During the last decade, moderate but stable growth has given way to what the International Monetary Fund (IMF) has called a “synchronized slowdown” — weakened growth among the world’s economies. Last year’s Global Risks Report, produced by the World Economic Forum (WEF) in partnership with Marsh & McLennan and Zurich Insurance Group, cautioned that a gradual deceleration was underway, and the evidence suggests that, since then, the slowdown of the world economy has further materialized.
By the third quarter of 2019, six of the world’s largest seven economies (Japan is the exception), which together represent more than half of global production, had decelerated. These trends likely explain why our multistakeholder community rated “recession in a major economy” as the ninth risk most likely to increase in 2020.
Going forward, rising trade tensions, lower investment, weak confidence and high debt risk a prolonged slowdown of the world economy. At the time of writing this report, the IMF had lowered its last five estimates of world output for 2019 and expected a growth rate of 3.0 percent — a sharp decline from 3.6 percent in 2018 and the slowest since the 1.7 percent contraction in 2009. For 2020, the IMF had also downgraded its forecast from 3.7 percent to 3.4 percent.
“Economic confrontations between major powers” is the most concerning risk for 2020, according to members of the Forum’s multistakeholder community; this is the same risk our multistakeholder network rated as the top risk last year. It is clear why short-term economic risks ranked high in the Global Risks Perception Survey: global trade, which for decades has been an engine for growth, is slowing down. World Trade Organization data for the first three quarters of 2019 shows that total world merchandise trade decreased 2.9 percent from the previous year — it decreased in the world’s top ten traders.
Investment is indispensable for boosting productivity. Globally, investment has been affected by low expected returns, uncertainty about economic policy in major economies, and ongoing and emerging geopolitical tensions (see Chapter 1, Global Risks 2020). In our survey, “protectionism regarding trade and investment” and “populist and nativist agendas”—two major obstacles to the free flow of foreign direct investment — were rated as the fifth and sixth risks most likely to increase through 2020.
Business confidence, a precursor to investment, has also deteriorated during 2019. The Business confidence index—constructed by the Organisation for Economic Co-operation and Development (OECD) using production data and business sentiment to anticipate future performance—signals that the state of the global economy is expected to worsen in the short term. At the time of writing this report, the index had declined for 14 consecutive months, dropping below the no-change threshold for the first time since 2016 and reaching a 10-year low in October of last year.
Private and public debt has been accumulating since the crisis. According to the IMF, the global ratio of debt-to-GDP increased by 11 percentage points between 2009 and 2017. Across G20 economies, public debt is expected to reach 90 percent of GDP in 2019 — the highest level on record — and to grow even more, to 95 percent in 2024.
Higher debt and economic stagnation help to explain why “fiscal crises” are the top-rated risk for businesses globally over the next 10 years—according to our Executive Opinion Survey. In the current global context, weak public finances have two implications: they jeopardize whatever remaining margin governments have to address a recession, and they could aggravate already hard-felt social tensions (see 2019 Regional Risks for Doing Business report).
The world learned from the European sovereign debt crisis that drastic fiscal corrections and public austerity measures can shrink the welfare state with political and social consequences that many governments would be neither willing nor able to incur. However, if the combination of a prolonged economic slowdown and a public finance crisis pressures governments into spending to address citizens’ immediate needs, they will be left with little margin for investment to confront the slowdown.