Are there glimmers of economic hope as we begin 2023?

This article was updated on 7 February, 2023.

After a tough year that included soaring inflation, war in Ukraine and a cost-of-living crisis, any signs of positivity are welcome.

And, as we begin 2023, there are signs of a slight increase in optimism, to counterbalance the uncertainty that still clouds the outlook and to offset a dark 2022.

After Russia’s full-scale invasion of Ukraine tipped geopolitical order into disarray, it also sent shock waves throughout the global economy, heightening uncertainty. Inflation surged to levels not seen for generations and the rising cost of living hit consumer confidence.

Now, a sense of hope is emerging, with a palpable improvement in sentiment felt at the World Economic Forum in Davos, and the International Monetary Fund (IMF) nudging up its 2023 growth forecast while saying inflation is set to peak.

Those refinements are also reflected in the World Economic Forum’s Chief Economists Outlook 2023, which draws on the collective views and individual perspectives of a group of leading Chief Economists, through the Forum’s Chief Economists Survey and consultations with the Chief Economists Community.

Here are the three main themes.

China’s Vice-Premier Liu He told delegates at the World Economic Forum’s Annual meeting in Davos that the country is continuing to liberalize and loosen restrictions on its real estate sector. The news bolstered optimism about the country and its growth outlook.

Over half of respondents to this year’s Chief Economists Outlook expect a pickup to moderate growth or better in China this year.

There were also tentative signs of optimism on wider global growth at the Forum’s Annual Meeting, with participants noting an improvement in the outlook – and Kristalina Georgieva, the Managing Director of the IMF, saying the global outlook was better than feared.

While the cost-of-living crisis, tightening financial conditions and Russia’s invasion of Ukraine are still clouding the outlook, there are some reasons for positivity. In January, the IMF revised up its growth projection for 2023.

“The balance of risks remains tilted to the downside, but adverse risks have moderated,” the IMF said.

It now forecasts global growth of 2.9% in 2023, down from 3.4% in 2022, but 0.2 percentage points higher than the prediction it made in October 2022. While an improvement, this remains below the historical (2000-19) average of 3.8%.

Even as the outlook improves, of the chief economists surveyed by the Forum, 63% saw global recession in 2023 as “somewhat” or “extremely” likely.

Global inflation is predicted to fall to 6.6% in 2023 and 4.3% in 2024 – from 8.8% in 2022 – the latest IMF predictions show. While this is still way above pre-pandemic (2017-19) levels of about 3.5%, any moderation will likely be welcome.

Even so, the human toll of these factors was highlighted by the Chief Economists’ report, specifically in relation to the cost of living and how wages are keeping pace with inflation.

However, survey results suggest the cost living crisis could be reaching a peak, as 68% of respondents believe it will be less severe by the end of 2023.

As we enter 2023, even as we see tentative signs of optimism, the outlook for the global economy remains challenging, as outlined in the Forum’s reports. This will increase the pressure on global leaders to act both for short and long-term goals, and test the resilience of societies. The latest edition of the report calls for a long-term strategic approach.

“This mindset of investing in the future – even in the midst of short-term crises – will determine the long-term systemic health of our societies for generations to come,” the Chief Economists say. “If the wave of crises that has washed over the world since the turn of the century teaches us anything, it is that we neglect a vision for future-preparedness at our peril.”