…Worry Over Fiscal Constraints, Surging Inflation, AI Investment Uncertainty
Economists globally have projected that despite concerns about the prolonged Middle East tensions, the world’s economy will sustain its current positive outlook in the year ahead with the attendant implications for a boost in the Gross Domestic Product (GDP) worldwide.
A statement from the World Economic Forum (WEF) on the outlook of the global economy in the years ahead indicated that the global economy had been stabilizing, but the fiscal support that cushioned successive shocks since 2020 is unlikely to play the same role in the year ahead.
The WEF stated that the ‘Chief Economists’ Outlook’ published today showed that
a majority (56%) of chief economists surveyed expected the global outlook to remain stable or improve, reflecting a sharp improvement from May, when 89% expected conditions to weaken.
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The improvement comes with limited confidence that the stabilization will hold as early all respondents (97%) name geopolitical conflicts as a likely source of uncertainty over the next year, 58% expect asset-price corrections, and only one-quarter expect the global economy to become more resilient.
Commenting on the report’s findings, the WEF’s Head of Economic Growth and Transformation, Attilio Di Battista, said: “Chief Economists expect the global economy to stabilize, but uncertainty remains high with geopolitical volatility, potential asset-price corrections, greater scrutiny of AI investment and persistent cost-of-living pressures.
“Government support played a critical role in navigating successive crises, but fiscal capacity is likely to be more constrained going forward. The priority now is to strengthen the foundations of resilience before the next shock arrives”, the economist added.
The economists noted that since 2020, fiscal support had been the most significant source of resilience for the global economy based on the position of 69% of surveyed economists while only 28% expect it to play that role over the next 12 months.
They pointed out that instead, future resilience was expected to depend increasingly on flexible supply chains, technological innovation and energy-market adaptation, with the United States and China seen as best placed to withstand shocks.
Relating to the impact of AI on the global economy, the report further revealed that over the next 12 months, 97% of respondents anticipated artificial intelligence (AI) adoption to increase and 69% expect the technology to unlock meaningful productivity gains.
According to them, around eight in 10 (78%) expect data-centre investment to drive a significant share of global growth, but 79% expect the expansion to face significant pushback from local communities.
The WEF further clarified: “At the same time, 61% do not expect data-centre investment to drive a significant share of global job creation, and majorities expect the expansion to raise electricity (78%) and water (58%) prices.
“The AI race between China and the United States is expected to narrow, with 69% expecting Chinese large language models to catch up to their US counterparts in the next 12 months.
“Seventy-seven percent of surveyed economists expect geoeconomic fragmentation to rise over the next year, with 55% anticipating tariff increases in the United States and 43% in Europe. Trade and investment will continue to adapt: two-thirds expect global trade volumes to rise, and 83% expect Chinese exports to markets outside the United States to increase.
“The United States is expected to continue being the most favourable business environment for multinational companies, followed by South-East Asia and Europe, which both rose by one position. India has fallen to fourth place; China remains fifth.
“Growth prospects have strengthened across most regions but remain uneven. India, South-East Asia, Central Asia and the United States receive the strongest assessments. China’s outlook has weakened, with about one in three economists expecting weak growth. Europe has improved modestly but remains the weakest region, with 61% expecting weak or very weak growth. Around one in three economists expect unemployment to increase in the United States, China and Europe, while monetary policy is expected to diverge. Tighter settings are expected in Japan (70% of surveyed economists), the euro area (53%) and the United States (42%), while 49% anticipate looser policies in China”, it added.
In addition, the WEF stated that respondents anticipated increases in costs of living, led by food (88% of respondents), electricity (83%) and transport (77%), adding that most surveyed economists expect real incomes to decrease or stagnate across most regions, apart from South-East Asia and India, where over 60% of respondents anticipate increases.
The Forum concluded that the economists expected governments to favour broad, visible responses: tax reductions on essential goods (60%), consumption subsidies (54%) and price caps (50%) are viewed as most likely, while only 36% expect tax reductions for low-income households and 26% expect targeted cash transfers.
