- What's next in 2020? Snapshot of leading views.
- Economic growth could be boosted by business reform.
- Business under more pressure to act on environmental and social issues.
Chief Economists of the world’s leading international institutions and companies are concerned that the new decade is opening with a weak growth outlook and a legacy of growing inequality - but they also see cause for optimism.
Through surveys and consultations, we asked them their view on the current economic context and the outlook for 2020. Here’s what they had to say:
Outlook for 2020
They predict technological change will continue to be a dominant force shaping the world economy in 2020 - with services automation expected to pick up speed, while firms will continue to automate manufacturing processes.
Yet at the same time, policy to reignite growth and shape current developments has become less dependable. Monetary policy tools to smooth over negative shocks or create positive economic momentum have lost much of their power with interest rates in major currency areas still close to zero. The new dynamics of the digital economy have also left competition authorities with an outdated toolkit and in a weaker position to reign in growing market concentration. What is more, structural reforms to enable the transition towards a new growth track are revealing delicate trade-offs in particular for the green transformation and the adaptation towards equitable social outcomes in ageing societies.
Disruption in 2020 is expected to come from continued reliance on brinkmanship and ad hoc policy action over consensus building and established policy processes, as seen for trade and technology interventions in 2019. Extreme weather and, to a lesser extent, cyber-attacks are likely to be the source of additional disruption. As long as the growing polarization of economic outcomes is not sufficiently addressed, the wave of economically motivated social unrest also looks set to continue.
Silver linings and emerging priorities
While there are signs of policy agility and business reform that have the potential to build a new foundation for a better kind of economic growth, this momentum needs to be strengthened. For example, global coordination on new, fairer corporate tax structures seems within reach thanks to a multi-year effort led by the OECD to reign in tax base erosion and profit shifting (BEPS). Agreement in this space will be critical, contributing to greater fiscal space for countries and facilitate their transition to the new economy by providing resources for workforce skilling and stronger social safety nets. There is also new momentum around new approaches to innovation policy. The European Commission, for example, is starting to take a bigger role in shaping research and innovation through a “mission driven” approach that sets out to tackle specific societal challenges. Progress has also been made on stabilizing the financial system through better macro-prudential regulation and even trade tensions eased off slightly at the end of last year.
On the corporate side, considerable momentum is building for business action on environmental and social issues going into the new decade. The number of efforts to make business impacts measurable had taken off in recent years as environmental, social and governance (ESG) standards and metrics proliferated and the better quantification of the financial risks of climate change have brought investors on board in insisting on environmental performance. Similar strides will need to be made on social impact measurement and accountability.
Overall, close policy-maker and business leader attention and action in 2020 will be needed to leverage fiscal policy for new growth momentum and to upgrade current competition frameworks to sustain vibrant markets and safeguard opportunities for all to participate. Another focal point for careful policy-making will have to be the transition to a greener economy. There is much agreement globally that a green transition needs to happen—yet it will have significant distributional implications that must be acknowledged and addressed. Business leaders in 2020 are challenged to accelerate efforts to boost their environmental and social performance, focusing on streamlining ESG reporting and empowering middle management to implement their vision for change. This also includes reigning in the side effects of digital business models, such as data breaches and algorithmic biases.
While there is a range of challenges on the horizon at the dawn of the new decade, there are also promising pathways to greener, more inclusive economies. The Chief Economists Outlook presents a snapshot of the present moment and recommendations for policymaker and business leader action.