DAVOS, Switzerland, May 23 (Reuters) – Multiple threats to the global economy surpassed the concerns of the world’s wealthy at the annual Davos think-fest on Monday, with some pointing to the risk of a global recession.
Politicians and business leaders gathering for the World Economic Forum (WEF) gather against a backdrop of inflation at its highest level in a generation in major economies including the United States, Britain and Europe.
These price hikes have eroded consumer confidence and rattled the world’s financial markets, prompting central banks, including the US Federal Reserve, to raise interest rates.
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Meanwhile, the impact of February’s Russian invasion of Ukraine – which Moscow calls a “special military operation” – and COVID-19 lockdowns in China with no clear end to oil and food markets have added to the gloom.
“We have at least four crises that are intertwined. We have high inflation… we have an energy crisis… we have food poverty and we have a climate crisis. And we cannot solve the problems by focusing on just one of the crises,” said German Vice Chancellor Robert Habeck.
“But if none of the problems are solved, I really fear that we will enter a global recession, with huge implications for global stability,” Habeck said during a WEF panel discussion.
The International Monetary Fund (IMF) last month lowered its global growth outlook for the second time this year, citing the war in Ukraine and highlighting inflation as a “clear and present threat” for many countries. Continue reading
IMF Managing Director Kristalina Georgieva said in Daos on Monday that the war, tighter financial conditions and price shocks — particularly for food — have since “clouded” the outlook significantly, although she does not expect a recession just yet.
Asked if she expected a recession, Georgieva said on a panel: “No, not at the moment.
TURNING POINT
European Central Bank (ECB) President Christine Lagarde, who will speak in Davos on Tuesday, has warned that growth and inflation are going in opposite directions as mounting price pressures dampen economic activity and destroy households’ purchasing power.
Passers-by in front of the World Economic Forum logo at meetings in Davos, Switzerland. May 23, 2022. REUTERS/Arnd Wiegmann
“The war between Russia and Ukraine may well prove to be a turning point for hyperglobalization,” she said in a blog post Monday.
“This could mean that supply chains become temporarily less efficient and put more sustained cost pressure on the economy during the transition,” continued Lagarde.
Still, it basically promised rate hikes in both July and September to curb inflation, even as rising borrowing costs weigh on growth. Continue reading
“We knew, everyone knew from day one that this war was bad economic news. Less growth and more inflation,” said French politician Francois Villeroy de Galhau. “This is the price we collectively accepted to protect our values… It was a price worth paying.”
“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 strain from the Ukraine crisis is felt most clearly in Europe, the US economy is exposed to the greatest price pressure.
The consumer price index shot up from almost zero two years ago to a 40-year high of 8.5% in March. The Fed responded earlier this month with its largest rate hike in 22 years, and Chair Jerome Powell has signaled hikes of a similar magnitude – half a percentage point – at least at his next two meetings.
However, higher interest rates and expectations for more have yet to weaken consumer spending and a red-hot US job market.
“We don’t see it in our business yet,” Marriott International Inc chief executive Anthony Capuano said of the looming recession, adding, “There’s still some catching up to do.”
Key emerging markets, including China, are still expected to grow this year, albeit at a slower pace than previously thought.
Marcos Troyjo, president of the New Development Bank founded by Brazil, Russia, India, China and South Africa, said his bank expects “robust growth” in China, India and Brazil later this year.
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Additional reporting by Jessica DiNapoli; Edited by Alexander Smith and Jan Harvey
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