Chief economists at the World Economic Forum (WEF) have noted that deep uncertainty has characterised the global landscape in recent years, with little prospect of a near-term return to greater predictability.
In the Chief Economists Outlook for May 2024, they cited international conflicts, growing social strains, technological shifts, and tight financial conditions as contributors to heightened volatility, continuing to profoundly reshape patterns of economic activity.
The chief economists believe this makes for a particularly challenging environment for decision-makers in government and business, and almost eight in 10 chief economists (79 percent) expect heightened complexity to be a growing challenge for decision-makers as 2024 progresses.
They further noted that the increasing polarisation and volatility of domestic politics in many countries has been an important contributor to this complexity,
It is stated that the wave of elections across the globe in 2024 is not making the situation any better.
In a year in which many countries will be going to the polls, including Botswana, chief economists say there are already indications that businesses are hedging against the potential for sharp policy swings if power changes hands.
“Moreover, this domestic political instability is compounded by the deteriorating international political environment,” stated the economists’ outlook.
This year, there has been an outbreak of armed conflicts, particularly in the Gulf region, which officials at the Bank of Botswana (BoB) said they are closely monitoring as it could have adverse impact on Botswana exports, specifically diamonds.
Accordingly, 86 percent of chief economists see tensions between politics and economics as a growing challenge for decision-makers.
Despite the prevalence of risks to the global economy, it is important to highlight that the chief economists remain relatively optimistic about the condition of global supply chains.
Supply chains have been a key source of upward price pressures in recent years.
Only a quarter of respondents expect major disruption in 2024, compared to 48 who think otherwise.
A recent Business Expectation Survey (BES) by BoB also highlighted that businesses expect cost pressures to rise, mainly attributable to the expected increase in some input costs, such as materials, utilities and transport, arising from anticipated supply constraints related to the Ukraine-Russia and Israel-Hamas wars.
About 86 percent of WEF chief economists agree that geopolitics will drive corporate decision-making this year, with the proportion viewing this as extremely likely (61 percent) significantly higher than for any other factor cited, including companies’ growth targets.
In line with this trend, about 71 percent of chief economists also expect business strategies to be shaped by domestic political factors.
Speaking at a recent Webinar, Investment Analyst at Kgori Capital, Kitso Mokhurutshe, said there will be some reluctance from the government to increase administered prices due to the general elections coming up in October this year.
He also expects no changes as far as Monetary Policy Rate (MoPR) is concerned.
Additionally, he said Kgori forecasts inflation to remain below the benchmark in the near term due to the base effects from the changes in fuel prices and VAT coming back to 14 percent.
WEF economists believe there are signs that some businesses are focusing on preparedness for potential disruptions ahead.
“Corporate bond issuance has spiked to its highest since the 1990s, suggesting that businesses are trying to secure their financing before a period of market turbulence,” said the report.
Despite the role of geopolitics, a smaller proportion of economists (55 percent), expect supply-chain conditions to be a driver of corporate decision-making this year.
“This is likely, in part, a reflection of the steps businesses have already taken to restructure their supply chains in recent years,” the report says.
“Almost two-thirds of chief economists also cited the regulatory environment as a driver of decision-making, perhaps unsurprising given the connection between political volatility and regulatory upheaval.”
According to the WEF report, the twin pressure of growing global fractures and deepening interconnectedness of economics and politics have increased the pressure on fiscal and monetary policymakers as they seek to sequence and calibrate their interventions.
In February when presenting the budget speech, Minister of Finance, Peggy Serame, revealed her intention to stimulate economic activity through a stimulus budget.
While this could pose a challenge to the Monetary Policy Committee, BoB Governor, Cornelius Dekop, previously said that fiscal policy and monetary policy typically work in tandem in managing the economy.
He said the inflation risks associated with the 2024/2025 budget can be mitigated provided earmarked projects are implemented with no constraints.
The WEF report pointed out that a globally synchronised cycle of monetary policy tightening proved effective at taming the worst of the recent inflationary spike in many advanced economies without causing significant contraction in economic activity.
“However, as the global backdrop remains fraught with uncertainty and risks, policymakers are still proceeding cautiously and continue to navigate trade-offs between tightening too much and too little,” the report says.
