As World Leaders Meet in Davos, What’s Next for the Global Economy?

As the 2013 World Economic Forum Annual Meeting gets under way in Davos, with business and political leaders’ discussions falling under three themes: Leading through Adversity, Strengthening Societal Resilience, and Restoring Economic Dynamism; the world economy is set to face another tough year, growing by 3.5% in real terms in 2013 as a whole. Behind this annual forecast, we expect a difficult first half followed by brightening prospects in the second half of the year.

Euromonitor International has identified three trends in the global economy in 2013:

1. Backfiring austerity measures stifle recovery prospects in developed economies.
2. Emerging markets will drive growth through growing domestic demand and trade with each other.
3. Global trade growth will not return to pre-crisis levels in 2013.

Global Real GDP Growth: 2007-2015

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF

Resilient Dynamism

The conference’s slogan of “Resilient Dynamism” reflects a more positive attitude to world economic prospects than was the case in 2012. However confidence remains fragile with risks still remaining over the US debt ceiling and grave concerns over the ability of the eurozone economies to foster strong growth and bring down unemployment.

Further challenges under discussion include income inequality and government debt:

• Euromonitor International predicts increases in income inequality in most advanced economies in 2013;
• We also expect government debt-to-GDP ratios to remain high in 2013 and to continue to rise in many advanced economies.

On balance, global prospects are brighter in 2013 than they were in 2012 but serious challenges remain – many related to social issues such as unemployment and income inequality with further outbreaks of social unrest a real threat.