How vulnerable is the global economy? Here’s what chief economists are saying

The short-term outlook for the global economy is stabilizing, according to experts, with various trends fuelling a sense of wary optimism amid sluggish growth and persistent economic uncertainties.

This month, the World Economic Forum released its latest edition of the Chief Economists Outlook, a survey published three time a year of leading chief economists from across industries and international organizations. The report found that a plurality of the chief economists surveyed (54%) expect the condition of the global economy to remain unchanged over the next year. However, four times as many expect conditions to weaken (37%) rather than to strengthen (9%).

“If the economy is stabilizing, it is doing so at the weakest level in decades,” the report states. “This weakness, compounded by political volatility in many countries, poses numerous threats in the years ahead.”

Nonetheless, the survey highlights several factors that bode well for the global economic outlook. These include, for instance, the gradual easing of inflation rates and a shift to looser monetary policy.

Given the varied nature of the global economic outlook, the World Economic Forum asked six chief economists from around the world to expand on their assessment and the factors that shape their thinking.

Here’s what they had to say:

“The global economy is on a path to normalising towards trend growth levels through 2025, and central banks are on track to take their policy rates to neutral levels with inflation at or close to target in the US and eurozone.

“The US’s interest rate-cutting cycle is poised to launch with the Federal Reserve on the alert for further labour market weakness. For now, any risk of the US economy falling into recession looks limited. The disinflation trend is still in place and consumption in goods and services is holding up. A weaker job market appears the result of slower hiring, rather than more layoffs, and wages are in line with a soft economic landing. US third quarter growth still appears positive, with productivity picking up. We see the Fed reaching its neutral interest rate level of around 3.5% next year, although geopolitical risks and broad US import tariffs under a second Trump administration could challenge that.

“In the European Union, a modest recovery is set to continue, though more slowly than in the US. The manufacturing sector remains weak, although services are performing better. As real incomes improve, European consumers will spend more; we see annualised growth around 1% in 2025. In the shorter term, we see no challenge to the European Central Bank’s rate-cutting path and a move to a neutral rate of between 1.5% and 2%.

“However, business sentiment in the bloc is poor, suffering in particular in Germany where exports to (a slowing) China are complicated by US trade sanctions. The nostalgia for the Schröder years and the obsession for competitive gains and lower costs omits the fact that Germany is no longer at the forefront of technological innovation in the sectors in which its industry excelled in the past 2 decades. We are now living in an age in which a high-tech race led by the US and China has left Europe behind.”

“The global economy is still passing through a gradual recovery and adjustment process from the supply chain disruptions popped up in the aftermath of the pandemic, energy price shock that originally triggered by the war in Ukraine, seemingly put aside by the considerable normalization of the energy prices but still left a more permanent scar regarding the energy security, and a sudden uplift of inflation and a globally synchronous monetary tightening.

“More recent data flow, however, gives us more confidence that inflation figures are heading towards targets and this will likely give some space to policy makers to reorient their policy agenda towards activity and trade. So, the global recovery is set to continue.

“Having said that, the recovery is on a bumpy road and there are many uncertainties ahead. Within the current economic cycle, an increased level of government debt in many countries rationally requires fiscal consolidation but there is not much appetite for austerity in any part of the world. The fragmentation of the world economy may get more severe after the upcoming US elections, regardless of the election's outcome. And the financial disruption that China is experiencing may prove more long standing than thought earlier on. The realization of any one of these risks could setback the already fragile recovery.

“The vulnerable shape of recovery makes it also very heterogeneous across regions too. In the Euro Area, the economic activity is still lagging in Germany, but will be more sensible in the southern countries. Activity will likely strengthen in Asian countries excluding China. And the growth in the US economy will likely approach softly to its potential rates as the Fed will turn its focus to labour market risks rather than inflation, which has already approached to target significantly.”

“The upcoming US elections are pivotal for the economic outlook in the US and the world. A reelection of Donald Trump would be quite inflationary due to the trade, immigration, and dollar policy choices laid out on the campaign trail. This could force the Fed to pause its loosening cycle half-way through and cause recession risks in the US, and send shockwaves to the emerging world. Conversely, the election of Kamala Harris would increase the pressure on fiscal consolidation and lower growth prospects for the US.

“All in all, the economic situation is not as bad as it looks. Abating inflation is a big plus as it really means that the normalization of everything, from monetary policy to supply chains, from asset prices to bankruptcies, is happening without too much havoc. It confirms policy choices worked overall, in spite of the dislocations they may have created.

“Going forward, managing these dislocations will be key for the outlook: getting trade, tax; and labour policies right, getting inequality back under control and refocusing on social sectors, and not lowering the guard on accrued financial stability risks.”

“For the year head we see general softness in the global economy, albeit for different reasons across the major regions. The risks to our baseline outlook are on the downside.

“The US economy will slow below 2% growth in order to take the remaining inflation pressures out of the system. The Fed will reduce rates steadily by around 150 basis points over the next 12 months, and we foresee a soft landing provided that labour demand remains strong. China’s growth will continue to be weighed down by the property sector. The economy will struggle to reach the 5% GDP growth target. We expect the authorities to maintain their incremental approach to stimulus, being mindful of the need to maintain market discipline.

“Europe will gradually recover from its borderline recession. While services and the labour demand remain strong, manufacturing will rebound slowly. The ECB will steadily cut rates, broadly matching the Fed, but the policy focus will shift to bolstering competitiveness.

“The rest of the world is a mixed bag. Economies with strong domestic demand or tech-based trade are likely to outperform. Many central banks will have additional room to ease as the Fed steadily reduces its policy rate.”

“For next year, we are predicting slow economic growth, with inflation settling down and policy rates dipping further towards their ‘neutral’ or natural rates in both the US and Europe. High inventories and some fiscal tightening will likely dampen European economies, while rising real wages could boost consumer demand and surprise us positively. In China, the property sector will continue to drag on the economy.

“Globally, we will not only see GenAI everywhere but may also begin to notice its impact in productivity statistics, especially in the services sector and primarily in the US. The next US president will undoubtedly leave their mark on both the domestic and global stage. A Democratic win may lead to more fiscal consolidation, less protectionism, lower interest rates, and a softer USD.

“Conversely, a Republican win could support the US domestic economy, though significant trade tariffs could harm Chinese and European exporters. This could result in fewer climate-related policies, while severe weather events may continue to cause unexpected and significant disruptions globally. Politics, whether global or national, will remain the most significant economic uncertainty.”

“The outlook for the global economy does not seem to be very encouraging as the recovery is slow, with global growth estimated to remain around 3% in 2024 and appears to slightly recover to a moderate growth of 3.3% in 2025.

“This growth is driven largely by emerging market economies, which are expected to see a better acceleration, while advanced economies will experience a modest slowdown given the recessionary conditions in US, Germany and other countries in Europe.

“Some of the key challenges are increasing upside risks to inflation, especially global food prices and escalating trade tensions and increased tendencies of major economies turning protectionist in their trade policies.

“Another major challenge which requires to be navigated astutely is the ongoing geopolitical conflicts which poses a risk to global economic stability. Finally, the current global financial conditions and the elevated debt levels across both the advanced and developing economies pose a substantial threat to the overall macroeconomic stability and requires calibrated policy interventions by most of the governments to steer the growth in the right direction.

“The World Bank notes that to bolster long-term growth, policymakers must focus on raising productivity, improving public investment efficiency, building human capital, and closing labour market gender gaps.

“These challenges indicate that while the global economy is recovering, there are still significant risks and uncertainties that need to be addressed in a sustained manner.”