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

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

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

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

The WEF survey was based on 22 responses from a panel of senior economists from international agencies, including the International Monetary Fund, investment banks, multinationals and reinsurance groups.

Meanwhile, PwC’s survey of CEO attitudes, released in Davos on Monday, was the gloomiest since the Big Four auditors began surveying a decade ago, marking a significant shift away from the optimistic outlook for 2021 and 2022.

The World Bank last week lowered its 2023 growth forecasts to near-recession levels in many countries as the effects of central bank interest rate hikes intensify, Russia’s war in Ukraine continues and key drivers of the global economy.

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

In terms of inflation, the WEF study showed large regional differences: in 2023 the expected share of high inflation ranged from just 5% in China to 57% in Europe, where the impact of last year’s rise in energy prices spilled over into the wider economy.

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

“Obviously, there’s been a big drop in demand, inventories aren’t clearing, orders aren’t coming through,” Yuvraj Narayan, deputy chief executive and chief financial officer of Dubai-based global logistics company DP World, told Reuters.

“Too many constraints have been put in place. This is no longer a free-flowing global economy and if they don’t find the right solutions, it will only get worse,” he said, adding that the group expects freight rates to drop by 15-20 percent. % in 2023


Few sectors expect to be fully resilient.

Matthew Prince, chief executive of cloud services company Cloudflare Inc ( NET.N ), said internet activity was indicative of a slowing economy.

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“Since the New Year, when I meet with the CEOs of other tech companies, they ask, ‘Have you noticed the sky is falling?'” he told Reuters.

A PwC survey showed that business confidence in their growth prospects has fallen by the most since 2007-2008. global financial crisis, although most CEOs did not intend to cut their staff or pay in the next 12 months in an attempt to retain talent.

“They’re trying to cut costs without human capital changes and big layoffs,” said PwC global chairman Bob Moritz.

Jenni Hibbert, a partner at Heidrick & Struggles in London, said activity had returned to normal and the executive search firm was seeing “a little bit less traffic” after two years of strong growth.

“We’re hearing the same mixed picture from most of our customers. People expect the market to be more challenging,” Hibbert told Reuters.


Nowhere is the real impact of the recession more palpable than in efforts to combat 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 pressure and the downturn would hit local health provision hard.

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Many at Davos were worried about the huge level of uncertainty for the coming year, from the length and intensity of the war in Ukraine to other moves by top central banks to reduce inflation by sharply raising interest rates.

The CFO of one US-listed company told Reuters that it is preparing for a very different 2023. scenario, given the economic uncertainty, mainly related to the trend of interest rates this year.

While there were few silver linings on the horizon, some noted that a full-blown recession could halt policy tightening plans by the U.S. Federal Reserve and other major central banks, which have made borrowing increasingly expensive.

“I want the outlook to get a little softer, for the Fed to start cutting interest rates and for global central banks to ease liquidity,” Sumant Sinha, chairman and CEO of India’s clean energy group ReNew Power, told Reuters.

“This will be beneficial not only for India but also globally,” he said, adding that the current rate hike will make it easier 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: The Thomson Reuters Trust Principles.


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