Virendra Pandit
New Delhi: More than half of leading economists believe the global economy will weaken this year, according to a report from the World Economic Forum (WEF).
The global economic prospects will remain subdued and uncertain because of the challenges including tight financial conditions, geopolitical rifts, and the rapid development of Artificial Intelligence (AI).
At least 56 percent of chief economists expect the global economy to weaken in 2024, with most saying the pace of geo-economic fragmentation will accelerate, according to the WEF’s latest Chief Economists Outlook, released on Monday.
Around 43 percent of these experts predicted unchanged or improved conditions, while a significant majority expect labor markets (77 percent) and financial conditions (70 percent) to relax in 2024. Despite regional variations in growth forecasts, no region is expected to experience very strong growth this year, although there has been a reduction in high inflation expectations across all regions.
“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,” said Saadia Zahidi, Managing Director, WEF.
The economic outlook for South Asia, East Asia, and the Pacific remains positive and largely consistent with previous surveys, with the majority expecting at least moderate growth in 2024 (93 and 86 percent, respectively).
However, China’s outlook is more cautious, with 69 percent predicting moderate growth due to weak consumption, decreased industrial production, and concerns in the property market.
In Europe, the economic forecast has significantly deteriorated since September 2023, with 77 percent of respondents anticipating weak or very weak growth. The outlook in the United States, the Middle East, and North Africa has also dimmed, with nearly 60 percent predicting moderate or stronger growth this year, a decrease from 78 and 79 percent, respectively.
However, growth expectations in Latin America and the Caribbean, sub-Saharan Africa, and Central Asia have improved, with predictions pointing towards moderate growth.
Around 70 percent of chief economists believe that geo-economic fragmentation will intensify this year. Many suggest that geopolitical factors will contribute to volatility in the global economy and stock markets, promote localization, strengthen geo-economic blocs, and expand the North-South divide over the coming three years.
With governments increasingly utilizing industrial policy tools, there is a near-unanimous expectation of a continued lack of coordination between countries. While two-thirds of chief economists foresee these policies fostering new economic growth areas and vital industries, concerns remain about rising fiscal pressures and disparities between higher- and lower-income economies.
Generative AI is expected to have varied impacts across income groups. Most chief economists are optimistic about its efficiency and innovation benefits in high-income economies this year. In the next five years, 94 percent anticipate these productivity advantages to become economically significant in high-income economies, in contrast to just 53 percent in low-income economies.
Around three-quarters of these economists do not expect a net positive impact on employment in low-income economies, and similar views are held for high-income economies. Opinions are more divided regarding generative AI’s potential to elevate living standards and its impact on trust, with both outcomes being slightly more probable in high-income markets.