Economists see global growth coming under strain; India story intact: WEF

Business Standard

28-05-2025

Chief economists from across the world are the most optimistic about a strong economic expansion in South Asia, with India looking set to be the primary engine of growth in 2025 and 2026, a new survey showed on Wednesday.
The chief economists, however, warned of the overall global growth coming under strain from trade policy shocks and AI disruption, the World Economic Forum (WEF) said in its latest 'Chief Economists Outlook' report.
A majority of surveyed economists saw the current US economic policy as having a lasting global impact, with 87 per cent expecting it to delay strategic business decisions and heighten recession risks.
The global growth outlook was divided, with weak prospects in North America, resilience in Asia-Pacific and cautious optimism in Europe.
"The outlook for China remains muted, and the chief economists were divided over whether it will reach its target of 5 per cent GDP growth this year.
"Optimism remains highest for South Asia, where 33 per cent expect strong or very strong growth this year," the WEF said.
The survey of chief economists from across the world in private and public sectors found that the growth outlook for South Asia has been robust despite a challenging global environment.
Among all regions, chief economists surveyed were most optimistic about South Asia's prospects, with one-third expecting strong or very strong growth for the remainder of 2025.
However, the region's immediate challenges intensified in early May with the outbreak of military exchanges between India and Pakistan.
Across the region, chief economists expected moderate to high inflation.
The report noted that India, South Asia's largest economy, looked set to be the primary engine of growth, with GDP expansion forecast by the IMF at 6.2 per cent for 2025 and 6.3 per cent in 2026.
Although the rerouting of Chinese exports is casting a shadow over the region's economic prospects, a recently concluded trade deal between India and the UK was another source of optimism, it said.
Globally, public debt concerns were seen mounting as defence spending rises, with 86 per cent of chief economists expecting increased government borrowing.
Artificial intelligence was expected to drive growth, but 47 per cent anticipated net job losses.
The global economic outlook has worsened since the start of the year, as rising economic nationalism and tariff volatility fuel uncertainty and risk stalling long-term decision-making, the report said.
According to the WEF, a strong majority (79 per cent) of surveyed economists view the current geoeconomic developments as signs of a significant structural shift for the global economy rather than a temporary disruption.
"Policymakers and business leaders must respond to heightened uncertainty and trade tensions with greater coordination, strategic agility and investment in the growth potential of transformative technologies like artificial intelligence," WEF Managing Director Saadia Zahidi said.
"These steps are essential for navigating today's economic headwinds and securing long-term resilience and growth," she added.
Global uncertainty was seen as exceptionally high by 82 per cent of the chief economists.
While a narrow majority (56 per cent) expected conditions to improve over the next year, concerns persist.
Nearly all the chief economists (97 per cent) placed trade policy among the areas of highest uncertainty, followed by monetary policy (49 per cent) and fiscal policy (35 per cent).
Most chief economists (87 per cent) anticipated that businesses will respond to uncertainty by delaying strategic decisions, increasing recession risks.
An overwhelming majority (86 per cent) expected governments to meet rising defence spending needs through increased borrowing, potentially crowding out investment in public services and infrastructure.
According to the survey, AI was poised to drive the next wave of economic transformation, unlocking significant growth potential but also introducing serious risks.
Nearly half (46 per cent) of chief economists expected AI to deliver a modest global real GDP boost of 0-5 percentage points over the next decade, with a further 35 per cent projecting gains of 5-10 points.
Despite its potential, concerns persisted as 47 per cent expect net job losses over the next decade, compared to just 19 per cent who expect gains.
Above all, respondents highlighted the misuse of AI for disinformation and societal destabilisation as the top risk to the economy (53 per cent).
Other key risks included rising concentration of market power (47 per cent) and disruption of existing business models (44 per cent).