Forum Institutional

Tough times ahead for the global economy, say experts

A group of chief economists expect high inflation, greater food insecurity and lower wages to persist in the global economy, in 2022.

A group of chief economists expect high inflation, greater food insecurity and lower wages to persist in the global economy, in 2022. Image: Unsplash/ Mathieu Stern

Stefan Ellerbeck
Senior Writer, Forum Agenda
Share:
Our Impact
What's the World Economic Forum doing to accelerate action on Forum Institutional?
The Big Picture
Explore and monitor how Economic Progress is affecting economies, industries and global issues
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

Davos Agenda

This article is part of: World Economic Forum Annual Meeting

Listen to the article

  • In a new report, leading economists say the world is facing a complex combination of challenges.
  • Inflation is expected to remain high in 2022, especially in the US, Europe and Latin America.
  • The world is on track for the worst food crisis in recent history and could lead to social unrest in developing countries.
  • Localization and politicization of supply chains is expected to accelerate.

A group of chief economists expect high inflation, greater food insecurity and lower wages to persist in 2022.

These are the key findings of the World Economic Forum’s Chief Economists Outlook report. It aims to identify priorities for further action by policymakers and business leaders in response to the compounding shocks to the global economy from the COVID-19 pandemic and geo-political events.

Have you read?

The state of global economy

Instead of entering a post-pandemic recovery phase, economies are reeling from the fallout from the war in Ukraine as well as new outbreaks of COVID-19 and lockdowns in major industrial centres. Beyond the immediate humanitarian impact of the conflict and the ongoing health consequences of the pandemic, this has meant downward revisions to growth prospects and exacerbated inflationary pressures from disruptions to commodities and food supplies. The combined impact of these shocks means a continued focus on managing crises, a high risk of secondary shocks and a diversion from investment.

The view of the general public in high-income countries is also pessimistic. In only three countries – the US, Australia and Canada – do more people say they expect their standard of living to rise rather than fall. In seven of the 11 countries recently surveyed by Ipsos and the World Economic Forum, a majority say they are concerned about their ability to pay their household bills over the next six months.

Chart show public opinion of financial burdens on the global economy
Chart show public opinion of financial burdens on the global economy Image: Ipsos/WEF survey

Disrupted recovery

At the beginning of 2022, the consensus forecast was for the largest economies to have returned to pre-COVID growth paths by the end of the year, led by China, Europe and the US. The OECD had forecast global growth at 4.5%. Forecasts were more subdued for low and middle-income countries, with growth predicted still to be 5.5% below trend in 2024 (excluding China). The expectation was that overall inflation would be short-term, upward movement on wages medium-term, and global fragmentation medium- to long-term but ultimately reversible.

Six months later, the picture is significantly different. The majority of respondents in the latest survey expect weak growth in the United States, China, Latin America, South Asia, East Asia, sub-Saharan Africa and the Middle East and North Africa. In Europe, the majority expect economic activity to be very weak.

Global economies that are expected to have high inflation and high food insecurity.
Global economies that are expected to have high inflation and high food insecurity. Image: World Economic Forum

The key challenges ahead for the global economy:

1. Higher inflation and cost of living alongside lower real wages

According to the views of the economists surveyed for the Outlook report, the inflation outlook in 2022 remains toughest for Latin America and the US. Fewer respondents expect very high pressures for MENA, Europe, sub-Saharan Africa, South Asia and East Asia, including China. Overall, inflation expectations are highest for the US, followed by Europe and Latin America.

Chart showing 2022 inflation outlook for global economy, by country.
Chart showing 2022 inflation outlook for global economy, by country. Image: WEF economist report

In parallel, two-thirds of economists expect average real wages to decline in the near term in developed economies, while one-third are uncertain. However the vast majority of respondents expect average real wages to fall across low-income economies.

2. Greater food insecurity in developing economies

The war in Ukraine is having significant global repercussions, says the report. In 2020, 36 countries imported more than 50% of their wheat from Russia or Ukraine. In March 2022, the Food and Agriculture Organization’s Food Price Index leapt to its highest level since its inception in 1990.

Vegetable oils, cereals and meat sub-indices are at all-time highs, while wheat prices are forecast to increase by more than 40%. In the next three years, economists expect higher food insecurity in Latin America and South Asia and a highly insecure environment in sub-Saharan Africa and in the Middle East and North Africa.

The Outlook survey cites a UN report which says a combination of rising food and energy prices and their impact on already strained public budgets in many countries could lead to food shortages and blackouts, and trigger secondary armed conflicts. There is agreement among the economists in the Forum report that food security is unlikely to be affected in the US, Europe and, to a lesser extent, China and the East Asia and Pacific region. As a reaction to the drop in global supply, export restrictions are being erected in the name of national interests.

Chart showing expected food security outlook for the global economy.
Chart showing expected food security outlook for the global economy. Image: WEF economist report.

3. More localization and politicization of supply chains

Global supply chains have been increasingly redrawn over the past years, including through the shock of Brexit, the deep impact of the global pandemic, and uncertainty caused by the war in Ukraine. Amid fears of continued shocks, both governments and business are rethinking their approach to exposure, self-sufficiency and security in trade and production relationships, says the report.

Chief economists expect a substantial restructuring of supply chains in the next three years. The realignment of global value chains along new geopolitical fault lines is also considered likely. Around 1,000 companies have announced stronger measures in relation to their presence in Russia than international sanctions currently require.

4. Greater rollback of globalization

As well as fragmenting value chains, the report says the pandemic experience has strained trade relationships and financial ties. The repercussions from recent geopolitical events are both cementing and disrupting these trends, creating new fault lines in physical integration and compounding rifts where spheres of US and Chinese influence have become a feature of the current system. A majority of economists polled expect goods, technology and labour markets to fragment further.

The Outlook report concludes that aside from mitigating the immediate energy price shock, governments find themselves faced with the medium-term challenge of overhauling their national energy policies while aiming to balance supply security with climate-related targets. It warns that prioritizing short-term national interests risks deprioritizing the urgent need for action to combat climate change.

Faced with domestic pressures and tough decisions in uncertain conditions, the report’s authors believe it will therefore be critical for policy-makers to remain focused on the longer-term horizon, and a continued understanding of the world’s shared humanity and common future.

Discover

How is the Forum helping to navigate global value chain disruption?

Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Forum InstitutionalEconomic GrowthGeo-Economics and PoliticsFood and Water
Share:
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

Institutional update

World Economic Forum

May 21, 2024

About Us

Events

Media

Partners & Members

  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum