Business leaders have expressed concern over the many threats facing the global economy
Several threats to the global economy topped the concerns of the world’s wealthy at the annual Davos Think-Fest, some flagging the risk of a worldwide recession.
Political and business leaders gathered for the World Economic Forum (WEF) meet against a backdrop of inflation at its highest level in a generation in major economies including the United States, Britain and Europe.
These price increases have undermined consumer confidence and shook the world’s financial markets, prompting central banks, including the US Federal Reserve, to raise interest rates.
Meanwhile, the impact on oil and food markets of Russia’s invasion of Ukraine in February – which Moscow describes as a “special military operation” – and the no-clear end COVID-19 lockdown in China added to the gloom. Is.
“We have at least four crises, which are intertwined. We have high inflation … we have an energy crisis … we have food poverty, and we have a climate crisis. And if we We cannot solve problems if we focus on only one of the crises,” German Vice Chancellor Robert Hebeck said during the annual meeting on Monday.
“But if none of the problems are solved, I really fear we are running into a global recession with tremendous impact on global stability,” Hebek said during the WEF panel discussion.
The International Monetary Fund (IMF) cut its global growth outlook for the second time this year, citing the war in Ukraine last month and isolating inflation as a “clear and present threat” to many countries.
IMF Managing Director Kristalina Georgieva, speaking in Davos on Monday, said war, dire financial conditions and price shocks – especially for food – have clearly “darkened” this month’s outlook, although she Still not expecting a recession.
Asked at a panel whether she expected a recession, Georgieva said: “No, not at the moment. That doesn’t mean it’s out of the question.”
tipping point
European Central Bank (ECB) President Christine Lagarde, due to speak in Davos on Tuesday, warned that growth and inflation are on the opposite track, as rising price pressures curb economic activity and ravage domestic purchasing power.
“The Russia-Ukraine war could prove to be a turning point for hyper-globalization,” she said in a blog post on Monday.
“This could make the supply chain less efficient for a while and, during the transition, create more persistent cost pressures for the economy,” Ms Lagarde said.
Still, he promised to hike rates in both July and September to essentially put the brakes on inflation, even as rising borrowing costs impact growth.
“We knew, everyone knew from day one that this war was bad economic news. Less growth and more inflation,” said French policy maker François Villeroy de Galhau. “This is the price we have agreed to pay together to protect our values … it was worth paying this price.”
“I would downplay the idea of a short-term trade-off between inflation and growth,” he said. “In the short term, our priority is clearly … fighting inflation.”
While the economic pull from the Ukraine crisis is being felt the most in Europe, it is the US economy that is experiencing the most price pressures.
The consumer price index rose to a 40-year high of 8.5 per cent in March from nearly zero two years ago. The Fed responded earlier this month with its biggest rate hike in 22 years, and Chair Jerome Powell has indicated an increase of a similar magnitude — half a percentage point — in at least its next two meetings.
However, higher rates and expectations for more have not yet dampened consumer spending and a red-hot US job market.
Anthony Capuano, chief executive of Marriott International Inc., said of the threat of a recession, “we’re not seeing it in our business yet.”
Harvard University economist Jason Furman, who heads the economic advisory council under former President Barack Obama, said his baseline probability for a recession in any given year is 15%. Now “I’m a little over that 15,” he said, citing the strength of the domestic balance sheet and expectations of more people returning to the workforce in the coming months.
However, looking ahead, he said he was concerned that the Fed may need to raise rates more than most officials and forecasters expected. “But it’s like a year and a half, a year and a half from now.”
Major emerging markets, including China, are still expected to see growth this year, albeit at a slower pace than previously estimated.
Marcos Troyjo, president of the New Development Bank, founded by Brazil, Russia, India, China and South Africa, said his bank still expects “strong growth” in China, India and Brazil this year.