The World Economic Forum (WEF) held its annual meeting in Davos this week. The forum brings together leaders from government, business and civil society to discuss the main issues facing the world today and the challenges we are likely to be facing in the near future. The theme of the year’s meeting is ‘Cooperation in a Fragmented World’.
The prospects as seen by senior economists around the world are not positive at all. In fact, two-thirds of private and public sector chief economists surveyed by the WEF expect a global recession this year, with some 18 per cent considering it “extremely likely”. The main reason that is being given is that current high inflation, low growth and high debt is reducing incentives for the investments needed to get back to growth.
To confirm this view, the World Bank last week cut its 2023 growth forecasts to levels close to recession for many countries due to the impact of increasing interest rates, the Russian invasion of Ukraine and a slowdown of the world’s leading economies. This week, China announced that its economic growth rate is the lowest it has been for decades.
The view on inflation is not the same for all countries. A majority of economists believe that Europe will have high inflation in 2023, while most expect China not to have high inflation. However, they do agree that in the western part of the world there will be further monetary policy tightening, with an impact on consumption and investment.
The theme of this year’s Davos meeting clearly indicates the need for more cooperation to overcome these challenges. It also indicates that such cooperation will be difficult to come by given the “fragmented world” we are living in.
On the political front, we need to remember that, at present, there are 30 wars around the globe; we do not have just the Russian war in Ukraine
Up to a few years ago, there was a willingness among leaders to address challenges together because of the high level of interdependency that globalisation had brought about. It seems that gone are those days as political leaders are focusing more on their domestic agendas.
It is also a “fragmented world” because there is a divergence of opinions and conflicting interests and priorities on the key issue of climate change.
The organisers of the Davos meeting described the climate crisis as humanity’s greatest challenge and are calling for a speeding up of the transition to the green economy. Unfortunately, not all political leaders agree that we have a climate crisis and many countries do not have the propensity to do much about it.
If energy and food prices are increasing, there are countries and businesses that are profiting from this increase, at the expense of other countries. One might claim that this is the invisible hand of the free market at work. It may or may not be the case, but we do need to appreciate that the poorer nations are going to get poorer and the world will become more fragmented as a result of such higher prices.
On the political front, we need to remember that, at present, there are 30 wars around the globe; we do not have just the Russian war in Ukraine. Larger countries surely have an interest in such wars and that interest may not necessarily be peace.
These various issues require concerted action. This is missing today, and the risk of such fragmentation is that the global economic environment will be very uncertain in the coming years.