Financial and Monetary Systems

Are there glimmers of economic hope as we begin 2023?

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63% of respondents saw global recession in 2023 as “somewhat” or “extremely” likely. Image: Unsplash/Christine Roy

Emma Charlton
Senior Writer, Forum Agenda
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This article was updated on 7 February, 2023.

  • Growth seen slowing in 2023 but some tentative positive signs.
  • IMF revises up its 2023 growth forecast and says inflation is set to peak.
  • Long-term coordinated and strategic approach is likely to work best, according to leading Chief Economists.

After a tough year that included soaring inflation, war in Ukraine and a cost-of-living crisis, any signs of positivity are welcome.

And, as we begin 2023, there are signs of a slight increase in optimism, to counterbalance the uncertainty that still clouds the outlook and to offset a dark 2022.

After Russia’s full-scale invasion of Ukraine tipped geopolitical order into disarray, it also sent shock waves throughout the global economy, heightening uncertainty. Inflation surged to levels not seen for generations and the rising cost of living hit consumer confidence.

Now, a sense of hope is emerging, with a palpable improvement in sentiment felt at the World Economic Forum in Davos, and the International Monetary Fund (IMF) nudging up its 2023 growth forecast while saying inflation is set to peak.

Those refinements are also reflected in the World Economic Forum’s Chief Economists Outlook 2023, which draws on the collective views and individual perspectives of a group of leading Chief Economists, through the Forum’s Chief Economists Survey and consultations with the Chief Economists Community.

Here are the three main themes.

1. China opens up

China’s Vice-Premier Liu He told delegates at the World Economic Forum’s Annual meeting in Davos that the country is continuing to liberalize and loosen restrictions on its real estate sector. The news bolstered optimism about the country and its growth outlook.

Over half of respondents to this year’s Chief Economists Outlook expect a pickup to moderate growth or better in China this year.

A graphic showing results from different places on what the expectation is for economic growth in 2023.
Over half of the Chief Economists surveyed expect China to experience growth. Image: World Economic Forum.

2. Global growth glimmers

There were also tentative signs of optimism on wider global growth at the Forum’s Annual Meeting, with participants noting an improvement in the outlook – and Kristalina Georgieva, the Managing Director of the IMF, saying the global outlook was better than feared.

While the cost-of-living crisis, tightening financial conditions and Russia’s invasion of Ukraine are still clouding the outlook, there are some reasons for positivity. In January, the IMF revised up its growth projection for 2023.

“The balance of risks remains tilted to the downside, but adverse risks have moderated,” the IMF said.

It now forecasts global growth of 2.9% in 2023, down from 3.4% in 2022, but 0.2 percentage points higher than the prediction it made in October 2022. While an improvement, this remains below the historical (2000-19) average of 3.8%.

A graphic showing growth projections for the world economic outlook update January 2023.
Economic outlook. Image: IMF.

Even as the outlook improves, of the chief economists surveyed by the Forum, 63% saw global recession in 2023 as “somewhat” or “extremely” likely.

A graphic showing how likely likely a global recession is for 2023.
Prospect of global recession in 2023. Image: World Economic Forum.

3. Inflation set to fall from very high levels

Global inflation is predicted to fall to 6.6% in 2023 and 4.3% in 2024 – from 8.8% in 2022 – the latest IMF predictions show. While this is still way above pre-pandemic (2017-19) levels of about 3.5%, any moderation will likely be welcome.

Even so, the human toll of these factors was highlighted by the Chief Economists’ report, specifically in relation to the cost of living and how wages are keeping pace with inflation.

However, survey results suggest the cost living crisis could be reaching a peak, as 68% of respondents believe it will be less severe by the end of 2023.

A graphic showing how respondents view the cost of living crisis.
Is the cost-of-living crisis about to peak? Image: World Economic Forum.
Discover

How is the World Economic Forum improving the global financial system?

As we enter 2023, even as we see tentative signs of optimism, the outlook for the global economy remains challenging, as outlined in the Forum’s reports. This will increase the pressure on global leaders to act both for short and long-term goals, and test the resilience of societies. The latest edition of the report calls for a long-term strategic approach.

“This mindset of investing in the future – even in the midst of short-term crises – will determine the long-term systemic health of our societies for generations to come,” the Chief Economists say. “If the wave of crises that has washed over the world since the turn of the century teaches us anything, it is that we neglect a vision for future-preparedness at our peril.”

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

Related topics:
Financial and Monetary SystemsEconomic ProgressGeopolitics
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