Davos 2023: Recession casts long shadow over opening of WEF summit

DAVOS, Switzerland, Jan 16 (Reuters) – The prospect of a looming global recession cast a long shadow over Davos on Monday as participants gathered at the opening of the World Economic Forum’s annual meeting calculated the likely costs to their economies and businesses.

Two-thirds of private and public sector chief economists surveyed by the WEF expect a global recession this year, with nearly 18% saying it is “extremely likely” – more than double the previous survey in September 2022.

“The current environment of high inflation, low growth, high debt and high fragmentation reduces the incentives for investment needed to return to growth and raise the living standards of the world’s most vulnerable,” WEF Managing Director Saadia Zahidi said in a statement accompanying the survey findings. .

The WEF’s survey was based on 22 responses from a group of senior economists drawn from international agencies including the International Monetary Fund, investment banks, multinational companies and reinsurance groups.

Meanwhile, PwC’s survey of CEO attitudes in Davos on Monday was the saddest since the Big Four auditor launched the survey a decade ago, marking a significant shift from its optimistic outlook for 2021 and 2022.

The World Bank last week cut growth forecasts for 2023 to near-recessionary levels for many countries as the impact of central bank rate hikes intensified, Russia’s war in Ukraine continued and the world’s main economic engines sputtered.

Definitions of what constitutes a recession vary around the world, but generally include the prospect of contraction in economies with high inflation in a “stagflation” scenario.

The WEF survey on inflation saw large regional variations: the rate of expected high inflation in 2023 ranged from just 5% for China to 57% for Europe, where the impact of last year’s rise in energy prices has spread to the wider economy.

A majority of economists see further tightening of monetary policy in Europe and the US (59% and 55%, respectively), and policymakers are torn between the risks of too much and too little tightening.

“There is a massive drop in demand, inventory is not being cleared, orders are not being fulfilled,” Yuvraj Narayan, deputy managing director and chief financial officer of Dubai-based global logistics company DP World, told Reuters.

“There are too many restrictions. It’s no longer a free-flowing global economy and it’s going to get worse if they don’t find the right solutions,” he said, adding that the group expects freight rates to drop between 15% and 20%. % in 2023.


Few sectors expect to be completely untouched.

Matthew Prince, chief executive of cloud services company Cloudflare Inc ( NET.N ), said internet activity was pointing to an economic slowdown.

“Since the new year, when I meet with other tech CEOs, they say, ‘Did you see the sky fall?'” he said.

A PwC survey showed the biggest drop in confidence in growth prospects among companies since the global financial crisis of 2007-08, although most CEOs did not intend to cut the workforce or cut wages in the next 12 months. retain talent.

“They are trying to reduce costs without changes in human capital and without major layoffs,” said Bob Moritz, global chairman of PwC.

Jenni Hibbert, a partner at Heidrick & Struggles in London, said activity had normalized and the executive search firm had seen “a little less flow” after two years of strong growth.

“We’re hearing the same mixed picture from most of our clients. People are expecting a tougher market,” Hibbert told Reuters.


Nowhere is the recession’s real-world impact more palpable than in efforts to fight global poverty.

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

A common concern among many Davos attendees was the high level of uncertainty for the coming year — from the duration and intensity of the Ukraine war to the next steps from top central banks seeking to tame inflation with deep interest rate hikes.

The chief financial officer of a publicly traded U.S. company told Reuters he was preparing widely varying scenarios for 2023 amid economic uncertainty — largely about how interest rates will trend this year.

While there are a few silver linings on the horizon, some have noted that a broader recession could put a pause on policy tightening plans by the US Federal Reserve and other major central banks, which have made borrowing increasingly expensive.

“I want the outlook for Fed rates to start coming down and for the global central banks to reduce liquidity absorption,” Sumant Sinha, chairman and chief executive of Indian clean energy group ReNew Power, told Reuters.

“This will benefit not only India but globally,” he said, adding that the current rate hike has made it more expensive for clean energy companies to finance their capital-intensive projects.

Reporting by Mark John, Maha El Dahan, Jeffrey Daskins, Leela de Kretser, Divya Chowdhury and Paritosh Bansal; Edited by Alexander Smith

Our standards: Thomson Reuters Trust Principles.

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