What do economists think about the recent financial turmoil and its impact on the economy?

World Economic Forum (WEF) survey conducted in March-April 2023 among chief economic officials from the public and private sectors. According to a large majority of respondents, the recent turmoil in the financial sector is not a sign of systemic weakness, but they also believe that further shocks are likely during the year.

The main conclusions of the survey are as follows:

Economic prospects: Most respondents believe that there will be no global recession this year. The most pessimistic growth outlook is in Europe (particularly the “moderate” growth expected for this year).
economic inflation: Three-quarters of those surveyed believe the cost of living will remain an issue this year due to “steady” inflation. The most pessimistic view of inflation is in Europe (90% of economists believe it will remain “high or very high”).
Recent turmoil in the banking sector: Nearly 70% of those surveyed believed it was an “isolated episode with limited additive effect”, while 30% believed there were “indications of systemic weakness”. When asked about the likelihood of bank failure or other serious financial turmoil in 2023, nearly 70% answered “somewhat likely and/or very likely.” 30% think it is “not likely or unlikely” or “somewhat unlikely”. 82% of respondents believe that the recent banking turmoil will lead to a tightening of financial conditions for companies to obtain bank loans.
Regarding the regulatory response to the recent financial turmoil, opinions are divided into three: 36% believe that banking turmoil will be followed by a change in banking regulations both nationally and globally. While another 36% believe that it will only lead to regulatory changes at the national level, and 27% believe that it will be limited to measures taken immediately after the collapse of the American and Swiss Bank.
80% of the economists surveyed believe that central banks face a dilemma between fighting inflation and financial stability. 82% believe the rise in interest rates will slow, given concerns about financial stability. 76% believe that central banks will have difficulty bringing inflation to their target rates.
When asked about the main impact of higher interest rates, economists responded with the following: “the real estate sector” (67% think it will see “significant disruption”), financial activity (50%), and global financial markets (36%).
Geopolitics: 90% believe that in the next three years it is likely that geo-economic competition or tension will deepen to a greater or lesser extent.