Global economy stabilizes but fiscal support to wane, WEF economists warn

NEW YORK: The global economy is stabilising, but the fiscal support that cushioned successive shocks since 2020 is unlikely to play the same role in the year ahead, according to the World Economic Forum's Chief Economists' Outlook, published Tuesday.

A majority (56%) of chief economists surveyed expect the global outlook to remain stable or improve, a sharp improvement from May, when 89% expected conditions to weaken.

The improvement comes with limited confidence that the stabilisation will hold.

Nearly 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.

“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,” said Attilio Di Battista, Head of Economic Growth and Transformation at the World Economic Forum.

“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.”

Since 2020, fiscal support has been the most significant source of resilience for the global economy, cited by 69% of surveyed economists. Only 28% expect it to play that role over the next 12 months.

Instead, future resilience is 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.

Over the next 12 months, 97% of respondents anticipate artificial intelligence (AI) adoption to increase and 69% expect the technology to unlock meaningful productivity gains. 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.

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.

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.