Global economic outlook hangs in balance between geopolitical headwinds, AI boost—WEF

The global economic outlook has deteriorated sharply in recent weeks, according to the latest edition of the World Economic Forum’s Chief Economists’ Outlook published Thursday.
 
According to the report nearly nine in ten chief economists surveyed expect global growth to weaken over the next 12 months, reversing the cautious optimism seen at the start of the year, as conflict in the Middle East and the closure of the Strait of Hormuz fuel concerns over a major global economic shock.
 
Chief economists already rank the current closure duration of the Strait of Hormuz as significantly more disruptive than last year’s tariff turmoil.

It said “if the closure persists into the second half of the year, they expect its impact could approach the severity of the COVID-19 crisis, compounding effects across global supply chains, energy and food costs.

“An overwhelming 94% of the surveyed chief economists expect global inflation to increase over the coming year.
 
“Only months ago, the Chief Economists community was cautiously optimistic. The conflict in the Middle East changed that, and the economic scarring from the situation thus far is already expected to last into the months ahead,”

Saadia Zahidi, Managing Director, World Economic Forum said “the longer the disruption lasts, the heavier the long-term cost for those who can least afford it.”
 
The fallout is expected to hit the Middle East and North Africa region the hardest. After being viewed as one of the brighter economic regions only months ago, 88% of the surveyed chief economists now expect weak or very weak growth – the sharpest regional reversal in the survey.

Elsewhere, the outlook is mixed: inflation expectations have climbed sharply in sub-Saharan Africa, now the highest of any region surveyed, while Europe faces mounting stagflation risks as growth weakens and inflation fears mount. By contrast, India and the United States are expected to remain relatively resilient, supported by domestic demand and investment. 
 
Despite the sharp deterioration, the survey does not point to a significant downturn. Most of the chief economists do not expect a recession within the next 12 months, even as they see little prospect of the economy growing more resilient in the near term.

Much will depend on the length of the disruption: a shorter shock could leave room for recovery, while a prolonged closure would deepen the strain on the global economy.

Financial markets are expected to come under increasing strain, with 79% of respondents anticipating rising volatility in private debt markets over the next year, as signs of stress in private credit emerge; 74% also expect public debt market volatility to increase and 68% expect stock market volatility to increase.
 
AI remains a source of tailwinds in the global economy, with 92% of chief economists expecting greater artificial intelligence adoption over the coming year. However, optimism about the speed of productivity gains from AI adoption has now become more measured.

Meaningful productivity gains are expected to take longer in almost all industries compared to the respondents’ views in January 2026.

Information technology and education are the only sectors where expectations have held steady, with the most significantly delayed productivity gains now expected in engineering, construction, utilities, medical, healthcare and care services.