Global economy shifts gears

Upbeat outlook meets political headwinds

By Carly Fields

The World Economic Forum's latest Chief Economists Outlook offers a cautiously optimistic perspective on the global economic landscape in 2024.

A dramatic shift in sentiment has emerged since the start of the year. In January, only half of chief economists predicted stability or improvement for the global economy. Now, 82% hold this view, buoyed by expectations of a growth rebound driven by technological advancements, artificial intelligence, and the green energy transition.

“The developing economic mood is one of cautious optimism,” said the report. “Signs of recovery in the manufacturing sector, coupled with improvements in business and household confidence, have bolstered the view that the sharpest risks to the near-term outlook have begun to stabilise.”

However, this optimism is tempered by the spectre of looming political risks. A total of 97% of respondents anticipate geopolitical tensions to disrupt economic stability, with domestic politics posing a similar threat (83%) due to a year packed with elections around the world. This creates a precarious situation where political winds could easily knock the nascent economic recovery.

But despite the prevalence of risks, chief economists remain “relatively sanguine” on the condition of global supply chains, which have been a key source of upward price pressures in recent years, notes the report. “Only a quarter of respondents expect major disruption in 2024, compared to 48% who disagree.”

Geographical divergences

Economic growth expectations are unevenly distributed across regions. The US has seen a significant improvement in its outlook, with nearly all economists surveyed (97%) now expecting moderate to strong growth, a stark contrast to the 59% who held that view in January. Asian economies also appear robust, with all respondents predicting at least moderate growth in South Asia and East Asia. China's outlook is more subdued, with three-quarters expecting moderate growth but limited strong growth projections. Europe, on the other hand, remains a concern. Nearly 70% of economists predict weak growth for the rest of 2024, highlighting the need for targeted stimulus measures or reforms to jumpstart its economy.

“This echoes the latest International Monetary Fund (IMF) analysis, which upgrades the 2024 global growth forecast by 0.1 percentage point to 3.2% but also points to widening regional divergences,” said the WEF.

Renewed inflation is also a concern and may weigh on the outlook in the remainder of 2024. “The trajectory of global inflation has been broadly benign in the first half of 2024. Global headline inflation is now projected to settle at 5.9% in 2024 and 4.5% next year, down from 6.8% in 2023. However, it is worth noting that despite these disinflationary developments, elevated price levels continue to weigh on households, particularly in the US, where consumer sentiment dropped by 10 points to 67.4 between April and May 2024.”

Added to which the global inflation figures “mask varying regional patterns and prospects”. Broadly speaking, the WEF sees advanced economies in a better position, whereas many emerging market and developing economies face “stubbornly high rates, averaging a projected 8% in 2024”.

Geopolitical risks

The report also underscores the growing tension between the political and economic spheres; 86% of respondents believe this will be a major challenge for decision-makers. The complex interplay between these forces, further compounded by heightened geopolitical and domestic uncertainties (79%), will demand careful navigation by policymakers.

Shipping businesses, for their part, will need to prioritise factors like global economic health, monetary policy, and financial markets when making decisions. Notably, the report finds that profit remains a stronger motivator (73%) for companies than environmental and social goals (37%). This highlights the need for policymakers to create incentives that encourage businesses to integrate sustainability into their long-term strategies.

Looking to the future, most economists surveyed for the report said they are optimistic about a sustained global rebound, with nearly 70% expecting a return to 4% growth within five years – some believe it could even happen within three. However, opinions diverge on the impact of factors like technology and green initiatives in low-income economies. Here, targeted investments and capacity building might be necessary to unlock their full potential. “Chief economists are unambiguous in expecting technological transformation, AI, and the green and energy transition to be growth drivers in high-income economies over the next five years, with more divided views regarding the impact on low-income economies,” said the report.

However, the results show “a lack of consensus on how environmental policy and industrial policy might affect growth”, it added.

“The latest Chief Economists Outlook points to welcome but tentative signs of improvement in the global economic climate,” said Saadia Zahidi, managing director, World Economic Forum. “This underscores the increasingly complex landscape that leaders are navigating. There is an urgent need for policy-making that not only looks to revive the engines of the global economy but also seeks to put in place the foundations of more inclusive, sustainable and resilient growth.”

The report concludes by highlighting the key policy levers needed to foster growth. These include continued investments in innovation, infrastructure development, sound monetary policy, and education and skills development. The report also suggests that low-income economies could benefit more from interventions focused on strengthening institutions, improving social services, and expanding access to finance.