Leading economists divided over likelihood of global recession

7 May 2023

A recent report highlights the fog of uncertainty that is shrouding the global economic outlook. But there is a consensus that SA will have almost no economic growth this year.

The global economy may, or may not, fall into a recession this year.

That, at least, is the hazy picture that emerges from the latest Chief Economists Outlook report compiled by the World Economic Forum (WEF). It includes findings based on surveys of leading economists in the private and public sectors conducted in March and April.

This poll found that 45% of those surveyed said a global recession was likely this year, while 45% said this scenario was unlikely. This is rather like a weather forecast that says there is a 45% chance of rain, a 45% chance of sunny skies and a 10% chance of a partly cloudy day.

That speaks to the fog of uncertainty that is shrouding the global economic outlook. There is no consensus on where it is headed this year. This matters, because companies often make investment decisions and governments craft policy, including budget, spending and debt targets based on economist forecasts. Households face the same dilemma.

Do you take an umbrella with you, or do you not? It depends on who you ask.

“This [polarised] response suggests that there is little consensus about how to interpret and weigh the emerging data about the health of the global economy, a pattern that may have been intensified by the fact that the survey was carried out during the volatile period of financial distress that followed the collapse of Silicon Valley Bank,” the report says.

Volatility — be it in the form of asset prices, geopolitical conflict or tensions, or supply chain disruptions — raises the mists of uncertainty. The fallout from the Covid-19 pandemic, Russia’s invasion of Ukraine and the sudden spike in global inflation and the aggressive raising of interest rates by central banks worldwide to contain it are all jarringly unexpected mega-trends that have made economic forecasting a thumbsuck of note.

For the US economy, the chief economists surveyed were split down the middle, with half expecting moderate or strong growth and half forecasting weak or very weak growth. If you are a US business or household — or a country that exports lots of stuff to the US — do you don a raincoat or not?

Regional trends

At least there is more consensus on other regional trends.

“[C]hief economists see the most buoyant economic activity among the economies of Asia. For China, in particular, there is near unanimity that growth will be moderate or better this year,” the report says. This is largely because China has lifted its stringent zero-Covid policies.

“At the other end of the spectrum is Europe, where 75% of chief economists expect growth this year to be weak or very weak. Dismal as this outlook is, it marks a significant improvement since the last Outlook was published in January: then, 68% expected very weak growth in Europe in 2023; now, that figure is down to 6%. The improvement can in part be attributed to the region’s winter resilience in the face of the energy crisis,” the WEF says.

That’s good news for South Africa, as Europe is a key destination for exports from here.

But the outlook for sub-Saharan Africa and other emerging market regions outside of Europe remains poor.

“Latin America and the Caribbean and sub-Saharan Africa also remain at the weaker end of the outlook, with more than half of respondents expecting weak growth. Both regions confront a difficult mix of headwinds: tepid global conditions, policy uncertainty, weak investment environments and some of the highest inflation rates globally,” the report says.

These regions are also bearing the brunt of the global cost-of-living crisis and “around 80% of the chief economists surveyed said they expect the cost of living to remain at crisis levels in many countries throughout 2023”.

This is something that most South African consumers can sadly relate to, with food inflation hitting a 14-year high in March of 14.4% against the backdrop of an unemployment rate well north of 40% by its broadest measure.

One thing that there is a unanimous consensus on is that South Africa’s economy, largely as a consequence of the unfolding power crisis, will have almost no growth at all this year. And it has already probably fallen into a recession, which is defined as two straight quarters of economic contraction. The economy shrank by 1.3% in the last quarter of 2022 and probably contracted again in the first three months of this year — at least that is the signal from a range of indicators so far.

In South Africa, there is no question about the umbrella or raincoat. But with an El Niño weather pattern also looming later this year, the outlook is actually for cloudless skies that could scorch any prospects for economic growth next year as well. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R29.

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