The World Economic Forum (WEF) has warned that the looming global recession this year will force businesses to cut costs significantly in response to economic headwinds, leaving a number of workers out of jobs.
In its January, 2023 Chief Economists Outlook released yesterday, the WEF said many aspects of the outlook remained gloomy although there were some grounds for optimism later in the year, such as easing inflationary pressures.
The WEF report, which was released at the beginning of the Annual Meetings 2023 in Davos, drew 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.
Nearly two-thirds of respondents considered a global recession to be likely in 2023, including 18% who consider it extremely likely, more than twice as many as in the previous survey in September, 2022.
All of the chief economists surveyed expected weak or very weak growth in 2023 in Europe, while 91% expect weak or very weak growth in the US.
In China, expectations of growth were polarised, with respondents almost evenly split between those who expect weak or strong growth.
Recent moves to unwind the country’s highly restrictive zero-Covid policy were expected to deliver a boost to growth, but it remains to be seen how disruptive the policy shift will be, particularly in terms of its health impacts.
At least 68% of respondents expected weak growth in 2023 for Latin America and the Caribbean, and for Sub-Saharan Africa as challenging global financial conditions were also weighing on the economic outlook.
Around nine out of 10 respondents also expected both weak demand and high borrowing costs to exert a significant drag on business activity in 2023, with more than 60% also expecting higher input costs to be a significant factor.
In response to these challenges, most chief economists expect multinational businesses to cut costs this year, with 86% of respondents saying they expected businesses to cut operational expenses and 78% expecting workers to be laid off.
More than three-quarters or 77% of respondents also expected businesses to optimise their supply chains.
More broadly, the chief economists expect the global landscape to remain challenging for businesses, with the wider economic shift likely reverberating through trade, investment, labour and technology flows, creating myriad challenges and opportunities for business.
WEF managing director, Saadia Zahidi, said that with two-thirds of chief economists expecting a world-wide recession in 2023, the global economy is in a precarious position.
“The current high inflation, low growth, high debt and high fragmentation environment reduces incentives for investments needed to get back to growth and raise living standards for the world’s most vulnerable,” Zahidi said.
“Leaders must look beyond today’s crises to invest in food and energy innovation, education and skills development, in job-creating, and high-potential markets of tomorrow. There is no time to lose.”
One positive signal the report highlighted was that supply chain disruptions were not expected to cause a significant drag on business activity in 2023.
The chief economists see the crisis potentially nearing its peak, with the majority expecting it to have become less severe by the end of 2023.
A similar trend was evident in relation to the energy crisis, with 64% expecting some improvement by year-end.
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