Despite some positive signals in the final months of 2022 – ease in inflationary pressures, modest uptick in consumer sentiment, and stabilisation of commodity prices – almost one in five respondents now consider a "global recession" to be extremely likely in 2023, more than twice as many as in the previous survey in September 2022, the Chief Economists Outlook January 2023 by the World Economic Forum (WEF) says.
However, 32% also expect a "global recession" to be extremely unlikely or somewhat unlikely, more than twice as many as in September 2022. The polarised outlook, says the WEF, reflects a weakening of growth expectations across most but not all regions and significant continued uncertainty about the effectiveness and duration of tightening policy measures.
The WEF report says inflation over the last year was stubbornly high and broad-based. However, the inflation data released in the final quarter of 2022 by some countries provide some room for optimism over the medium-term inflation outlook in 2023. The factors attributed to the easing of the inflation rate are rapid and synchronised monetary tightening, stabilisation of supply conditions and commodity prices, and an easing of demand pressures.
On challenges before policy-makers, the report highlights there's a need to bring inflation much closer to the 2% target without choking off growth, but the challenges run deeper. "Accumulated societal strains from the last years as well as climate mitigation and adaptation present pressing investment needs in numerous countries."
The September 2022 edition of the WEF's Chief Economists Outlook highlighted the intensifying human impact of the cost of living crisis, with plunging real wages leading to worsening poverty and more widespread social unrest. However, this year, the cost of living crisis may be close to its peak as policies are beginning to take their full effect. "A majority (68%) expect the crisis to be less severe by the end of 2023," says the WEF.
On food costs, says the WEF report, there is a notable divergence in the expected impact between high-and low-income countries -- food costs may have a major adverse impact in low-income economies (50%) compared to high-income economies (14%).
Notably, the International Monetary Fund (IMF) has also said a third of the global economy will enter a recession in 2023. It has further trimmed its forecast of global gross domestic product (GDP) for 2023 to 2.7%. The IMF sees global inflation dipping to 6.5% this year from 8.8% in 2022.
On the energy crisis facing the world today, most respondents (64%) show "optimism" about the ongoing trajectory in 2023. However, they flag the need for numerous short-term and long-term policies to deal with challenges that remain to be resolved. "Oil prices have fallen back to prewar levels, but the same is not true of global gas prices, which in November 2022 were 321% higher than two years previously."
On some of the likely headwinds that businesses in particular are going to face in 2023, the chief economists said among the headwinds, weak demand, higher interest rates and higher input costs stand out. They say the start of 2023 represents the triple challenge of continued relatively high prices of key inputs meeting tightening monetary policy and weakening demand. "Nine out of ten respondents expect weak demand to exert a significant drag on business activity this year, and almost the same proportion (87%) expect the same of elevated borrowing costs. Over 60% expect higher input costs to exert a significant drag."
