The World Economic Forum (WEF) has pointed to a stabilising outlook as a result of slowing global consumer inflation, but warned about debt and political polarisation.
According to the latest Chief Economists Outlook published yesterday, WEF said easing inflation and strong global commerce were fuelling cautious optimism for recovery but elevated debt levels are becoming a growing concern in both advanced (53%) and developing (64%) economies.
“There are reasons for cautious optimism such as an easing of inflation and evidence of the resilience of global commerce,” the report notes. “Yet, if the economy is stabilising, it is doing so at the weakest level in decades.”
The Chief Economists Outlook, published three times a year, surveys leading chief economists from across industries and international organisations.
The latest edition explores key trends in the global economy, including the latest outlook for growth and inflation, the implications of high debt levels and the prospects for a new growth agenda.
The report highlights that debt levels and fiscal challenges are placing significant pressure on economies worldwide leaving them vulnerable to future crises.
According to a majority of the chief economists surveyed, public debt burdens represent a threat to macroeconomic stability in both advanced (53%) and developing (64%) economies.
The combination of elevated debt levels and high interest rates has pushed interest payments into economically damaging territory for many countries.
It said rising debt-servicing costs have led to a fiscal squeeze and a majority of respondents note that in the year ahead current debt dynamics were going to undermine government efforts to boost growth and will leave countries poorly prepared for next economic downturn.
“The difficult fiscal position that many countries are in means they are likely to struggle to prepare for numerous structural changes that are under way, including the energy transition, demographic shifts and evolving national security needs,” the report notes.
The report said a growing concern was a potential “fiscal squeeze”, where rising debt-servicing costs limit governments to invest in essential sectors such as infrastructure, education and healthcare.
In developing economies, 39% of economists expect an increase in defaults over the next year.
“The global economy may be stabilising, but fiscal challenges continue to pose significant risks,” said Saadia Zahidi, WEF managing director.
“Addressing these challenges requires coordinated efforts from policy-makers and stakeholders to ensure that economic recovery is not undermined by these pressures. Now is the time for pragmatic solutions that can strengthen both fiscal resilience and long-term growth.”
In terms of regional outlook, the report said the global economic outlook varied sharply across regions.
In the United States, nearly 90% of chief economists anticipate moderate or strong growth in 2024 and 2025 reflecting confidence in a soft landing after a period of tight monetary policy.
Some 80% of those surveyed agree that the outcome of the United States election will significantly influence global economic policy, with many citing election-related risks as a major concern for the year ahead.
In contrast, nearly three-quarters of respondents expect weak growth for the remainder of the year in Europe. Similarly, China’s struggles persist, with almost 40% of economists forecasting weak or very weak growth in both 2024 and 2025.
Elsewhere, growth prospects are mixed. In sub-Saharan Africa, a moderate or stronger growth trajectory is anticipated, with expectations improving from 55% in 2024 to 71% in 2025.
The Middle East and north Africa region remains uncertain, while Latin America is expected to see modest improvements, with a slight uptick in growth in 2025.
South Asia also stands out, with over 70% of economists predicting strong or very strong growth in 2024 and 2025, driven by India’s robust performance.
Global inflation continues to ease, with many chief economists expressing optimism for next year. In the US, the share of chief economists expecting high inflation drops from 21% in 2024 to 6% in 2025.
Europe is expected to follow a similar trend, with high expectations for high inflation dropping from 21% this year to 3% next year, providing some relief to policy-makers.
While a majority of chief economists (54%) expect the condition of the global economy to remain stable in the short term, 37% foresee conditions will weaken, compared to only 9% who expect an improvement.
BUSINESS REPORT