Economists divided over global recovery; India to benefit from supply chain changes: WEF survey

Economists worldwide are evenly divided on the prospects for the economy, with equal shares of 45 per cent finding a global recession this year likely or unlikely, but India figures among the economies most likely to benefit from supply-chain changes, a survey showed on Tuesday.

In its latest Chief Economists Outlook, the World Economic Forum said economists expect both growth and inflation dynamics to vary widely across regions.

On the economic policy front, 72 per cent predict proactive industrial policy to become an increasingly widespread phenomenon over the next three years.

Although a majority do not see recent financial-sector disruption as a sign of systemic vulnerability, further bank failures and turbulence are considered likely this year.

Showing divergent regional dynamics, the most buoyant activity is expected in Asia, with China's reopening expected to drive a significant rebound for the country and to bolster activity across the continent.

More than 90 per cent of the chief economists expected at least moderate growth in both East Asia and Pacific and South Asia.

At the other end of the spectrum, three-quarters of the chief economists still expect weak or very weak growth in Europe. In the US, respondents were more optimistic in March-April than in January but are still divided on the outlook, with US growth prospects clouded by heightened uncertainty on financial stability and the likely pace and extent of monetary tightening.

According to the quarterly survey, conducted during March-April 2023 among the WEF's Community of Chief Economists, the regions most likely to benefit from supply-chain changes are South Asia, East Asia and Pacific, Latin America and the Caribbean, and the US.

When asked to name specific economies that are likely to benefit, among those repeatedly cited were: Vietnam, India, Thailand, Indonesia, Mexico, Turkey and Poland.

On a sectoral basis, the chief economists listed a range of industries where they expect supply chain changes to be most pronounced, including semiconductors, green energy, automotive, pharmaceuticals, food, energy and the broad technology category.

The chief economists also pointed to a series of business strategies that will influence the changing structure of global supply chains. Geopolitical factors featured prominently, with 94 per cent of respondents expecting businesses to reconfigure their supply chains in line with geopolitical faultlines.

On inflation, there was a marked uptick in all regions in the proportion of respondents expecting high inflation in 2023, and 76 per cent of chief economists said they expect the cost of living to remain acute in many countries.

In the wake of recent bank collapses and financial market turbulence, chief economists expressed confidence in the systemic integrity of global markets.

However, two-thirds highlighted the likelihood of further bank failures and disruption, while more than 80 per cent said they expect businesses to find bank loans more difficult to secure as a result of tightening lending criteria.

"The latest edition of the Outlook highlights the uncertainty of current economic developments," said Saadia Zahidi, Managing Director, World Economic Forum.

"Labour markets are proving resilient for now, but growth remains sluggish, global tensions are deepening, and the cost of living remains acute in many countries. These results confirm the urgent need for both short-term global policy coordination as well as longer-term cooperation around a new framework for growth that will hardwire inclusion, sustainability and resilience into economic policy," she added.

The survey was released ahead of the WEF's Growth Summit, taking place in Geneva on May 2-3, which is expected to discuss the global growth outlook, hotspots in the global economy, and questions of competition and cooperation, as well as employment, skills and equity.

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