The annual meeting of the World Economic Forum in Davos, Switzerland, was held last month. The theme this year was ‘Rebuilding trust amid uncertainty’.

The conflict in Ukraine, the Middle East and in other parts of the world have been a major cause of uncertainty. Add to that the increase in inflation, the possibility of a recession, increasing income inequality among nations and within nations, elections in several countries, including the US and the increasing impact of climate change.

All these developments have created polarisation. One example has been the surge in popularity of the extreme right parties in Europe. As such, the Davos meeting sought to advance dialogue and cooperation. However, for dialogue and cooperation to thrive, there needs to be mutual trust, trust in the future and trust in our capability to face the challenges successfully. The lack of trust on all three fronts is apparent when one reads the daily news from around the world.

A key element of the Davos meeting was the global economy. This is of particular interest to Malta since we are greatly exposed to development around the world from east to west and from north to south. The question was whether we will have an international recession or not, and if we will, how severe it will be.

For dialogue and cooperation to thrive, there needs to be mutual trust, trust in the future and trust in our capability to face the challenges successfully

There was a sentiment that it would be a mild recession, if there will be a recession at all. The reason for this optimism was that, although interest rates had risen significantly in 2023, we still did not get a recession.

On the other hand, the risks posed by geopolitical tensions and the temptation by leading global economies to go their own way, fragmenting the world even further, may actually lead to a hard landing.

The major risk appears to be posed by inflation. While inflation appears to be slowing down, there is still the risk of higher oil prices and increased shipping costs due to environmental regulations and due to the issues in the Red Sea, with rebel attacks on the US and UK merchant shipping. There are those who fear that we are not over the hump when it comes to inflation.

Another risk to the global economy is the indebtedness of governments. Governments are increasingly having less and less financial resources for their social welfare programmes and for their infrastructural investment. We are getting to the stage where political leaders need to decide how they will increase public sector revenue. This will necessitate an increase in taxation.

The question is what sort of taxation? Will governments embrace the view of taxing more the millionaires and the billionaires? Will governments introduce a wealth tax? Or will they adopt a soft approach that will lead to nowhere?

This brings into play the element of trust. One other big risk to the world economy is the increasing income inequality. This has grown significantly over the last years and has been fuelling public distrust in political and economic leaders.

One piece of data says it all. The fortunes of billionaires more than doubled in the last 10 years. But the increase in wealth has not trickled its way down into the general economy.

In my first contribution of this year, at the beginning of January, I had written that many of the issues we were facing last year are still with us, thereby leading to uncertainty. It is becoming increasingly clear that these issues can be resolved only if people and nations trust each other more and realise that only dialogue and cooperation can lead us to a solution to our economic challenges.