Categories: Business

World Economic Forum: Economists raise the alarm over looming lower economic activities, higher inflation, food insecurity

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3 years ago

The World Economic Forum’s Community of Chief Economists have expressed concern over looming lower economic activity, higher inflation, lower real wages and greater food insecurity globally in 2022.

These they feared are pointing to the devastating human consequences of the fragmentation of the global economy.

The forum which began its meeting this week, has therefore called for cooperation among business and government leaders in order to prevent economic misery and hunger for millions around the world.

In a statement on Monday, the forum said choices of both business and government are expected to lead to greater fragmentation in the global economy and unprecedented shifts in supply chains, creating a perfect storm of volatility and uncertainty.

These patterns it added, are expected to create further difficult trade-offs and choices for policy-makers, and – without greater coordination – shocking human costs. These are the key findings of the World Economic Forum’s quarterly Chief Economists Outlook, published on Monday.

Reversing previous expectations for recovery, the majority of respondents to the latest survey expect only a moderate economic outlook in the United States, China, Latin America, South Asia and Pacific, East Asia, sub-Saharan Africa and the Middle East and North Africa in 2022. In Europe, the majority expect the economic outlook to be weak.

“We are at the cusp of a vicious cycle that could impact societies for years. The pandemic and war in Ukraine have fragmented the global economy and created far-reaching consequences that risk wiping out the gains of the last 30 years. Leaders face difficult choices and trade-offs domestically when it comes to debt, inflation and investment. Yet business and government leaders must also recognise the absolute necessity of global cooperation to prevent economic misery and hunger for millions around the world.

“The World Economic Forum’s Annual Meeting this week will provide a starting point for such collaboration”, says Saadia Zahidi, Managing Director at the World Economic Forum.

According to the statement, the war in Ukraine, continued surges of COVID-19 variants and associated supply shocks are impacting expectations on inflation.

The majority of chief economists surveyed by the Forum expect high or very high inflation in 2022 in all markets except China and East Asia – with 96per cent expecting high or very high inflation in the US, 92per cent for Europe and 86per cent for Latin America.

In parallel, two-thirds of chief economists expect that average real wages will decline in the near term in advanced economies, while one-third are uncertain. Ninety percent of those surveyed expect average real wages to fall across low-income economies.

“With wheat prices expected to increase by over 40per cent this year and prices for vegetable oils, cereals and meat at all-time highs, the war in Ukraine is exacerbating global hunger and a cost-of-living crisis.

“Over the next three years, chief economists expect food insecurity to be most severe in sub-Saharan Africa and in the Middle East and North Africa. At the current trajectory, the world is on track for the worst food crisis in recent history, compounded by the additional pressure of high energy prices,” the statement read in part.

Faced with the challenge of containing inflation without tipping economies into recession, the statement noted that chief economists are divided. While a majority (57%) agree that the risks associated with higher inflation in low-income economies outweigh those associated with short-term contraction due to monetary tightening, opinions of the effects in high-income countries are more divided.

With fiscal spending set to increase in many countries to deal with current developments, balancing the risks of a cost-of-living crisis with higher debt is a key challenge for policy-makers.

In advanced economies, it noted that 54per cent of chief economists expect energy price subsidies while 41per cent expect food price subsidies. In low-income economies the vast majority feel that food price subsidies will be necessary (86%), while 60per cent expect energy price subsidies.

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