What next for the global economy? 

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Joe Myers, Writer, Forum Agenda

• The World Economic Forum’s Growth Summit 2023 is taking place 2-3 May in Geneva, Switzerland.
• This year’s summit revolves around the theme of “Jobs and Opportunity for All”.
• The Chief Economists Briefing session looked at the prospects for the global economy, from recession to emerging markets and structural challenges.

Paul Donovan, Chief Economist at UBS Global Wealth Management; Gregory Daco, Chief Economist at EY-Parthenon; Sandra Phlippen, Chief Economist at ABN AMRO; and Svenja Gudell, Chief Economist at Indeed Inc, joined John Defterios, a Professor of Business at New York University Abu Dhabi, to look at the prospects for the global economy.

Against a backdrop of sluggish growth, high inflation and markets hit by crises, the Chief Economists Briefing looked to the future and the possible causes for optimism.

Here are some of the key highlights and for more read the Forum’s latest Chief Economists Outlook.

Today’s session look at the impact of supply shocks. Image: World Economic Forum

The prospects of a recession

Paul Donovan explained that he doesn’t like the term recession and we need to reconsider how we measure it, but, he said that he doesn’t think there’ll be a major downturn in major economies because the middle class will keep things going.

As Sandra Phlippen explained, households have better cash buffers than firms, and the US is in better shape than Europe. She doesn’t believe it will be a ‘really deep recession’. Meanwhile, Gregory Daco stressed that the consumer fundamentals are good in the US.

But, in terms of the prospects for a recession, it’s hard to tell, because we’re in a multi-speed economy, he added.

The impact of inflation and interest rates

Paul Donovan explained at the phases of inflation, arguing that we have a profit-margin-led inflation episode – which is unusual. There are a number of signs that inflation is cooling in the US though, added Gregory Daco.

There are data issues, though, added Svenja Gudell. It’s been difficult to get a good angle on what’s going on because of the data quality, she said.

There were also calls for the Fed to pause rate rises and to wait and see the effect of prior tightening. Gregory Daco thought it unlikely here will be a pause this time, though.

Structural challenges

There are cyclical and structural challenges facing the global economy, including in its efforts to tackle inflation, explained Gregory Daco.

Svenja Gudell agreed with the impact of structural changes, in particular ageing populations, which will have a major impact on the production – both what is produced and the cost.

Emerging economies

We shouldn’t overlook the impact on emerging economies, the panel stressed. The fiscal stimulus in the United States during the pandemic has had a particular cost to emerging economies, Sandra Phlippen said, without any of the benefits.

There have been waves of supply shocks, too, explained Gregory Daco. These include, for example, the pandemic and the war in Ukraine. Emerging markets tend to be at the losing end of supply shocks, both in terms of supply but, also the inflationary impact.