The global economy is under pressure — but how bad is it? Two experts share insights

The global economy is under pressure from multiple complex and interconnected crises.

These challenges—which include inflation, climate change, the war in Europe, supply chain disruptions and the COVID-19 pandemic, to name a few—have coalesced into what experts have called a "polycrisis."

As the World Economic Forum's Global Risks Report 2023 stated, "the return to a 'new normal' following the COVID-19 pandemic was quickly disrupted by the outbreak of war in Ukraine, ushering in a fresh series of crises in food and energy – triggering problems that decades of progress had sought to solve."

Yet the global economy has been under enormous pressure and endured significant distributions before. So how bad is the situation today?

Ahead of the Forum’s 2023 Annual Meeting in Davos, Switzerland, two experts share their thoughts on the myriad of threats facing the global economy and detail historical parallels that can help policymakers grapple with the challenges of today.

Kenneth Rogoff, Professor of Economics and Maurits C. Boas Chair of International Economics at Harvard University

“With the most dangerous conflagration in Europe since WWII, the pandemic refusing to die quietly, slowing growth, and the highest inflation rates in four decades, the global economy is off to a rough start indeed in 2023.

“In navigating these risks, the biggest challenge for politicians and corporate leaders alike will be to adjust to the end of ultra-low, post-financial crisis interest rates. The era where debt seemed like a free lunch and could be used to solve anything is likely over, partly because global debt has risen so much, partly because many countries are now needing to sharply increase investment in both defense and in green energy investment, and partly because of looming fractures in globalization. The 2020s so far most resembles the 1970s.

“The good news is that central banks today far better understand how to deal with supply shocks that raise inflation. The bad news is that the supply-side reforms, which helped lift advanced economies in the 1980s and developing economies in the 1990s, have become politically unacceptable in many quarters. The risks the global economy will tip into recession in 2023 are high; if so, the financial fallout could be brutal.”

Landry Signé, Executive Director and Professor, Thunderbird School of Global Management; Senior Fellow, The Brookings Institution, Global Economy and Development

“The polycrisis today means that the challenges faced by the global economy are deeply interconnected with all global systems – the global political economy, international security, global health, education, and energy, among others. As the world recovered from the pandemic, the energy crisis from the war in Ukraine sparked new complexities in addition to inflation, climate change, mass migration, and inequality. Today’s polycrisis includes relationships between systems that include common drivers, domino effects, and vicious cycles interacting all at once, which continue to exacerbate vulnerabilities.

“Although the world has experienced interconnected crises before, including post World War I, oil shocks in the 70s, and the 2008 financial crisis, the situation now is unique given the interconnectedness accelerated by the Fourth Industrial Revolution. Going forward, the world should capitalize on what has worked in the past – dialogue, multi-stakeholder collaboration, and multilateralism. To do so, accountable and agile leadership is critical.

“The post-WWI period taught us that turning inward during times of global challenges only exacerbates problems leading to more violent conflict. Leaders must choose to meet unprecedented complexity with unprecedented transformation even if it means that power dynamics or relationships change. History has also shown us that digital technologies can be disruptive but they can also be powerful tools for reducing uncertainty and visualizing complex relationships.”