Mena, South Asia poised to skirt recession as global outlook gets gloomier

Most countries in the Middle East and North Africa and in South Asia are expected to record moderate or strong growth in 2023 while the rest of the world, in particular the US and Europe, will go into a recession, a majority of the World Economic Forum’s Community of Chief Economists gathered in Davos forecast on Monday.

With their projection of an extremely likely chance of a global recession, nine out of 10 chief economists taking part in the WEF survey appeared to be endorsing a bleak report from the World Bank last week warning that 2023’s growth outlook looked ripe for recession.

While some 18 per cent considered a world recession "extremely likely" - more than twice as many as in the previous survey conducted in September 2022, one-third of respondents to the survey viewed it as unlikely this year.

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, according to their views.

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 stabilise and improve. While the cost-of-living crisis still looms large and will affect many individuals, 68 per cent of those surveyed for the report said it will ease in severity over 2023.

"The current high inflation, low growth, high debt and high fragmentation environment reduces incentives for the investments needed to get back to growth and raise living standards for the world's most vulnerable," WEF Managing Director Saadia Zahidi said in a statement accompanying the survey results.

The Washington-based World Bank has warned that global growth has slowed to the extent that the global economy is perilously close to falling into recession, anticipating global GDP growth of 1.7 per cent, the slowest pace outside the 2009 and 2020 recessions since 1993.

In the latest International Monetary Fund 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 per cent from 1.2 per cent.

The IMF expects global growth to slow to 3.2 per cent in 2022 and 2.7 per cent in 2023 from 6.0 per cent 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.

According to the WEF survey of chief economists, multiple headwinds are also expected to exert a drag on business activity in 2023. Nine out of 10 respondents expect both weak demand and high borrowing costs to weight on firms, with more than 60 per cent also pointing to higher input costs. These challenges are expected to lead multinational businesses to cut costs, with many chief economists expecting firms to reduce operational expenses (86 per cent), lay off workers (78 per cent) and optimize supply chains (77 per cent).

More broadly, the chief economists expect the global landscape to remain challenging for businesses – 100 per cent of respondents expect global geopolitical trends to continue redrawing the map of global economic activity along new geopolitical fissures and fault lines. This wider economic shift will likely reverberate through trade, investment, labour and technology flows, creating myriad challenges and opportunities for business. One positive signal is that supply chain disruptions are not expected to cause a significant drag on business activity in 2023.

— issacjohn@khaleejtimes.com

• Business