The global economic outlook is stabilizing amid continuing economic uncertainty.
The World Economic Forum's September 2024 Chief Economists Outlook found that a majority of chief economists (54%) expect the condition of the global economy to remain unchanged over the next year while more than a third (37%) expect it to weaken.
“There are reasons for cautious optimism such as an easing of inflation and evidence of the resilience of global commerce,” the report notes. “Yet, if the economy is stabilizing, it is doing so at the weakest level in decades.”
The Chief Economists Outlook, published three times a year, surveys leading chief economists from across industries and international organizations. The latest edition explores key trends in the global economy, including the latest outlook for growth and inflation, the implications of high debt levels and the prospects for a new growth agenda.
“Policy-makers face the twin challenge of driving higher rates of economic growth while also trying to influence its structural character: making growth less damaging to the environment, for example, or less likely to lead to sections of society being 'left behind',” the report adds.
A brewing storm
According to a majority of the chief economists surveyed, public debt burdens represent a threat to macroeconomic stability in both advanced (53%) and developing (64%) economies.
The combination of elevated debt levels and high interest rates has pushed interest payments into economically damaging territory for many countries. Rising debt-servicing costs have led to a fiscal squeeze and a majority of respondents note that in the year ahead current debt dynamics are going to undermine government efforts to boost growth and will leave countries poorly prepared for next economic downturn.
“The difficult fiscal position that many countries are in means they are likely to struggle to prepare for numerous structural changes that are under way, including the energy transition, demographic shifts and evolving national security needs,” the report notes.
Almost 40% of chief economists expect defaults to rise in developing economies over the next year.
The report also highlights that limited fiscal space leaves countries ill-prepared for policy challenges as well as future crises (59% in advanced economies and 82% in developing economies).
“If debt sustainability remains a significant constraint on countries’ ability to spend, then countries may struggle to prepare for changes such as the energy transition, demographic shifts, climate-related disasters, rapid technological change and evolving national security needs,” the report states.
Moreover, the report warns that the next major shock to hit the global economy could trigger a debt crisis that crystallizes the fiscal risks that have been building over many years.
“A prolonged fiscal squeeze will also hinder efforts to invest in a more balanced growth agenda,” the report adds.
Regional outlook remains varied
In the US, despite a protracted period of tight monetary policy and a recent string of labour market disappointments, chief economists are expecting a soft landing. Almost nine out of 10 expect moderate or better growth this year and next. The upcoming election marks a political and economic inflection point for the US and the world. Eight out of 10 respondents agreed the election result will have a significant impact on economic policy globally.
The outlook for Europe is taking a turn for the better. Chief economists are modestly optimistic that conditions in Europe are set to improve, with almost twice as many (53%) expecting moderate or better growth in 2025 as in 2024 (29%).
The outlook remains strongest for parts of Asia. South Asia is a clear stand-out performer with strong or very strong growth expected by seven out of 10 chief economists. Central Asia and East Asia and Pacific are not too far behind.
“By contrast, the weak outlook for China continues to make it an outlier among the Asian economies,” the report notes.
In the other regions covered in the survey, the outlook is either steady or positive. Growth perspectives are positive but remain uncertain for the Middle East and North Africa while Latin America and the Caribbean as well as Sub-Saharan Africa look poised to surpass global growth averages.
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Chief economists cite easing of inflation as strongest positive impact on the global economy.
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— Chief Economists Outlook, September 2024
Global inflation is continuing its downward trajectory, but the pace of deceleration is easing.
There is solid degree of confidence that the US has turned a corner on inflation, with the proportion of respondents expecting high inflation dropping from 21% in 2024 to just 6% in 2025. Expectations are that inflation is headed in the desirable direction everywhere. In China, for example, the share of chief economists expecting very low inflation drops from 33% in 2024 to 16% in 2025 in the hope that the ongoing deflationary period will come to an end.
Monetary policy is thus turning a corner with an expected return to loosening in the majority of countries and regions. In the US and in Europe, nine out of 10 chief economists expect looser monetary policy in the year ahead and a majority of chief economists expect looser monetary policy everywhere aside from Central Asia and Sub-Saharan Africa.
Prospects for a new growth agenda
When asked about the prospects for a new growth agenda, responses of chief economists revealed a solid consensus on the importance of balancing growth with other policy priorities. Around two-thirds of respondents agree that policymakers should prioritize economic growth, with a similar proportion agreeing that progress on other goals must be made, even if this exerts a drag on growth.
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A slowdown in growth and a fiscal squeeze make for a difficult backdrop against which to tackle numerous national and global crises.
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— Chief Economists Outlook, September 2024
The main obstacles to achieving better balance are a lack of domestic political consensus or will (91%), and a lack of global collaboration (67%). Domestic political obstacles are viewed by the chief economists more as a challenge of leadership and trust than a matter of broad based opposition. The lack of global collaboration is in turn also undermined by domestic political trends (83%) but also strongly affected by geopolitical tensions (91%).
The chief economists were asked to assess whether a trade-off exists between growth and four other potential policy goals: environmental sustainability, economic equality, social cohesion and national security.
On equality and security, only 12% of respondents said a significant trade-off exists. That figure rises to 21% for social cohesion. Only environmental sustainability shows a meaningful split among respondents, with equal proportions of 44% agreeing and disagreeing that a trade-off exists.
“The longer-term economic agenda is likely to be increasingly shaped by these broader questions about what kind of growth is desirable and achievable,” the report notes.
Weforum