India's economy strong, high debt levels, fiscal challenges bother global recovery: WEF report

A majority of chief economists across the globe are cautiously optimistic about the state of the global economy, citing India's strong performance as the primary driver behind South Asia's leading position in the global economic landscape.

According to a recent report by the World Economic Forum, chief economists expressed concerns about rising debt levels and fiscal challenges posing significant pressures on economies worldwide, consequently leaving them vulnerable to potential future crises.

One major worry highlighted in the report is the looming fiscal squeeze, where increasing debt-servicing costs are constraining governments' ability to invest in critical sectors such as infrastructure, education, and healthcare, thereby hindering sustainable growth.

"Easing inflation and strong global commerce are fuelling cautious optimism for recovery but elevated debt levels are becoming a growing concern in both advanced and developing economies," the World Economic Forum said in its latest Chief Economists Outlook.

In today's economic landscape, the report noted that there is a notable issue gaining traction known as the "fiscal squeeze". This phenomenon refers to the predicament where escalating debt-servicing expenses impose constraints on governmental ability to allocate resources towards critical domains like infrastructure, education, and healthcare. Particularly in emerging markets, a significant proportion – 39% to be precise – of economists anticipate a surge in defaults within the upcoming year.

In the context of developing economies, the WEF report indicated that 39% of economists anticipate a rise in defaults over the next year, underscoring the fragility of financial systems in these regions.

“The global economy may be stabilising, but fiscal challenges continue to pose significant risks," said Saadia Zahidi, Managing Director, World Economic Forum. 

Zahidi added: "Addressing these challenges requires coordinated efforts from policy-makers and stakeholders to ensure that economic recovery is not undermined by these pressures. Now is the time for pragmatic solutions that can strengthen both fiscal resilience and long-term growth."

Region-wise data 

The survey revealed that almost 90% of chief economists foresee moderate or robust growth in the United States for the years 2024 and 2025. This positive outlook reflects a sense of confidence among economists in the US economy experiencing a 'soft landing' following a period of tight monetary policies.

Ultimately, while there is a sense of cautious optimism among chief economists regarding global economic prospects, the underlying concerns about debt levels, fiscal challenges, and potential defaults suggest a complex and uncertain economic landscape in the near term.

In a recent survey, approximately 80% of participants acknowledged that the outcome of the United States election is poised to significantly impact global economic policy. This concern is largely driven by election-related risks, perceived as a key issue for the upcoming year.

On the other hand, nearly three-quarters of those surveyed anticipate sluggish growth across Europe for the remaining duration of the year. In a similar vein, China continues to grapple with challenges, as around 40% of economists predict weak or very weak growth for both 2024 and 2025.

The report noted South Asia stands out, with over 70% of economists predicting strong or very strong growth in 2024 and 2025, driven by India's robust performance.

Challenges for balanced growth

Policymakers are under increasing pressure to achieve a better balance between economic growth and other key priorities, such as environmental sustainability, economic equality, and social cohesion. A significant majority of respondents, amounting to two-thirds, acknowledge that making progress on these goals is imperative, even if it means a potential slowdown in economic growth. Nevertheless, only a mere 12% believe that current efforts are effective in addressing these challenges.