Recession in 2023? That depends on where you are in the world

The economic outlook for 2023 will feel different depending on where you are in the world, according to the World Economic Forum’s Chief Economists Outlook.

While the overall global picture is gloomy and almost 20% of the respondents now see an extremely likely chance of a global recession - double the number as in the previous survey in September - there are significant variations between geographies.

The majority of chief economists expect moderate or strong growth in the Middle East and North Africa and in South Asia, while more than nine out of 10 think growth will be weak in the US and Europe.

The Forum’s economic briefing brings together the thoughts and expectations of leading chief economists from the public and private sectors and this survey was conducted in November and December 2022. Since then, the World Bank has predicted a global recession for 2023, anticipating GDP growth of 1.7%, the slowest pace outside the 2009 and 2020 recessions since 1993.

This outlook will provide the backdrop for the Forum's Annual Meeting that is taking place 16-20 January 2023 in Davos, Switzerland.

“For Europe this is likely to reflect the deepening impact of the ongoing war in Ukraine as well as the effects of sharp increases in interest rates,” the Forum’s report said. Monetary policy tightening was also seen as hampering the outlook for US growth.

In the latest International Monetary Fund (IMF) predictions, the outlook for global growth was trimmed by 0.2 percentage points, while the forecast for the eurozone was revised down dramatically to 0.5% from 1.2%.

The IMF forecast global growth to slow to 3.2% in 2022 and 2.7% in 2023 from 6.0% in 2021. This is the weakest growth profile since 2001, except for the global financial crisis and the acute phase of the COVID-19 pandemic.

On the other side, the Middle East and North Africa and South Asia were seen as the strongest performers. Some economies in that region, including Bangladesh and India, were seen as benefiting from a global trend diversifying away from China.

This diversification and the ongoing backdrop of weak growth and high inflation means that policymakers are facing difficult choices, the report says. Taming inflation without stymying growth is the foremost one and the one that needs considered monetary policy.

“Policymakers face a dilemma between tightening too much and too little,” the report says. “Fiscal policymakers face significant challenges too, not least because of the greatly reduced fiscal space in the wake of government expenditure during the pandemic.”

While the outlook is generally gloomy and uncertain, potential bright spots include the easing of inflationary pressures and the possibility for consumer sentiment to stabilize and improve. While the cost-of-living crisis still looms large and will affect many individuals, 68% of those surveyed for the report said it will ease in severity over 2023.

“On food costs there is a notable divergence in the expected impact between high- and low-income countries,” the report said. Soaring food costs will disproportionately affect low-income countries, with many more people facing food insecurity.

Weak global demand was seen as the biggest challenge for businesses to overcome in 2023, followed by the high cost of borrowing, high input costs and talent shortages.

Geopolitical trends continue to dominate thinking, being cited as the top factor shaping global economic activity in the year ahead.

“This wider economic impact channels through trade, investment, labour and technology flows, creating myriad challenges and opportunities for business,” the report said. “At the other end of the spectrum, the fall of the cryptocurrency sector is expected to have relatively little spillover into wider financial markets and the majority of chief economists do not expect further economic disruption from COVID-19.”