COLOGNY (WAM)

The World Economic Forum (WEF) has released its May 2024 Chief Economists Outlook, showing persistent uncertainty, but also greater optimism in the latest survey, with a sharp fall in the share of chief economists expecting global conditions to weaken this year, from 56 per cent in January to 17 per cent.

According to the WEF's monthly report, there is near unanimity among respondents (97 per cent) that geopolitics will be a source of global economic volatility in the remainder of 2024. With almost half of the world’s population heading to the polls this year, a large majority (83 per cent) also expect domestic politics to be a source of volatility. Chief economists are more sanguine about the likely short-term impact of rapid technological advances, with over two-thirds against the idea that artificial intelligence (AI) will cause volatility this year.

Regionally, the chief economists’ growth outlook has become more optimistic, although it remains patchy. The most notable uptick is expected in the US, with the share of respondents expecting moderate or stronger growth in 2024 rising to 97 per cent from 59 per cent in January. The survey points to buoyant activity in the economies of Asia, with all respondents expecting at least moderate growth in South Asia, East Asia and the Pacific. China remains an exception in Asia, with about three-quarters expecting moderate growth, up from 69 per cent in January.

In Europe, the outlook remains broadly unchanged since the previous edition, and almost seven in 10 still foresee weak growth this year. Elsewhere in the world, broadly moderate growth is expected, with a slight improvement since the last edition.

Inflation expectations continue to converge towards a broadly moderate outlook across most regions. This is driven, in part, by optimism about the condition of global supply chains, although, on the other hand, expectations for looser labour market conditions have weakened since January. Respondents expect monetary policy to become less synchronised over the remainder of 2024, with signs of loosening in some regions. The fiscal stance is expected to remain unchanged in most regions.

The latest survey focuses on the growing challenges confronting businesses and policy-makers. Almost four-fifths (79 per cent) of chief economists said heightened complexity is a growing challenge for decision-makers, while even more (86 per cent) said the same of tensions between political and economic dynamics. When asked about the factors expected to drive corporate decision-making this year, core economic factors featured prominently in responses, including the overall health of the global economy (100 per cent), monetary policy (86 per cent), financial markets (86 per cent) and labour Executive summary 6 Chief Economists Outlook market conditions (79 per cent).

A strong majority cited geopolitical (86 per cent) and domestic political factors (71 per cent). Almost twice as many chief economists (73 per cent) highlight the role of companies’ growth targets in decision-making compared to their environmental and social targets (37 per cent).

Turning to the longer-term prospects for the global economy, the results reveal further optimism, with almost seven in 10 respondents expecting global growth to return to 4 per cent within the next five years, including 42 per cent expecting it within the next three years. Chief economists are unambiguous in expecting technological transformation, AI, and the green and energy transition to be growth drivers in high-income economies over the next five years, with more divided views regarding the impact on low-income economies.

By contrast, geopolitics, domestic politics, debt levels, climate change and social polarisation are all expected to have a negative impact on growth in both high- and low-income economies. When asked about the policies that are likely to be most effective at boosting growth in the next five years, respondents highlighted innovation, infrastructure development, education and skills improvement, and looser monetary policy as the most promising across the board.

In several other policy areas, including institutions, social services and access to finance, a notably higher share of respondents sees them as effective growth drivers for low-income rather than high-income economies. The results also show a lack of consensus on how environmental policy and industrial policy might affect growth.