Global Economic Outlook: Geopolitical Risks vs AI Growth Boost

The global economic outlook has worsened significantly, as reported in the latest World Economic Forum’s Chief Economists’ Outlook. Nearly 90% of the chief economists surveyed believe global growth will decline over the next year, reversing earlier optimism due to ongoing conflict in the Middle East and concerns about the closure of the Strait of Hormuz, which they view as a major threat to the global economy.

The economists indicate that the closure of the Strait of Hormuz would be more disruptive than last year’s tariff issues and could have an impact as severe as the COVID-19 crisis if it continues into the latter half of the year. They expect global inflation to rise, with 94% predicting an increase within the next year. Saadia Zahidi, Managing Director of the World Economic Forum, emphasized that the longer the disruptions last, the greater the long-term costs will be for those who are least able to bear them.

The economic outlook varies by region, with the Middle East and North Africa region expected to be the hardest hit. While 88% of chief economists foresee weak growth in this area, sub-Saharan Africa is experiencing the most significant increase in inflation. Europe faces risks of stagflation, while India and the United States are expected to remain relatively strong due to domestic demand.

Most economists do not predict a recession in the next 12 months, but there is concern about increased financial market volatility. Additionally, while optimism about artificial intelligence (AI) adoption is high, the expected speed of productivity gains has decreased. Economists believe meaningful productivity improvements will take longer, particularly in fields like engineering and healthcare.