January 31, 2023

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Davos 2023: Recession overshadows the opening of the World Economic Forum summit

DAVOS, Switzerland (Reuters) – The prospect of an imminent global recession cast a long shadow over Davos on Monday as participants packed into the opening annual meeting of the World Economic Forum about the potential cost to their economies and businesses.

Two-thirds of the leading private and public sector economists surveyed by the World Economic Forum expect a global recession this year, with about 18% considering it “very likely” – more than double the number in the previous poll, conducted in September 2022.

“The current high inflation, low growth, high debt and high retail environment reduce the investment incentives needed to return to growth and raise living standards for the world’s most vulnerable,” Saadia Zahidi, managing director of the World Economic Forum, said in a statement accompanying the survey results. .

The World Economic Forum survey was based on 22 responses from a group of senior economists from international agencies including the International Monetary Fund, investment banks, multinational corporations and reinsurance groups.

Meanwhile, a survey of CEO attitudes by PricewaterhouseCoopers released in Davos on Monday was the bleakest since the “Big Four” auditor released the survey a decade ago, marking a significant shift from the optimistic forecasts for 2021 and 2022.

Last week, the World Bank lowered its growth forecast for 2023 to levels close to stagnation in many countries as the impact of the central bank’s interest rate hike intensified, the continuation of the Russian war in Ukraine, and the faltering of major economic engines in the world.

Definitions of what constitutes a recession vary around the world but generally include the potential for economies to contract, with the potential for inflation to rise in a “stagflationary” scenario.

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In terms of inflation, the WEF survey saw significant regional differences: Those expecting high inflation in 2023 ranged from just 5% for China to 57% for Europe, as the impact of last year’s energy price hikes rippled into the broader economy.

The majority of economists see further monetary tightening in Europe and the US (59% and 55% respectively), with policymakers caught between the risks of tightening too much or too little.

“It is clear that there is a huge drop in demand, inventories are not clear and orders are not arriving,” Yuvraj Narayan, executive vice president and chief financial officer of Dubai-based logistics company DP World, told Reuters.

“There are a lot of constraints in place. It’s no longer a free-flowing global economy, and unless they find the right solutions, it’s only going to get worse,” he said, adding that the group expects freight rates to drop by between 15% and 20%. % in 2023.

Avoid the situation

Few sectors would expect to be completely immune.

Matthew Prince, CEO of Cloudflare Inc (NET.N)said Internet activity was pointing to an economic slowdown.

“Since the new year, when I’ve been meeting with the CEOs of other tech companies, they’ve been like, ‘Have you noticed that the sky is falling?'” he told Reuters.

Confidence among companies in their growth prospects has fallen further since the 2007-2008 global financial crisis, the PricewaterhouseCoopers survey showed, even though the majority of CEOs have no plans to cut the size of their workforce in the next 12 months or to cut wages while they try. Talent retention.

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“They are trying to cut costs without changes in human capital and massive layoffs,” said Bob Moritz, global head of PricewaterhouseCoopers.

Jenny Hibbert, a partner at Heidrick & Struggles in London, said activity was starting to normalize and the executive search firm was seeing “a little less inflow” after two years of strong growth.

“We hear the same mixed picture from most of our customers. People expect the market to be more difficult,” Hebert told Reuters.

aid cuts

Nowhere is the real-world impact of a recession more evident in efforts to tackle global poverty.

Peter Sands, executive director of the Global Fund to Fight AIDS, Tuberculosis and Malaria, said overseas development aid budgets were being slashed as donors began to feel the pinch, while the recession would hit local healthcare provision hard.

A common concern among many of the Davos participants was the huge level of uncertainty for the year ahead — from the duration and severity of the Ukraine war to the next moves by major central banks looking to bring down inflation with big interest rate hikes.

The chief financial officer of a publicly traded US company told Reuters that he is preparing widely diversified scenarios for 2023 in light of economic uncertainty — and much of it has to do with how interest rates will go this year.

While there were few silver streaks on the horizon, some suggested that an overall recession could give pause to the US Federal Reserve and other major central banks’ policy tightening plans that are making borrowing increasingly dear.

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“I want the outlook to get a little softer so that Fed rates start to come down and this whole liquidity sucking by global central banks goes away,” Sumant Sinha, chairman and chief executive of India’s clean energy group Renew Power, told Reuters.

“It will not only benefit India but globally,” he said, adding that the current round of rate hikes is making it more expensive for clean energy companies to finance their capital-intensive projects.

(Reporting by Mark John, Maha El Dahan, Jeffrey Daskins, Leela de Critzer, Divya Choudhury and Paritosh Bansal; Editing by Alexander Smith

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