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

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

Two-thirds of chief private and public sector economists surveyed by the WEF expect a global recession this year, with about 18% considering it “extremely likely” – more than twice as many as in the previous survey released in September 2022 was held.

“The current high inflation, low growth, high debt and high fragmentation reduce incentives for the investments needed to return to growth and raise the living standards of the world’s most vulnerable,” WEF Executive Director Saadia Zahidi said in a statement. explanation of the research results. .

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

Meanwhile, a survey of CEOs’ attitudes by PwC released Monday in Davos was the gloomiest since the “Big Four” auditor launched the poll a decade ago, marking a significant shift from optimistic outlooks in 2021 and 2022.

The World Bank last week cut its 2023 growth forecasts to levels close to recession for many countries as the impact of central bank rate hikes deepens, the Russian war in Ukraine continues and the world’s major economic engines sputter.

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

In terms of inflation, the WEF survey saw large regional differences: the percentage expecting high inflation in 2023 ranged from just 5% for China to 57% for Europe, where the impact of last year’s energy price rise has spread. spread to the wider economy.

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

“Obviously there is a huge drop in demand, stocks are not being cleared, orders are not coming through,” Yuvraj Narayan, deputy CEO and chief financial officer of Dubai-based global logistics company DP World, told Reuters.

“There are far too many restrictions being imposed. It is no longer a free-flowing global economy and unless they find the right solutions it will only get worse,” he said, adding that the group expects freight rates to fall by 15% to 20% % will decrease. % in 2023.


Few sectors expect to be completely immune.

Matthew Prince, CEO of cloud services company Cloudflare Inc (NET.N), said internet activity indicated an economic slowdown.

“Since old and new, when I catch up with other tech company CEOs, they say, ‘Did you notice the sky is falling?'” he told Reuters.

The PwC survey found that companies’ confidence in their growth prospects has fallen the most since the global financial crisis of 2007-2008, even though the majority of CEOs do not plan to reduce headcount in the next 12 months or increase the number of employees. lower rewards while trying to retain talent.

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

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

“We’re hearing the same mixed picture from most of our customers. People are expecting a market that will be more challenged,” Hibbert told Reuters.


Nowhere is the real impact of the recession more tangible than in efforts to tackle global poverty.

Peter Sands, executive director of the Global Fund to fight AIDS, tuberculosis and malaria, said aid budgets abroad were being cut as donors began to feel the squeeze, while the recession would hit local healthcare hard.

A common concern of many Davos participants was the huge uncertainty for the coming year – from the duration and intensity of the war in Ukraine to the next moves by major central banks to lower inflation with sharp rate hikes.

The chief financial officer of a US public company told Reuters he was preparing very different scenarios for 2023 in the face of economic uncertainty – largely related to how interest rates will move this year.

While there were few bright spots on the horizon, some noted that a full-blown recession could mean a pause in the policy-tightening plans of the US Federal Reserve and other major central banks, which are making borrowing increasingly expensive.

“I want the outlook to soften a bit so that Fed rates start to come down and the whole liquidity drain by the world’s central banks eases,” said Sumant Sinha, chairman and CEO of Indian clean energy group ReNew Power. , to Reuters.

“That will not only benefit India, but globally,” he said, adding that the current round of rate hikes 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: The Thomson Reuters Principles of Trust.

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