Business, political leaders flag risk of worldwide recession at WEF

Published May 24, 2022
IMF Managing Director Kristalina Georgieva (L) and Governor of the Bank of France François Villeroy de Galhau attend a session at the World Economic Forum annual meeting in Davos on Monday.—AFP
IMF Managing Director Kristalina Georgieva (L) and Governor of the Bank of France François Villeroy de Galhau attend a session at the World Economic Forum annual meeting in Davos on Monday.—AFP

DAVOS: Multiple threats to the global economy topped the worries of the world’s well-heeled at the annual Davos think-fest on Monday, with some flagging the risk of a worldwide recession.

Political and business leaders gathering for the World Economic Forum (WEF) meet against the backdrop of inflation at its highest level in a generation in major economies, including the United States, Britain and Europe.

These price rises have undermined consumer confidence and shaken the world’s financial markets, prompting central banks, including the US Federal Reserve, to raise interest rates.

Meanwhile, the repercussions on oil and food markets of Russia’s invasion of Ukraine in February — which Moscow describes as a “special military operation” — and Covid-19 lockdowns in China with no clear end have compounded the gloom.

“We have at least four crises, which are interwoven. We have high inflation ... we have an energy crisis... we have food poverty, and we have a climate crisis. And we can’t solve the problems if we concentrate on only one of the crises,” German Vice Chancellor Robert Habeck said.

“But if none of the problems are solved, I’m really afraid we’re running into a global recession with tremendous effect… on global stability,” Habeck said during a WEF panel discussion.

The International Monetary Fund (IMF) last month cut its global growth outlook for the second time this year, citing the war in Ukraine and singling out inflation as a “clear and present danger” for many countries.

European Central Bank (ECB) President Christine Lagarde, due to speak in Davos on Tuesday, has warned that growth and inflation are on opposing paths, as mounting price pressures curb economic activity and devastate household purchasing power. “The Russia-Ukraine war may well prove to be a tipping point for hyper-globalisation,” she said in a blog post on Monday.

“That could lead to supply chains becoming less efficient for a while and, during the transition, create more persistent cost pressures for the economy,” Lagarde added.

Still, she essentially promised rate hikes in both July and September to put a brake on inflation, even if rising borrowing costs are bound to weigh on growth.

While the economic drag from the Ukraine crisis is being most keenly felt in Europe, it is the US economy that is experiencing the greatest price pressures.

The Consumer Price Index shot from near zero two years ago to a 40-year high of 8.5 per cent in March. The Fed responded earlier this month with its largest rate hike in 22 years, and Chair Jerome Powell has signalled increases of a similar magnitude — half a percentage point — at its next two meetings at least.

Published in Dawn,May 24th, 2022

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