DAVOS – Multiple threats to the global economy are at the top of the world’s well-heeled concerns at the annual Davos Think-Fest on Monday, with some highlighting the risks of a global recession.
Political and business leaders gathered for the World Economic Forum (WEF) to meet against the backdrop of the highest levels of inflation among generations of major economies, including the United States, Britain and Europe.
The rise in prices has dampened consumer confidence and shaken global financial markets, prompting central banks, including the US Federal Reserve, to raise interest rates.
Meanwhile, Russia’s response to the February aggression in Ukraine on the oil and food market – which Moscow describes as a “special military operation” – and the apparent end of the Covid-19 lockdown in China, has added to the sadness.
“We have at least four crises that are interrelated. We have high inflation … we have energy crisis … we have food poverty, and we have climate crisis. And if we focus only on one crisis, we will not be able to solve the problems, “said German Vice Chancellor Robert Habeck.
“But if a problem is not solved, then I really fear that we are going through a global recession with a tremendous impact on global stability,” Habeck said during the WEF panel discussion.
The International Monetary Fund (IMF) downgraded its global growth outlook for the second time this year, citing the war in Ukraine last month and citing inflation as a “clear and current threat” to many countries.
Christine Lagarde, president of the European Central Bank (ECB), in a speech in Davos on Tuesday, warned that growth and inflation were on the opposite side, as rising price pressures hindered economic activity and destroyed household purchasing power.
“The Russia-Ukraine war could be a tipping point for hyper-globalization,” he said in a blog post on Monday.
“This could make supply chains less efficient for a while and, in times of change, create more sustained spending pressures for the economy,” Lagarde added.
Still, he originally promised inflation in both July and September in order to keep inflation low, even if rising debt was forced to push up spending.
The economic pull from the Ukraine crisis is being felt most intensely in Europe, with the US economy facing the most price pressures.
The consumer price index reached a 40-year high of 8.5% in March from close to zero two years ago. The Fed reacted earlier this month to its biggest rate hike in 22 years, and Chair Jerome Powell indicated similar levels – half a percentage point – at his next two meetings.
Expectations for higher rates and more, however, have not yet weakened consumer spending and a red-hot US job market.
Anthony Capuano, chief executive of Marriott International Inc., said of the recession threat, “We still do not see it being implemented in our business,” adding: “Paint-up demand continues.”
Key emerging markets, including China, are still expected to grow this year, albeit at a slower pace than previously thought.
Marcos Troy, president of the New Development Bank, founded by Brazil, Russia, India, China and South Africa, said his bank still expects “strong growth” this year in China, India and Brazil. (Additional report by Jessica Dinapoli; edited by Alexander Smith and John Harvey)