The global economy is under pressure — but how bad is it?

The global economy is under pressure from multiple complex and interconnected crises.

These challenges, which include inflation, climate change, war in Europe, supply chain disruptions and the COVID-19 pandemic to name a few, have coalesced into what experts have called a “polycrisis”.

Like that of the World Economic Forum Global Risks Report 2023 stated, “the return to a ‘new normal’ after the COVID-19 pandemic was quickly interrupted by the outbreak of war in Ukraine, which led to a new series of food and energy crises, causing problems that decades of progress had tried to solve.”

However, the world economy has come under enormous pressure and suffered major distributions before. So how bad is the situation today?

Ahead of the Forum’s 2023 annual meeting in Davos, Switzerland, two experts share their views on the myriad threats facing the global economy and detail historical parallels that can help policymakers address the today’s challenges

Kenneth Rogoff, Professor of Economics and Maurits C. Boas Professor of International Economics at Harvard University

“With Europe’s most dangerous conflagration since World War II, the pandemic refusing to die quietly, slowing growth and the highest inflation rates in four decades, the world economy has indeed begun the 2023.

“In navigating these risks, the biggest challenge for policymakers and business leaders will be adjusting to the end of ultra-low interest rates after the financial crisis. The era when debt looked like a free lunch and could use to solve anything is probably over, partly because global debt has risen so much, partly because many countries now need to dramatically increase investment in both defense and green energy investment, and partly because of the looming rifts in globalization The 2020s so far look more like the 1970s.

“The good news is that central banks have a much better understanding of how to deal with supply shocks that raise inflation. The bad news is that the supply-side reforms that helped lift advanced economies in the 1980s and developing economies during the 1990s, have become politically unacceptable in many areas. The risks of the global economy falling into recession by 2023 are high; if so, the financial consequences could be brutal.”

Landry Signé, Executive Director and Professor, Thunderbird School of Global Management; Senior Fellow, The Brookings Institution, Global Economy and Development

“The polycrisis today means that the challenges facing the global economy are deeply interconnected with all global systems: the global political economy, international security, global health, education and energy, among d ‘others. As the world recovered from the pandemic, the energy crisis of the war in Ukraine led to new complexities in addition to inflation, climate change, mass migration and inequality. Today’s polycrisis includes relations between systems that include common controllers, domino effects and vicious cycles interacting at the same time, which continue to exacerbate vulnerabilities.

“While the world has experienced interconnected crises before, including post-World War I, the oil shocks of the 1970s and the financial crisis of 2008, the situation now is unique given the interconnectedness accelerated by the Fourth Industrial Revolution. Looking to the future, the world should capitalize on what has worked in the past: dialogue, multi-stakeholder collaboration and multilateralism.To do this, responsible and agile leadership is essential.

“The post-World War I period taught us that turning inward in times of global challenges only exacerbates problems that lead to more violent conflict. Leaders must choose to deal with unprecedented complexity with unprecedented transformation, even if that means power dynamics or relationships change. History has also shown us that digital technologies can be disruptive, but they can also be powerful tools for reducing uncertainty and visualizing complex relationships.”