New Year forecasts and expectations

Mahmoud Mohieldin
Tuesday 23 Jan 2024

The beginning of every year is a time for economic forecasts and assessments, some of them ranking the respective risks weighing on different regions, writes Mahmoud Mohieldin

 

At the start of every new year the media is filled with economic forecasts and a race by experts and think tanks to meet the public’s thirst for statistical surveys and comparative assessments on the economy.

However, as we know, predictions can be hit or miss, and even informed perceptions are captive to what their authors see or do not see. Forecasting models are never free of bias, misreadings of the past, and failures to fully appreciate the nature of recent developments.  

Given how rapidly the world is changing, they increasingly tend to be wide of the mark, as a quick comparison between forecasts made in the past and actual developments today will confirm. If they prove correct, it may be purely by chance or because they confine themselves to variables that are impervious or resilient to shocks.

As for perceptions, these are inherently shaped by individual outlooks, experience, and the environment, as well as by the availability of information and the analyst’s ability to understand it objectively.

It is not just habit that accounts for the popularity of these New Year reports. Decision-makers in government, public institutions, and the private sector also use them, with increasing levels of risk. Some might use them to influence the markets or shape public opinion in ways that promote their own influence. Other forecasts fall into the category that the US sociologist Robert Merton called self-fulfilling prophecies – in that the predictions made can themselves influence behaviour in such a way as to make them true.  

For example, if it is put about that a company will go bankrupt or that certain factors will drive up inflation, and if the public lacks reliable information that tells them otherwise, these troubles will strike.

To return to the subject of New Year reports, the World Economic Forum (WEF) in the Swiss resort of Davos brought together 1,490 experts from academia, business, government, the international community, and civil society earlier this month to assess global risks. Their ranking in terms of severity was as follows: misinformation, extreme weather events, societal polarisation, cyber insecurity, interstate armed conflict, lack of economic opportunity, inflation, involuntary migration, economic downturn, and pollution.

AXA, the insurance firm that also assesses global risks to inform its pricing policies, has produced a recent risk report. Its findings are not much different from those it made in the past two years, albeit with regional variations.

The methodology involves aggregating the assessments of 3,500 risk-management experts from 50 countries and surveys of 24,000 to 26,000 respondents from 15 countries, thereby enabling regional and international comparisons. The AXA report ranks global risks as follows: climate change, cyber security risks, geopolitical instability, risks related to AI and big data, energy risks, natural resources and biodiversity risks, financial stability risks, social tensions and movements, epidemics and infectious diseases, and macroeconomic risks.

An attempt to identify the risks looming over the Arab region draws on the rankings of both Africa and Asia and finds that climate change tops the list across the board. Next comes cyber insecurity, which ranks second in Asia and third in Africa where financial stability risks rank second, while macroeconomic risks and risks related to financial and monetary policies come in fourth and fifth. In Asia, AI, data security risks, and financial stability risks place third, fourth and fifth, respectively.  

In addition to collating the input from experts, the WEF report also conducted a survey of the risk perceptions of more than 11,000 business leaders in 113 economies. The purpose was to gain insights into local concerns and priorities and identify regional variations in risk perceptions. The survey included 12 Arab countries: the six Gulf Cooperation Council (GCC) states, Algeria, Egypt, Iraq, Jordan, Morocco, and Yemen.

In their rankings of the top five risks, the business leaders surveyed listed inflation, unemployment, and an economic downturn, although the order varied from one country to the next. Business leaders in the highest-income Arab countries shared some of the perceptions of members of the Organisation for Economic Cooperation and Development (OECD) and large emerging markets, such as their concern over AI risks, cyber insecurity, and contagious diseases.

Middle- and lower-income Arab countries gave higher risk rankings to public debt, income and wealth inequality, volatile energy prices, water supply shortages, and the impact of cross-border armed conflicts on the national economy and society.  

The World Bank’s Global Economic Prospects report, released earlier this year, reinforces the continuing anxiety over the prospects of declining growth and a slow economic recovery despite the growing likelihood of a “soft landing” in the advanced economies and emerging markets. A soft landing refers to the ability to bring inflation under control without causing a recession and higher unemployment.

The developing nations are projected to continue to suffer low GDP growth, according to the report, and investment is expected to fall to below half the average of the previous two decades. Net financial flows to the low-income countries fell to zero last year, while the developing nations’ external debt challenges have mounted as they struggle with foreign exchange liquidity, debt servicing, and staving off default.

As a result, the gap is widening between the resources needed for the developing countries to attain the UN Sustainable Development Goals (SDGs) by the end of this decade and the resources available to them to do so. If the UN Future Summit in September this year is to achieve its envisioned results and bring critically needed progress towards the SDGs back on track, international cooperation must be rescued from the maws of economic fragmentation, geopolitical conflict, and acute international polarisation.


* This article appeared in Arabic in Wednesday’s edition of Asharq Al-Awsat.
* A version of this article appears in print in the 25 January, 2024 edition of Al-Ahram Weekly

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