Economic storm looms, warn business and govt leaders

DAVOS • Multiple threats to the global economy topped the worries of the world's well-heeled at the annual Davos think-fest yesterday, with some flagging the risk of a worldwide recession.

Political and business leaders gathering for the World Economic Forum (WEF) in the Swiss ski resort are meeting against a backdrop of inflation at its highest level in a generation in major economies, including in the United States, Britain and Europe.

These price rises have undermined consumer confidence and shaken the world's financial markets, prompting central banks, including the US Federal Reserve, to raise interest rates.

The world has changed drastically since the last time the event took place in person in January 2020. At the time, then United States President Donald Trump and climate campaigner Greta Thunberg headlined the event, and the coronavirus had yet to spread widely outside China.

Today, the repercussions on oil and food markets of Russia's invasion of Ukraine in February and Covid-19 lockdowns in China have compounded the gloom.

"We have at least four crises which are interwoven. We have high inflation... we have an energy crisis... we have food poverty and we have a climate crisis. And we can't solve the problems if we concentrate on only one of the crises," German Vice-Chancellor Robert Habeck said.

"But if none of the problems are solved, I am really afraid we are running into a global recession with tremendous effect... on global stability," Mr Habeck said during a WEF panel discussion.

The International Monetary Fund last month cut its global growth outlook for the second time this year, citing the war in Ukraine and singling out inflation as a "clear and present danger" for many countries.

European Central Bank president Christine Lagarde, due to speak in Davos today, has warned that growth and inflation are on opposing paths, as mounting price pressures curb economic activity and devastate household purchasing power. "The Russia-Ukraine war may well prove to be a tipping point for hyper-globalisation," she said in a blog post yesterday.

"That could lead to supply chains becoming less efficient for a while and, during the transition, create more persistent cost pressures for the economy," she added.

Still, she essentially promised rate hikes in both July and September to put a brake on inflation.

While the economic drag from the Ukraine crisis is being most keenly felt in Europe, it is the US economy that is experiencing the greatest price pressures. The consumer price index shot from near zero two years ago to a 40-year high of 8.5 per cent in March.

The Fed responded earlier this month with its largest rate hike in 22 years, and Fed chairman Jerome Powell has signalled increases of a similar magnitude - half a percentage point - at its next two meetings at least.

The higher rates and expectations for more, though, have yet to weaken consumer spending and a red-hot US job market.

"We are not seeing it materialise in our business yet," Marriott International chief executive Anthony Capuano said of the threat of recession, adding: "There continues to be pent-up demand."

Key emerging markets, including China, are still expected to see growth this year, even if at a slower pace than previously estimated.

Mr Marcos Troyjo, president of the New Development Bank set up by Brazil, Russia, India, China and South Africa, said his bank still expects "robust growth" this year in China, India and Brazil.

The WEF's main event on the first day was a virtual speech by Ukrainian President Volodymyr Zelensky.

Mr Zelensky, who received a standing ovation, reinforced his call for embargoes on oil, technology and other trade with Russia, and said there should be no exceptions in sanctions on the country's banking sector.

"The world is united because of threats, the war, Russian aggression. I don't want you to lose this unity," he said, adding that the Russian authorities are "afraid of this strong fist".

He said the conflict shows "that support to the country under attack is more valuable the sooner it is provided: weapons, funding, political support and sanctions against Russia".

REUTERS, AGENCE FRANCE-PRESSE