and the Middle East and North Africa (MENA), the outlook is weaker too, with about six in 10 respondents foreseeing moderate or stronger growth this year (down from 78 per cent and 79 per cent, respectively).

There was a notable uptick in growth expectations for Latin America and the Caribbean, sub-Saharan Africa and Central Asia, although the views remain for broadly moderate growth. About seven in 10 chief economists expect the pace of geo-economic fragmentation to accelerate this year, with a majority saying geopolitics will stoke volatility in the global economy (87 per cent) and stock markets (80 per cent), increase localization (86 per cent), strengthen geo-economic blocs (80 per cent) and widen the North-South divide (57 per cent) in the next three years. As governments increasingly experiment with industrial policy tools, experts are nearly unanimous in expecting these policies to remain largely uncoordinated between countries.

While two-thirds of chief economists expect industrial policies to enable the emergence of new economic growth hotspots and vital new industries, a majority also warn of rising fiscal strains and divergence between higher- and lower-income economies. Chief economists expect AI-enabled benefits to vary widely across income groups, with notably more optimistic views about the effects in high-income economies. A strong majority said generative AI will increase efficiency of output production (79 per cent) and innovation (74 per cent) in high-income economies this year.

Looking at the next five years, 94 per cent expect these productivity benefits to become economically significant in high-income economies, compared to only 53 per cent for low-income economies. Almost three-quarters (73 per cent) do not foresee net-positive impact on employment in low-income economies and 47 per cent said the same for high-income economies. The views are somewhat more divided on the likelihood of generative AI to increase standards of living and to lead to a decline in trust, with both being slightly more likely in high-income markets.

The Chief Economists Outlook builds on the latest policy development research as well as consultations and surveys with leading chief economists from both the public and private sectors, organized by the WEF's Centre for the New Economy and Society. The latest survey was conducted in November-December 2023.