ISLAMABAD: The global economy is likely to weaken in the coming year amid uncertain domestic and international politics and unsettled financial markets, says the World Economic Forum’s (WEF) Chief Economists Outlook.

The report of the Davos-based WEF released on Friday highlights the challenges facing developing countries, with a majority of economists surveyed warning of a deepening trade-off between development and climate action.

The report was released ahead of a high-level meeting at the United Nations in New York that will discuss the challenges facing developing countries.

Although a majority of economists expect the recent global inflationary surge to ease, the prolonged tightening of financial conditions is expected to have lasting impacts, including a squeeze on business lending, increases in corporate debt defaults, and potential corrections in property and equity markets.

Economists warn of a deepening trade-off between development, climate action

Developing countries face the most acute effects of these global headwinds, with chief economists warning that progress towards global development goals could be undermined by geopolitical tensions (74 per cent) and tighter financial conditions (59pc). This is particularly concerning with slowing progress in many areas of the Sustainable Development Goals (SDGs), including food security, climate action and biodiversity protection. At the current pace, more than half a billion people will still live in extreme poverty in 2030.

A minority of chief economists expect increased cooperation (41 per cent) and private capital flows (30 per cent) between advanced and developing countries over the next three years. However, if flows of private capital can be unlocked, the economists are particularly optimistic about the potential positive impact on specific areas of development: digital transformation (97 per cent), energy access and affordability (76 per cent), food systems and nutrition (67 per cent), and climate change, biodiversity loss and pollution (67 per cent).

“The latest Chief Economists Outlook points to continuing weakness in the global economy,” said WEF Managing Director, Saadia Zahidi.

“It also highlights the urgent challenges and trade-offs being faced by developing countries, and the need for innovation, cross-border investment and technology transfer to make growth, climate action and human development compatible,” she said.

The economic outlook varies across regions for 2023-24. While the chief economists are most optimistic about growth in Asia, the outlook for China has dimmed since the May 2023 survey, following signs of deflationary pressures and fragility in the country’s real estate market.

Over 90pc expect moderate or strong growth this year in South Asia, with a clear increase since the last survey in the share of respondents expecting strong growth in the region, from 36pc to 52pc.

In the Middle East and North Africa, there is a noticeable increase in the share of respondents expecting at least moderate growth (79 per cent, up from 64 per cent in the last survey), with a similar outlook for 2024. Latin America, the Caribbean and sub-Saharan Africa remain at the weaker end of the outlook globally, and both regions are expected to improve slightly in 2024.

In the US, the outlook has strengthened since May, and a majority of economists now expect moderate or strong growth in both 2023 and 2024. In Europe, 77pc expect weak or very weak growth this year, but there is growing optimism about 2024, with expectations of moderate or strong growth jumping from 23pc to 60pc.

Published in Dawn, September 16th, 2023