Davos 2023: Global recession in 2023 seen as likely in World Economic Forum survey

DAVOS, Switzerland (Reuters) – Two-thirds of leading public and private economists surveyed by the World Economic Forum expect a global recession in 2023, the organizer of the Davos Forum said on Monday, as business and government leaders gathered. its annual meeting.

About 18% considered a global recession “highly likely” — more than double that of the previous survey, which took place in September 2022. Only a third of respondents thought it unlikely this year.

“The current high inflation, low growth, high debt and high retail environment reduce the investment incentives needed to return to growth and raise living standards for the world’s most vulnerable,” Saadia Zahidi, managing director of the World Economic Forum, said in a statement accompanying the survey results. .

The organization’s survey was based on 22 responses from a group of senior economists from international agencies including the International Monetary Fund, investment banks, multinational corporations and reinsurance groups.

The survey comes after the World Bank last week lowered its growth forecasts for 2023 to levels close to stagnation in many countries with the intensification of the impact of the central bank’s hike in interest rates, the continuation of the Russian war in Ukraine, and the faltering of the main economic engines in the world.

Definitions of what constitutes a recession vary around the world but generally include the potential for economies to contract, with the potential for inflation to rise in a “stagflationary” scenario.

In terms of inflation, the WEF survey saw significant regional differences: Those expecting high inflation in 2023 ranged from just 5% for China to 57% for Europe, as the impact of last year’s energy price hikes rippled into the broader economy.

The majority of economists see further monetary tightening in Europe and the US (59% and 55% respectively), with policymakers caught between the risks of tightening too much or too little.

“Don’t keep walking”

While a global slowdown may risk hitting investment in areas from education and health to tackling poverty and climate, some argue that it leads to lower inflation and forces the US Federal Reserve and others to hold back on further rate hikes.

“I want the outlook to get a little softer so that Fed rates start to come down and this whole liquidity sucking by global central banks goes away,” Sumant Sinha, chairman and CEO of Indian clean energy group Renew Power, told Reuters. on the sidelines of the Davos meeting.

“It will not only benefit India but globally,” he said, adding that the current round of rate hikes is making it more expensive for clean energy companies to fund their capital-intensive projects.

Others said that while the wealthiest would likely escape the worst effects of the recession on the back of higher inflation levels, it would hit lower-middle-income groups hardest.

“If you only had your time and energy generating your income, you are now devastated because your salary is not keeping up,” said Anthony Scaramucci, founder of US-based investment firm SkyBridge Capital.

Other key findings of the World Economic Forum survey included:

– Nine out of 10 respondents expect that both weaker demand and higher borrowing costs will affect businesses, with more than 60% also citing higher input costs.

These challenges are expected to lead multinational companies to cut costs, from cutting operating expenses to laying off workers

– However, supply chain disruptions are not expected to cause a significant drag on business activity in 2023.

The cost of living crisis may be nearing its peak, with the majority (68%) expecting it to become less severe by the end of 2023.

(Reporting by Mark John, Maha El Dahan and Divya Chowdhury). Edited by Alexander Smith

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