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The final major event of this year’s WEF is about to start – on the global economic outlook.
It’s asking if we have reached the end of an era, as global growth slows and the cost of living crisis hits households.
On the panel, in the Congress hall here in Davos:
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Kristalina Georgieva; Managing Director, International Monetary Fund
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Christine Lagarde; President, European Central Bank
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Bruno Le Maire; Minister of Economy, Finance and the Recovery and Industrial and Digital Sovereignty of France, Ministry of Economy, Finance and Industrial and Digital Sovereignty
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Lawrence H. Summers; Charles W. Eliot University Professor, Harvard Kennedy School of Government
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Kuroda Haruhiko; Governor of the Bank of Japan, Bank of Japan
Switzerland’s top central banker has said monetary policy was “too expansionary” in previous years.
Thomas Jordan, chairman of the Swiss National Bank, also told Davos that the current surge in consumer prices has not yet been brought under control.
Speaking on a panel here in Davos, he said:
We probably all underestimated inflationary pressure in 2021….
“Probably, with the benefit of hindsight, monetary policy was all over the place a little bit too expansionary.
Switzerland abandoned its negative interest rates last September, after inflation hit the highest level in three decades.
Monetary policy everywhere was too expansionary and further tightening is necessary, according to Swiss National Bank chair 🇨🇭
SNB’s Thomas Jordan spoke to @CNBCJou in Davos ⛰️https://t.co/XQJ0hNZ8nW
— Hannah Ward-Glenton (@hannahswg) January 20, 2023
Larry Elliott
Rebeca Grynspan, who heads the UN”s trade and development body Unctad, says reform of the international system is badly needed so that it can deliver for struggling poor countries.
The International Monetary Fund and the World Bank were both created at the Bretton Woods conference in 1944 and are in need of radical reform, she tells us.
“You have to redesign the system firstly to take account of the different world we live in and secondly in terms of the instruments needed.”
Grynspan said the IMF lacked the ability to intervene speedily and at scale, while the World Bank needed to scale up its lending so that it could leverage private capital into developing countries.
Grynspan says:
“We need to see financial support at scale and at the speed countries need. We also need a serious discussion about debt. We are seeing neither of these things.”
The strength of the dollar and rising interest rates had been life more difficult for developing countries in the past year. Higher interest rates in the developed world had led to capital flows from South to North, Grynspan explained.
“We are not seeing the scale of response countries need to follow the transformational agenda set out in the Paris climate change accord. Climate finance has to be at the centre of the discussion.”
Sanctions against Russia will not win the war for Ukraine, says Mikuláš Bek, European Affairs minister of the Czech Republic.
Speaking on the panel alongside Rogoff, von Himmel and Dombrovskis, Bek says:
The sanctions are and will be circumvented. Ther will be countries not respecting them.
Bek explains that sanctions are a way to buy time – to rebuild Europe’s energy infrastructure, such as more north-south pipelines, and to increase Europe’s defence capabilities by raising the capacity of the defence industry.
Ken Rogoff back up this second point strongly, adding:
If this doesn’t change the perspective in Europe, I’m not sure what will.
Today’s meeting of defense ministers at the Ramstein Air Base in Germany, to discuss military support for Ukraine is ‘very critical’, Karin von Hippel, director-general of the Royal United Services Institute for Defence and Security Studies.
It’s likely the Russians will launch a spring offensive, and have another round of mobilisation soon, von Hippel says.
We’re anticipating more russian destructionof infrastrcture, killing more civilians, bombing apartment buildings, so the best scenario is that the Ukrainians get the weapons they need very soon, von Hippel says.
Tanks will help push the Russians out of their positions in Ukraine, says Von Hippel, adding
We don’t want Russia to have the time to re-arm and regoup.
The worst case scenario is that military aid comes in ‘“too peacemeal” a fashion, and it becomes a nasty war of attrition, where most of Ukraine is reduced to rubble over the next year, Von Hippel explains.
If Vladimir Putin is in power at the end of the war, it’s going to be “an incredible challenge” for Western countries, she warns.
Who can shake that man’s hand in the future?
Even if there is a peace agreement, there is blood all over his body for violating so many international laws and international norms.
So while sanctions will continue, we must think how we deal with a pariah state going forward, Von Hippel concludes.
Valdis Dombrovskis, the EU trade commissioner, warns against fatigue setting in over the Ukraine war.
Sanctions are working, Dombrovskis tells Davos, predicting Russia’s downturn will continue.
“If we look, Russia’s economy was in recession last year and will be in even deeper recession this year.”
Dombrovskis points out that Russia’s economy was helped by energy prices being at record highs, ironically partly due to the impact of the Ukraine war.
He says sanctions are having a cumultative effect, with individual, financial, trade and economic restrictions working together.
It’s important to keep pressure on Russia’s energy sector through sanctions, Dombrovskis continues, saying “we were a bit slow and late” with the Russian oil embargo in the European Union and the oil price cap in the G7.
Now discussions are underway on an oil products price cap – hopefully this can be done next month, Dombrovskis says.
It is “very important to stay the course”, he concludes.
Ken Rogoff: Russia is heading to incredibly poverty due to sanctions
Davos has heard this morning that sanctions on Russia are playing a vital role in the Ukraine war.
Ken Rogoff, Harvard University economics professor, is telling delegates that while the war will be decided by military action, sanctions are having a significant impact on Russia’s economy.
He hopes there will be regime change in Russia, but points out that this is hard to achieve:
Look at Iran, look at North Korea, look at Venezuela, look at Cuba, that’s where Russia’s headed.
A ‘giant Iran’ may be the best decription, Rogoff says, with “incredible poverty compared to what Russians have become accustomed to”.
Rogoff believes Russia’s economy is weaker than the offical statistics, saying he doesn’t believe anything Russia says when it comes to numbers.
Rogoff points to underemployment levels, and fiscal revenues showing manufacturing and other parts of economy are slowing down.
The most important sanctions are the ones that slow Russia’s military machine, Rogof explains. He suggests there should be a further clampdown on the grey market, as consumer devices have chips which can be repurposed for military purposes.
I woud absolutely not draw the conclusion that sanctions are not working. They are second to military intervention, but they’re absolutely important, Rogoff insists.
He also says there are examples where sanctions can achieve regime change, such as in apartheid South Africa.
Rogoff says:
“If you keep up sanctions for a long time, and make them stronger and stronger, they do work”
Introduction: Economic outlook in the spotlight
Good morning from Davos, where the final day of the World Economic Forum is underway.
Hopes that the world economy might only suffer a mild recession will be tested today, when top central bankers and policymakers give their assessment of the situation.
Kristalina Georgieva, managing director of the IMF, Christine Lagarde, president of the European Central Bank, and Bank of Japan governor Kuroda Haruhiko all appear on a panel on the economic outlook, alongside French finance minister Bruno Le Maire and professor Lawrence Summers.
They will discuss the future of growth, and the policies needed to stabilize the global economy, from 11am Davos time (10am UK).
The chatter here is that the world economy might pick up in the second half of this year.
That’s despite polling suggesting business leaders and economists were notably gloomy, and signs that the engines of global growth are slowing, with more households and businesses facing economic distress.
Davos delegates are also pondering how the UK’s economic outlook might change under a future Labour government, after Keir Starmer and Rachel Reeves attended Davos yesterday.
Where’s Rishi? Neither Sunak or Hunt are at @Davos this year for reasons that aren’t very clear. There’s a gap on stage and Labour is filling it. This is a remarkable photo – Starmer + Reeves chatting with executives from the big global banks – JP Morgan, Citi, Morgan Stanley. pic.twitter.com/rdOLlUYCQa
— Joel Hills (@ITVJoel) January 19, 2023
Starmer condemned Rishi Sunak’s decision not to attend Davos – and some in Davos agree it was a mistake by the PM.
One business figure told us yesterday:
“Rishi was straitjacketed and took the decision not to come last year in a moment when it felt unviable. Things have moved on.
Rishi would have stolen the whole show.
“Starmer and Reeves have set the tone really well. They are here to promote themselves but they have done it on the pretext of promoting the UK, which is filling a vacuum left by Rishi.”
The Labour heavy hitters’ message to Davos was that Britain would be ‘open for business’, as they tried to woo world leaders and chief executives with a reassuring message.
They also rubbed shoulders with the WEF elite at JP Morgan’s party on the Davos promenade last night, where Starmer chatted with Tony Blair and Jamie Dimon.
Russia’s economic outlook and the impact of artificial intelligence are also on the agenda today.
The agenda
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9am Davos / 8am GMT: A panel session on AI and White-Collar Jobs
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9am Davos / 8am GMT: A panel session on Mapping Russia’s economic Trajectories
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10.15am Davos / 9.15am UK: A panel session on Youth Calls to Action
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11am Davos / 10am GMT: Global Economic Outlook: Is this the End of an Era?
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