The World Economic Forum’s (WEF) Chief Economists Outlook survey stresses that the global economic outlook has darkened and the world is at the point of “significant economic danger”. The report references a World Bank prediction that 2022 will be one of the worst years in terms of global poverty in the 21st century, only after 2020 when the world was gripped by the Covid pandemic. COVID-19 continues to impact economic growth and the war in Ukraine is causing significant global economic disruption, exacerbating high inflation.

Global recession fears

As 64% of the survey’s respondents consider global recession to be at least “somewhat likely”, expectations for economic growth has been scaled down. Around 90% of the respondents say growth in Europe will be either weak or very weak because of Russia’s invasion of Ukraine, high inflation and energy supply problems. The growth expectations across the continent are even worse for 2023.

Two thirds of those surveyed think growth in China will be weak or very weak in 2022, citing COVID-19 restrictions and concerns about its real-estate sector weighing the growth prospects down. However, 66% of respondents expect Chinese economy to pick up in 2023.

For the United States, 65% expect moderate growth or better in 2022, but optimism falls to 37 % for 2023. The likelihood of ongoing monetary tightening is considered to be a key factor in this.

Four in 10 economists expect growth to be weak in Central Asia in 2023, twice as many as in 2022. While in sub-Saharan Africa, 43% are predicting weak growth in 2022, with a much higher 60% of respondents predicting the same for 2023.

The projections are less grim for other parts of the world. 71% expect growth in the Middle East and North Africa (MENA) region to be moderate or better. This is reflected in a strong year enjoyed by the region’s energy exporters.

In South Asia, the vast majority of economists expect moderate growth in both 2022 and 2023. 56% expect moderate growth in Latin America in 2023, rising from 50% for the rest of 2022.

Inflationary pressure

High inflation rates were cited by the respondents as a key contributor to the weak economic outlook. 93% say they expect inflation to remain high both in the U.S. and in Europe. The respondents project elevated rates of inflation in most areas of the world for the rest of the year, except for China and the MENA region.

Monetary tightening by the U.S. Federal Reserve (FED) and the European Central Bank (ECB) have influenced chief economists’ predictions for next year. Of those surveyed, 57% expect inflation to be either moderate or low next year in the U.S., while 52% think the same for Europe. Nearly 80% of respondents said they believed higher interest rates would be “effective” or “highly effective”.

Elsewhere in the world, optimism drops. “In most of the rest of the world, only a very small proportion of our respondents expect low inflation next year, but there is a clear shift from ‘high’ to ‘moderate’ expectations between 2022 and 2023,” the report says.

There is however a drawback of the current tightening of monetary policy highlighted in the report. The report notes that this could increase public debt burdens, which have risen significantly over the past decade. The survey is almost unanimous (95%) about the risks of defaults in low-income countries.

Growing risks of food and energy security

In July 2022, more than 125 countries experienced food price inflation of at least 5% according to the World Bank. This occurred in 90% of low and middle-income countries and in more than 80% of high-income countries.

Global food security is something the respondents are not optimistic about. They believe large areas of the world could be at risk in the next three years. Sub-Saharan Africa and the MENA region are considered to be particularly vulnerable.

The World Food Programme reported acute food insecurity in 53 countries in 2021, accounting for around 193 million people. This is expected to rise to over 205 million people by the end of 2022.

Regarding energy security; “Natural gas prices hit record highs for the fourth consecutive month in August 2022, up 130% from the start of the year and by almost 250% year on year.” the report says.

Governments, especially in Europe, have been spending billions on support measures for households and businesses. However, this risks adding to levels of public borrowing that are already high after significant levels of state spending on previous crises.

Cost of living crisis

The surveyed economists are almost unanimous that wages won’t be able to keep up with rising prices in 2022 and 2023. Real wages are expected to decline in both low and high-income economies during that period.

Real wages fell across the Eurozone by 1.7% year-on-year in the first quarter of 2022. Beyond “the economic shock from the outbreak of COVID-19 in 2020, this represents the worst hit to inflation-adjusted wages since before the global financial crisis,” the report underlines.

The survey also points out to the risk of social disruption caused by the threat to basic living standards. Almost 80% of respondents say they expect social unrest to be triggered in low-income countries by rising costs. The report points out that global political instability is now at its highest since the financial crisis in 2008.

OECD’s latest economic outlook also paints a dark picture. It predicts economic growth will remain subdued in the back half of 2022, and will slow further in 2023. It also expects inflation in the major economies to begin to decline, but remain well above central bank targets almost everywhere. Supply diversification and demand reduction are needed to avoid energy shortages, it says.