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Davos 2023: WEF returns, with a recession hanging over the globe

Davos 2023: WEF returns, with a recession hanging over the globe

The crux of the outlook is that geopolitical tensions will continue to shape the global economy, and that further monetary tightening can be expected, including in the United States of America (USA) and Europe.

All of the chief economists surveyed expect weak or very weak growth in 2023 in Europe, while 91 per cent expect weak or very weak growth in the US. All of the chief economists surveyed expect weak or very weak growth in 2023 in Europe, while 91 per cent expect weak or very weak growth in the US.

A new year and another gathering of the global elite at the Swiss mountain resort of Davos – this one just nine months after the World Economic Forum (WEF) returned from the Covid-19 hiatus.

The May 2022 gathering was held with now snow or the freezing cold that makes Davos, and much of Switzerland, famous for its ski slopes. This time around the snow is visible and the temperature has dipped to as low as minus 10 degree Celsius in the night, although old timers say climate change has meant it is not as cold as it got in the past!   

Last year, the acrid fumes of the war in Ukraine had spread all over Europe, and the smell still hangs in the air. The aftermath of all the troubles that began with the Covid-19 pandemic, the supply chain disruptions and the upending of a three-decade old global trade order is now visible in the fear of a recession.

And those fears are underlined by a majority of the World Economic Forum’s community of chief economists, who are expecting a global recession in 2023.

In their latest outlook for the year released today, almost two-thirds of the chief economists believe a global recession is likely this year, with 18 per cent considering it extremely likely. This is more than twice as many as in the previous survey conducted in September 2022. Only, a third of respondents consider a global recession to be unlikely this year.

The crux of the outlook is that geopolitical tensions will continue to shape the global economy, and that further monetary tightening can be expected, including in the United States of America (USA) and Europe.

There is a strong consensus among the economists that the prospects for growth in 2023 are bleak. All of the chief economists surveyed expect weak or very weak growth in 2023 in Europe, while 91 per cent expect weak or very weak growth in the US. This marks a deterioration in recent months (at the time of the last survey, the corresponding figures were 86 per cent for Europe and 64 per cent for the US).

As far as China is concerned, the outlook states that expectations of growth are polarized, with respondents almost evenly split between those who expect weak or strong growth. However, the recent measures to roll back the highly restrictive zero-Covid policy by the Chinese leadership are expected to deliver a boost to growth.

One of the biggest aftermaths of the Covid-19 induced disruption of global supply chains and the Russian invasion of Ukraine is unprecedented inflation all over the world, including developing economies like India.

Expectedly, the WEF chief economists see significant variation across regions, with the proportion of those expecting high inflation in 2023, ranging from just five per cent for China to 57 per cent for Europe.

Following a year of sharp and coordinated central bank tightening, the chief economists say 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 (59 per cent and 55 per cent, respectively). They noted that 2023 is likely to involve a difficult balancing act for policy-makers between tightening too much or too little.

“With two-thirds of chief economists expecting a world-wide recession in 2023, the global economy is in a precarious position. 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,” said Saadia Zahidi, Managing Director, WEF.

There is a sliver of optimism that also comes through, with the outlook saying that one positive signal is that supply chain disruptions are not expected to cause a significant drag on business activity in 2023.

The chief economists see the crisis potentially nearing its peak, with a majority (68 per cent) expecting it to have become less severe by the end of 2023. A similar trend is evident in relation to the energy crisis, with 64 per cent expecting some improvement by year end. In addition, 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.
 

Also read: Davos 2023: World Economic Forum’s annual meet starts on Jan 16, will focus on cost-of-living crisis, green financing, others

Also read: Davos 2023: Why WEF is batting for investment in agri, education, green jobs

Published on: Jan 16, 2023, 3:47 PM IST
Posted by: Tarab Zaidi, Jan 16, 2023, 3:35 PM IST