Global economic growth is facing a risk of further contraction in 2024 due to tight financial conditions, geopolitical rifts and rapid advances in generative artificial intelligence (AI).
These were findings of the World Economic Forum (WEF) Chief Economists Outlook released yesterday (MON) at the beginning of the week-long annual meeting in Davos, Switzerland.
According to the Outlook, prospects for global growth remain subdued and fraught with uncertainty.
More than half of the chief economists (56%) expect the global economy to weaken this year, while 43% foresee unchanged or stronger conditions, but 43% foresee unchanged or stronger conditions.
However, a strong majority also believe labour markets (77%) and financial conditions (70%) will loosen over the coming year.
Although the expectations for high inflation have been pared back in all regions, regional growth outlooks vary widely and no region was slated for very strong growth in 2024.
According to the report, the outlook has weakened significantly in Europe since the September 2023 survey, with the share of respondents expecting weak or very weak growth almost doubling to 77%.
In the United States and the Middle East and North Africa, the outlook is weaker too, with about six in 10 respondents foreseeing moderate or stronger growth this year, down from 78% and 79% respectively.
However, there was a notable uptick in growth expectations for Latin America and the Caribbean, sub-Saharan Africa and Central Asia, although the views remained for broadly moderate growth.
WEF managing director Saadia Zahidi said the latest Chief Economists Outlook highlighted the precarious nature of the current global economic environment.
Zahidi said growth forecasts remained vulnerable to an increased risk of shocks, as geopolitical rifts – highlighted as a source of global economic volatility in the last survey – have since increased with new conflicts erupting or worsening in Africa, the Middle East and Latin America.
“Amid accelerating divergence, the resilience of the global economy will continue to be tested in the year ahead,” Zahidi said.
“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 co-operation to build momentum for sustainable, inclusive economic growth.”
About seven in 10 chief economists expect the pace of geoeconomic fragmentation to accelerate this year, with a majority saying geopolitics will stoke volatility in the global economy and stock markets, increase localisation, strengthen geoeconomic blocs and widen the North-South divide in the next three years.
While two-thirds of chief economists expected industrial policies to enable the emergence of new economic growth hotspots and vital new industries, a majority also warned of rising fiscal strains and divergence between higher- and lower-income economies.
Chief economists also expect AI-enabled benefits to vary widely across income groups, with notably more optimistic views about the effects in high-income economies.
A strong majority said generative AI will increase efficiency of output production and innovation in high-income economies this year.
The Outlook was also optimistic that the tightening cycle in global monetary policy may be nearing the end as global inflation continues to ease, propping expectations of mild ebbing in interest rates this year.
According to chief economists, the global headline rates of inflation are projected to reach 4.8%, a sharp decline from 5.9% in 2023 and 9.2% in 2022.
Core inflation is decelerating too, albeit at a slower pace, and is expected to reach 4.5% in 2024.
Two-thirds of chief economists still expect moderate inflation in Europe and the US, but China remained an outlier in the other direction, with 76% of respondents still expecting low or very low inflation.
“Elsewhere in the world, the expectations for lower inflation strengthened, including East Asia and Pacific, Central Asia, and South Asia, with the majority expecting moderate inflation,” read the report.
“Despite a significant improvement in the outlook and broadly moderate expectations, more than a quarter of respondents still expect high or very high inflation in sub-Saharan Africa, Latin America and the Caribbean, Middle East and North America.”
While the risks to the inflation outlook in South Africa are still assessed to the upside, headline inflation for 2024 is forecast to remain just above the midpoint of the target range at 5.0% before stabilising at 4.5% in 2025 and 2026.
Momentum Investment economist Sanisha Packirisamy said the swift and effective monetary policy actions by the SA Reserve Bank had averted a prolonged divergence in inflation expectations.
“While acknowledging potential inflation risks from geopolitical factors, currency fluctuations and administered prices, we anticipate that demand-driven and wage inflation will remain contained,” Packirisamy said.
“Our projection sees headline inflation averaging 5.3% in 2024, with a decrease to an average of 4.5% in 2024.”