Economic outlook has ‘darkened,’ world and business leaders warn

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Kristalina Georgieva takes part in the World Economic Forum annual meeting in Davos, Switzerland, on Monday. Agence France-Presse

Multiple threats to the global economy topped the worries of the world’s well-heeled at the annual Davos think-fest on Monday, with some flagging the risk of a worldwide recession.

Political and business leaders gathering for the World Economic Forum (WEF) meet against a backdrop of inflation at its highest level in a generation in major economies including the United States, Britain and Europe.

These price rises have undermined consumer confidence and shaken the world’s financial markets, prompting central banks including the US Federal Reserve to raise interest rates.

A UAE high-level delegation, encompassing UAE ministers, government officials and private sector leaders, is attending the World Economic Forum (WEF) annual meeting in Davos, taking place until 26th May, to share the UAE’s vision and future directions in vital sectors and draw the features of agile partnerships in line with the new global changes.

The meeting is held under the theme, “History at a Turning Point: Government Policies and Business Strategies”, with the participation of more than 2,000 government leaders and officials, decision-makers, thought leaders, scientists, private sector leaders and prominent academia figures.

Participants will gather to formulate new visions and ideas to enhance the readiness of governments and the private sector facing current and future challenges, identify common strategies over the next phase, and develop a system of opportunities that serves society’s wellbeing.

Mohammad Bin Abdullah Al Gergawi, Minister of Cabinet Affairs, stated that under the leadership of President His Highness Sheikh Mohamed Bin Zayed Al Nahyan and following the directives of His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President, Prime Minister and Ruler of Dubai, the UAE has promoted its global presence in international conferences and forums to showcase its plans for the next 50 years and present its achievements during the empowerment phase led by the late Sheikh Khalifa Bin Zayed Al Nahyan.

He added that the UAE’s remarkable participation determines the leadership’s keenness to promote global cooperation and design new work models to enhance governments’ readiness for the future and improve societies’ livelihood.

Meanwhile, the repercussions on oil and food markets of Russia’s invasion of Ukraine in February – which Moscow describes as a “special military operation” – and COVID-19 lockdowns in China with no clear end have compounded the gloom.

“We have at least four crises, which are interwoven. We have high inflation … we have an energy crisis… we have food poverty, and we have a climate crisis. And we can’t solve the problems if we concentrate on only one of the crises,” German Vice Chancellor Robert Habeck said.

“But if none of the problems are solved, I’m really afraid we’re running into a global recession with tremendous effect .. on global stability,” Habeck said during a WEF panel discussion.

The International Monetary Fund (IMF) last month cut its global growth outlook for the second time this year, citing the war in Ukraine and singling out inflation as a “clear and present danger” for many countries.

IMF Managing Director Kristalina Georgieva, speaking in Daos on Monday, said the war, tighter financial conditions and price shocks – for food in particular – have clearly “darkened” the outlook in the month since, though she is not yet expecting a recession.

Asked at a panel whether she expected a recession, Georgieva said: “No, not at this point. It doesn’t mean it is out of the question.”

European Central Bank (ECB) President Christine Lagarde, due to speak in Davos on Tuesday, has warned that growth and inflation are on opposing paths, as mounting price pressures curb economic activity and devastate household purchasing power.

“The Russia-Ukraine war may well prove to be a tipping point for hyper-globalisation,” she said in a blog post on Monday.

“That could lead to supply chains becoming less efficient for a while and, during the transition, create more persistent cost pressures for the economy,” Lagarde added.

Still, she essentially promised rate hikes in both July and September to put a brake on inflation, even if rising borrowing costs are bound to weigh on growth.

“We knew, all knew from Day One that this war was bad economic news. Less growth and more inflation,” French policymaker Francois Villeroy de Galhau said. “This is the price we accepted together to pay to protect our values … It was worth paying this price.”

“I would play down the idea of a short-term trade off between inflation and growth,” he said. “In the short run, our priority is clearly … fighting inflation.” While the economic drag from the Ukraine crisis is being most keenly felt in Europe, it is the U.S. economy that is experiencing the greatest price pressures.

The Consumer Price Index shot from near 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 signalled increases of a similar magnitude – half a percentage point – at its next two meetings at least.

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