Davos gathering overshadowed by global economic worries and ‘tough year’ ahead
- The crisis – especially for countries in Asia, Africa and the Middle East that rely on affordable wheat, barley and sunflower oil blocked in Ukraine – has been a key topic
- The IMF chief sought to dispel the gloom by saying a global recession isn’t [necessarily] on the cards, but acknowledges it’s going to be a ‘tough year’
Soaring inflation, Russia’s war in Ukraine, squeezed supply chains, the threat of food insecurity around the world, the lingering Covid-19 pandemic: the risks to the global economy are many.
They’ve lead to an increasingly gloomy view of the months ahead for corporate leaders, government officials and other VIPs at the World Economic Forum’s annual meeting in Davos, Switzerland. The war has been a thread, setting back the global economic recovery from the pandemic, economists say.
The managing director of the International Monetary Fund sought to dispel the gloom this week, saying a global recession isn’t in the cards but “it doesn’t mean it’s out of the question”.
Kristalina Georgieva noted that the IMF expects economic growth of 3.6 per cent for 2022, which is “a long way to global recession”. But she acknowledged that it’s going to be a “tough year” and one of the big problems is surging food prices, partly fuelled by Russia’s war.
“The anxiety around access to food at a reasonable price globally is hitting the roof,” she said.
The brewing crisis – especially for countries in Africa, the Middle East and Asia that rely on affordable wheat, barley and sunflower oil that are blocked in the ports of major producer Ukraine – has been a key topic in Davos.
European Commission President Ursula von der Leyen accused Russia on Tuesday of deliberately bombarding grain warehouses across Ukraine and using food supplies as a weapon, an assertion US Secretary of State Antony Blinken also has made.
“Russia is now hoarding its own food exports as a form of blackmail – holding back supplies to increase global prices, or trading wheat in exchange for political support,” said von der Leyen, the head of the European Union’s executive arm. “This is using hunger and grain to wield power.”
If Ukraine’s supplies remain off the market, the world could face a food availability problem in the next 10 to 12 months, and “that is going to be hell on earth”, World Food Programme Executive Director David Beasley told The Associated Press in Davos.
Elites huddle every year to discuss ways to help save the world, though it’s unclear how much concrete action the meeting produces.
Panels and announcements focused on Wednesday on the future of Europe and the internet, helping poorer countries with low-cost medicine and climate change, including an expansion of a public-private partnership aimed at propelling green technologies through corporate investment.
US climate envoy John Kerry – joined by Bill Gates and officials from Salesforce and Google – announced that the First Movers Coalition grew from 35 companies to 55. Sweden, India, Japan, Denmark, the United Kingdom and other countries also joined.
In Davos, economic and central bank officials debated the effects of moving abstract policy levers at their disposal, while company bosses outlined their worries about the business outlook.
“As we run our business, we think a correction is now well under way” in the global economy, Pat Gelsinger, CEO of chip maker Intel, said on the sidelines of the meeting. He said the semiconductor industry is still grappling with supply chain issues, including a slowdown in deliveries of the advanced equipment used to manufacture computer chips.
A global shortage of chips, used in everything from cars to kitchen appliances, erupted last year as demand recovered after the pandemic. Gelsinger said Intel is better positioned than rivals to handle the supply chain issues because it has more control over sourcing.
“But like everybody, we’re having to cope with the same challenges economically,” and he doesn’t expect the semiconductor industry to work out the supply chain kinks until 2024, he said at a press round table.
The aviation industry, decimated during the pandemic as restrictions forced airlines to ground flights and killed demand for travel, is rebounding strongly, said Hassan El Houry, CEO of National Aviation Services.
The Kuwait-based company provides services for airlines to check in passengers and shuttle to and from planes, load and unload baggage and handle air cargo. It’s merging with a UK rival to become the world’s biggest aviation services company.
“Almost every airline I speak with is reporting a huge rebound, especially for this summer and particularly in leisure travel,” El Houry said in an interview. He predicted the airline industry would return to pre-pandemic levels at the end of this year or the middle of next, earlier than airline industry group IATA’s forecast of 2025.
However, the industry is overshadowed by US$200 billion worth of losses racked up during the pandemic. The other big problem is the surge in oil prices fuelled by Russia’s war, which will force airlines to raise airfares — and potentially dampen travel demand.
Fewer air passengers means El Houry’s company serves fewer flights. “Our biggest customers are the airlines. And when airlines are feeling the pressure, guess what? They’re going to pass on that pressure to us,” he said.
Besides the rising costs of fuel, food and other commodities that are causing a cost-of-living crisis, central banks are raising interest rates to tackle high inflation and China is seeing a slowdown amid Covid-19 lockdowns, said Gita Gopinath, IMF’s first deputy managing director.
“So we have a confluence of shocks hitting the world,” she said on a panel about global growth on Wednesday.
It’s especially acute in Europe, which the war in Ukraine has revealed, European Central Bank President Christine Lagarde said on Wednesday.
“Europe is 20 per cent more open to global value chains vulnerabilities than any other markets in the world. So it’s not surprising that the breaking down and the bottlenecks of global value chains affect European companies and us more than others,” she said on a panel called “European Unity in a Disordered World?”
Others highlighted the uncertainty that’s rattling financial markets and complicating investment decisions for businesses. Adena Friedman, president of the NASDAQ stock exchange company, said Monday on a panel on the US economic outlook that “a selling decision is much easier than a buying decision” for investors who can’t see where things are headed.