Davos 2024: Global Economy Set for Weakening, Geo-economic Fragmentation

As global leaders gather in Davos for the annual World Economic Forum (WEF), a survey of chief economists has predicted a weakening of the global economy in 2024, coupled with accelerated geo-economic fragmentation.

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Economic Uncertainty on the Horizon

The Chief Economists Outlook report, released by the WEF, highlights the subdued prospects for the global economy, grappling with challenges such as tight financial conditions, geopolitical tensions, and the rapid advancement of generative artificial intelligence (AI).

Majority Expect Weakening Global Economy

More than half of the chief economists surveyed (56%) anticipate a weakening of the global economy this year, while 43% foresee unchanged or stronger conditions. However, the outlook for South Asia and East Asia and the Pacific remains positive, with a strong majority expecting at least moderate growth in 2024.

China's Growth Prospects

China stands as an exception, with a smaller majority (69%) expecting moderate growth. Concerns about weak consumption, lower industrial production, and the property market weigh on the prospects of a stronger rebound in China.

Labor Markets and Financial Conditions

Globally, a significant majority of chief economists predict that labor markets (77%) and financial conditions (70%) will loosen over the coming year.

Regional Growth Outlooks Vary

Although expectations for high inflation have moderated across regions, regional growth outlooks vary widely. No region is projected to experience very strong growth in 2024.

Resilience of Global Economy Tested

WEF Managing Director Saadia Zahidi emphasizes the precarious nature of the current economic environment, stating that the resilience of the global economy will continue to be tested in the year ahead.

Divergence and Challenges

Zahidi highlights the need for global cooperation to build momentum for sustainable and inclusive economic growth, amidst accelerating divergence, stalling growth, tight financial conditions, deepening global tensions, and rising inequalities.

Europe's Weakened Outlook

The outlook for Europe has significantly weakened since September 2023, with the share of respondents expecting weak or very weak growth nearly doubling to 77%.

US, Middle East, and North Africa

The outlook for the US and the Middle East and North Africa (MENA) has also weakened, with about six in 10 respondents foreseeing moderate or stronger growth this year, down from 78% and 79%, respectively.

Growth Expectations for Other Regions

There has been a notable uptick in growth expectations for Latin America and the Caribbean, sub-Saharan Africa, and Central Asia, although the views remain for broadly moderate growth.

Geo-Economic Fragmentation to Accelerate

About seven in 10 chief economists anticipate an acceleration in the pace of geo-economic fragmentation this year. A majority believe that geopolitics will fuel volatility in the global economy (87%) and stock markets (80%), increase localization (86%), strengthen geo-economic blocs (80%), and widen the North-South divide (57%) in the next three years.

Industrial Policy Tools and Their Impact

As governments increasingly experiment with industrial policy tools, experts expect these policies to remain largely uncoordinated between countries. While two-thirds of chief economists believe that industrial policies can foster new economic growth hotspots and vital industries, a majority also warn of rising fiscal strains and divergence between higher- and lower-income economies.

AI-Enabled Benefits and Concerns

Chief economists expect the benefits of AI to vary significantly across income groups, with more optimistic views about the effects in high-income economies. A strong majority predict that generative AI will enhance output production efficiency (79%) and innovation (74%) in high-income economies this year.

Long-Term Impact of AI

Looking at the next five years, 94% of chief economists expect these productivity benefits to become economically significant in high-income economies, compared to only 53% for low-income economies. Concerns arise regarding the impact on employment, with almost three-quarters (73%) not foreseeing a net-positive effect in low-income economies and 47% expressing the same for high-income economies.

The Chief Economists Outlook report underscores the challenges and uncertainties facing the global economy in 2024. As leaders gather in Davos, the need for international cooperation and coordinated policies becomes paramount to navigate the complex landscape of economic recovery and sustainable growth.