Davos talk of avoiding recession fails to lighten mood amid fears of a ‘polycrisis’

The economic outlook could hardly have appeared bleaker as 2,700 members of so-called global elite made their way this week to the highest town in Europe, nestled in a valley some 1,560 meters above sea level, for the first winter gathering in three years.

On the eve of the four-day event starting properly on Tuesday, a survey of more than 4,400 chief executives of companies around the world was published by PwC, showing that almost three-quarters of them expected the global economy to weaken this year.

Worse still, two-thirds of a group of chief economists polled by the World Economic Forum (WEF) predicted that the world would plunge into recession, as the effects of the ongoing war in Ukraine, cost-of-living crisis and rising interest rates weigh on consumers and businesses.

However, the tone of one of the scene-setting panel discussions on the first morning of the conference, titled Staying Ahead of Recession, was altogether more upbeat.

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Credit Suisse chairman Axel Lehmann, taking a break from overseeing the embattled Swiss financial giant’s attempt at a turnaround after a series of scandals, said that while Europe remains on the front line amid the Ukraine war, energy crisis and inflation, the US may avoid recession and China, having recently reopened its borders, will be the bright spot this year.

The PwC and WEF surveys, after all, had largely been carried out before China made a surprise U-turn on its zero-Covid policy in early December, following a nationwide wave of protests.

Lehmann said he “wouldn’t be personally surprised” if the emerging consensus view that China will grow around 4.5 per cent this year was to be topped.

‘Pent-up savings’

Douglas Peterson, chief executive of S&P Global, the credit ratings to market information giant, said there was likely to be only a “very mild recession” in Europe, the US and UK this year and that China, bursting with “pent-up savings and demand” after three years of tight pandemic restrictions, will see “very strong growth later in the year”, underpinning the world economy.

Over the past three years, Chinese households squirrelled away 5.6 trillion yuan (€770 billion) of excess savings, according to JPMorgan estimates.

Portugal’s central bank governor Mario Centeno ventured that even though Europe’s economy would slow in the first quarter, “it will most likely still be positive” and that momentum will pick up as the year progresses.

“However, what worries me the most are confidence levels,” he said, adding that businesses and households remain subdued almost a year on from the shock caused by Russia’s invasion of Ukraine and its impact on energy and food prices.

And while there had been expectations that it was only a matter of time before the International Monetary Fund (IMF) downgraded its global economic forecast – which currently sees global growth slowing to 2.7 per cent this year from 3.2 per cent in 2022 – first deputy managing director at the fund Gita Gopinath indicated at the WEF that it was actually preparing to raise its projections.

That’s even as central banks continue to hike interest rates as global inflation, although it peaked last year, according to Gopinath, remains too high.

Polycrisis

Disaster averted? Not quite. Because we’re living in the era, according to the buzzword in Davos this week, of the “polycrisis”, when disparate but concurrent political, economic and ecological shocks are converging in a way that makes the whole more overwhelming than the sum of its parts.

War in Europe, soaring living costs, the threat of transatlantic green trade conflict, and the mounting threat of a climate meltdown have been the subject of much hand-wringing across 450 official sessions this week at the WEF, whose mission statement is to “improve the state of the world”.

With six of the leaders of the Group of Seven (G7) industrialised nations giving the world’s biggest annual talking shop a miss this year, it hasn’t been the best place to jump-start global co-operation

Meanwhile, there has been a lot of fresh soul-searching about globalisation, championed by the WEF for more than five decades, and is under threat as countries redraw supply chains after the pandemic, Russia finds itself a pariah state, and US-China trade tensions deepen.

With six of the leaders of the Group of Seven (G7) industrialised nations – including US president Joe Biden, UK prime minister Rishi Sunak, Canadian premier Justin Trudeau and French president Emmanuel Macron – giving the world’s biggest annual talking shop a miss this year, it hasn’t been the best place to jump-start global co-operation.

The last place some of these guys wanted to be seen was cavorting with the rest of the 0.001 per cent up in Swiss Alps at a time when their electorate are grappling with spiralling living costs.

German chancellor Olaf Scholz was alone among the seven to attend, even if his keynote speech on Wednesday – focusing mainly on rehashing his country’s green journey to net-zero carbon emissions by 2045 – underwhelmed many, and he refused to be drawn, when asked by a member of the audience, on whether he would give the go-ahead for German-made Leopard 2 heavy tanks to be sent to Ukraine to help fight Russian forces.

Boris Johnson, who stepped down as UK prime minister last summer as a result of the Covid Partygate scandal, popped up at a breakfast panel on Thursday morning to urge the West to ignore Russian president Vladimir Putin’s threats of nuclear war and increase its supply of heavy weapons to Ukraine.

“Putin wants to present it as a nuclear stand-off between Nato and Russia,” he said. “Nonsense. He’s not going to use nuclear weapons... He wants us to think about it. He’s never going to do it.”

Different agendas

Europe has been the main supplier of the 52 heads of government attending this year’s WEF, with those turning up largely pursuing different agendas.

For Minister for Finance Michael McGrath, who attended Davos for the first time with Taoiseach Leo Varadkar, a more regular visitor, the main attraction is clear.

We will maximise the opportunity: it really is about making the case for Ireland as an attractive place to do business and for investment

—  Minister for Finance Michael McGrath at Davos

“It’s primarily because the companies who are at Davos this week collectively employ tens of thousands of people in Ireland,” he told The Irish Times. “It’s important that we have political leaders here from Ireland to support the work of the IDA.

“It is an opportunity really to get face time with many of the global leaders of these companies, and it’s not to be missed. And while some of the major political leaders are not here, you still have over 50 heads of state, and certainly over 50 finance ministers, and about 600 corporate CEOs. So, it’s a very modest investment for Ireland, to me, to have senior political people here for a short number of days. We will maximise the opportunity: it really is about making the case for Ireland as an attractive place to do business and for investment.”

Top corporate CEOs at Davos this year include JPMorgan’s Jamie Dimon, Brian Moynihan of Bank of America, Amazon’s Andy Jassy, Microsoft’s Satya Nadella – who announced on Wednesday that he was axing 10,000 jobs – and Pfizer’s Albert Bourla. When not bemoaning woes of the world, these guys are holding private meetings with prospective clients and politicians in hotels across town.

Mary Buckley, interim chief executive of the IDA, was giving nothing away, when she met The Irish Times, about the 50 executives who attended the agency’s annual Davos dinner in the four-star Grischla hotel in Davos with the promise of the company of McGrath and Varadkar. The late arrival of the Taoiseach in town meant that he missed the meal itself.

“I managed to catch the people who stayed on,” said Varadkar as he met journalists the following morning. “Thankfully, Michael McGrath was there for the whole thing.”

Trade tensions

One topic that has got many European political leaders hot under the collar in Davos this week has been the growing trade tensions between the EU and US over Washington’s Inflation Reduction Act, passed last year, which provides for a record $369 billion (€340 billion) to fund climate and energy policies, including tax breaks for US-made electric vehicles, aimed at speeding up the transition to a low-carbon economy.

However, the law has been heavily criticised by the European Commission and some EU countries, which see it as discriminatory against industry, especially carmakers, on this side of the Atlantic.

The Commission is planning to present its proposed response to the US move on February 1st, a week ahead of an EU summit in Brussels where member states are expected to discuss the matter in detail.

“Our concerns are the discriminatory measures in [the] US Inflation Reduction Act, which is discriminating against EU companies,” European commissioner for trade Valdis Dombrovskis told CNBC in an interview at Davos.

“We think we should be addressing the climate change and green transition jointly, building transatlantic value chains, not breaking them apart.”

However, Varadkar warned against a potential “tit-for-tat scenario, whereby both the US and EU try to compete with each other when it comes to subsidies”.

“Europe and America benefit from free trade and won’t benefit from any form of protectionism,” he said. “We’ll be very much a voice at the table in Brussels in February... for the EU and in the US to come together and really agree on how we can work together to boost those green industries, which we want to do as well.”

Climate crisis

In fairness to the organisers of the WEF, more than a third of panel discussions at this year’s event were linked to the climate crisis – even if many at Davos were really concerned by more immediate matters.

The WEF Global Risks Report, published a week before the forum, found that policymakers and industry leaders were more concerned in the near-term about cost-of-living, even if they know that environmental risks dominate threats facing the world over the next decade.

Greenpeace International took aim at billionaires arriving at the gathering by carbon-spouting private jets while plugging their fight against climate change, accusing them of “ecological hypocrisy”.

The eco campaigning group released a study days before the annual jamboree estimating that there were about 500 arrivals and departures of private jets at seven airstrips close to Davos carrying participants during the week of last year’s conference in May – accounting for almost half of flights in the area that week.

UN secretary general Antonio Guterres held a mirror up to the global elite in attendance, warning that all the commitments they’ve made to limiting global temperature rise to 1.5 degrees is ‘nearly going up in smoke’

Many of the jets recorded short-distances flights, prompting Greenpeace to argue that they could have been replaced by train rides.

“Europe is experiencing the warmest January days ever recorded and communities around the world are grappling with extreme weather events supercharged by the climate crisis,” said Greenpeace campaigner Klara Maria Schenk. “Meanwhile, the rich and powerful flock to Davos in ultra-polluting, socially inequitable private jets to discuss climate and inequality behind closed doors.

“Do we really believe that these are the people to solve the problems the world faces?”

UN secretary general Antonio Guterres held a mirror up to the global elite in attendance, warning that all the commitments they’ve made to limiting global temperature rise to 1.5 degrees is “nearly going up in smoke” and that, without further action, “we are headed to a 2.8-degree increase”.

“We are flirting with climate disaster,” he said in a keynote address on Wednesday.

‘Baking the planet’

Guterres reserved particular ire for fossil fuel producers – an industry where top executives swanning around Davos his week number at least 25 – saying that some in the industry were fully aware in the 1970s that their core product was “baking the planet”.

His comments come less than a week after the publication of a study in the journal Science which showed how ExxonMobile, one of the world’s largest oil companies, accurately forecast global warming as long ago as the 1970s only to spend decades publicly contradicting its own research.

“Some in Big Oil peddled the big lie,” he said. “And just like the tobacco industry, they rode roughshod over their own science. And like the tobacco industry, those responsible must be held to account.”

Mr Guterres said that fossil fuel producers and their enablers are still racing to expand production, “knowing full well that this business model is inconsistent with human survival”.