Global growth weakens, MENA hardest hit
The global economic outlook has deteriorated sharply in recent weeks, and the fallout from the Middle East crisis is expected to hit the Middle East and North Africa the hardest, according to the latest edition of the World Economic Forum’s Chief Economists’ Outlook
Nearly nine in ten chief economists surveyed expect global growth to weaken over the next 12 months, in contrast to the cautious optimism seen at the start of the year, as conflict in the Middle East and the closure of the Strait of Hormuz fuel concerns over a major global economic shock.
Chief economists expect that If the closure of the Strait of Hormuz persists into the second half of the year, its impact could approach the severity of the COVID-19 crisis, compounding effects across global supply chains, energy and food costs. An overwhelming 94% of the surveyed chief economists expect global inflation to increase over the coming year.
“Only months ago, the Chief Economists community was cautiously optimistic. The conflict in the Middle East changed that, and the economic scarring from the situation thus far is already expected to last into the months ahead,” said Saadia Zahidi, managing director, World Economic Forum. “The longer the disruption lasts, the heavier the long-term cost for those who can least afford it.”
Uneven regional outlook
The Middle East and North Africa region is the hardest hit. After being viewed as one of the brighter economic regions only months ago, 88% of the surveyed chief economists now expect weak or very weak growth – the sharpest regional reversal in the survey – a direct reflection of the conflict, higher regional food exposure, and weaker employment prospects. Elsewhere, the outlook is mixed: inflation expectations have climbed sharply in sub-Saharan Africa, while Europe faces mounting stagflation risks as growth weakens and inflation fears mount. By contrast, India and the United States are expected to remain relatively resilient, supported by domestic demand and investment. This edition also examines how multinational companies are recalibrating investment and supply chains in a more fractured risk environment, with the US, India and South-East Asia seen as the most attractive business locations.
Despite the sharp deterioration, most of the chief economists do not expect a recession within the next 12 months, even as they see little prospect of the economy growing more resilient in the near term. Much will depend on the length of the disruption: a shorter shock could leave room for recovery, while a prolonged closure would deepen the strain on the global economy. Financial markets are expected to come under increasing strain, with 79% of respondents anticipating rising volatility in private debt markets over the next year; 74% also expect public debt market volatility to increase and 68% expect stock market volatility to increase.
The Chief Economists’ Outlook builds on consultations and surveys with leading chief economists from the public and private sectors, organised by the World Economic Forum’s Centre for the New Economy and Society.
