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WEF: Economists disagree on the likelihood of a global recession

According to a survey conducted on Tuesday by the World Economic Forum (WEF), chief economists are evenly split on the risk of a global recession due to regional differences in growth and inflation dynamics. However, the majority of them anticipate that the cost of living will stay high in many nations.

45 percent of economists view a global recession as either likely or unlikely this year, according to the senior Economists Outlook: May 2023 study from the WEF, which includes comments from notable senior economists from both the public and private sectors.

However, depending on the region, their responses change. The most robust economic growth is anticipated in Asia with China’s openness. The majority of economists predict that the nation’s economy would grow by a moderate 43% this year.

In light of this, 93 percent of chief economists anticipate at least moderate growth in East Asia and the Pacific this year, compared to 50 percent and 75 percent of chief economists’ predictions for weak or very weak growth in the US and Europe, respectively.

Since more than half of respondents anticipate subpar growth, Latin America and the Caribbean, and sub-Saharan Africa continue to have a weaker outlook.

In comparison to their earlier predictions in January 2023, economists observed an increase in inflation across all regions.

Inflation is expected to remain high this year, with 90 percent of economists predicting high or very high inflation in Europe and the US, respectively, and 68 percent predicting high or very high inflation in Latin America and the Caribbean, respectively.

While China continues to be an outlier on inflation with only 14% anticipating high inflation this year, a slight majority also expects the Middle East and North Africa region to experience high inflation this year.

79 percent of chief economists believe that central banks will have to choose between controlling inflation and preserving the stability of the banking system, and 82 percent believe that interest rate increases will be curtailed in response to worries about financial stability.

In the meantime, 76 percent of economists believe that central banks will find it difficult to raise inflation to their desired levels.

Financial upheavals and additional bank collapses are very likely to occur this year.

The cost of living will remain near crisis levels in many nations, according to 76% of chief economists.

In some developing economies, where domestic price dynamics are made worse by currency devaluation, cost of living pressures are particularly severe, according to the WEF report.

“With global wage growth struggling to keep up with prices, the risk is that vulnerable communities will be pushed further into poverty, especially under tighter financial conditions,” the researchers warned.

Nevertheless, the chief economists express confidence in the systemic integrity of international markets despite recent bank failures and financial market volatility.

While 67 percent of respondents believe that additional bank failures or other severe financial disruptions are somewhat or extremely likely to occur in 2023, 69 percent of respondents described the recent banking sector distress as “isolated episodes with limited additional impact”.

More than 80% believe that as a result of the recent financial turbulence, firms will find it harder to obtain bank credit, which will also slow down investment and activity in the technology sector.

They also mentioned the negative impacts of high-interest rates, particularly in the real estate industry, where two-thirds believe they will have a substantial negative impact in 2023–2024.

“The uncertainty of recent economic developments is highlighted in the outlook’s most recent edition. For the time being, labor markets are proving to be durable, but growth is still sluggish, international tensions are intensifying, and the cost of living is still high in many nations, according to Saadia Zahidi, managing director at the WEF.

These findings “confirm the urgent need for global policy coordination over the short term as well as longer-term cooperation around a new framework for growth that will hardwire inclusion, sustainability, and resilience into economic policy.”

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