For this 53rd edition of the World Economic Forum in Davos, the first winter session since the Covid crisis of 2020, the contrast is striking between the collective pessimism of leaders on growth and the relative optimism displayed by those we meet. individually, especially after three days of conferences.
“The Davos forum is a very good observer of past and present trends, but a very poor forecaster, especially regarding the future. In general, the following year goes much better when the participants are worried and vice versa, especially in odd years,” underlines an active member of the World Economic Forum.
Fragmented globalization
The theme of the year highlights the need for better “cooperation in a fragmented world”, and illustrates well the feeling that the world economy is in a delicate transition. The succession of crises, from the health crisis to the shock on energy prices, puts nerves to the test and generates a level of stress and uncertainty that we had not reached since at least the crisis financial year of 2008. Faced with the protectionist reactions of States, such as l’Inflation Reduction Act (IRA) of Joe Biden, the organizers of Davos, its founder Klaus Schwab in the lead, plead not to lose sight of the fact that globalization and free trade remain the most effective means of generating non-inflationary growth.
Among the 2,700 people who made the trip to the famous Swiss Grisons resort, 40 heads of state and government, but only one member of the G7, Olaf Scholz. In the absence of Emmanuel Macron, the French delegation kept a low profile with the presence of a few regulars, such as Patrick Pouyanné (TotalEnergies), Benoît Potier (Air Liquide), Jean-Pascal Tricoire (Schneider Electric), Sabrina Soussan ( Suez), i.e. a majority of bosses from the energy sectors and what are called here “clean techs”, the champions of the energy transition. A few French ministers have passed, such as Jean-Noël Barrot, in charge of Digital, who took part in a panel on artificial intelligence, a new global darling since the release of ChatGPT, and Bruno Le Maire, who, after having accompanied the chief of the State at the Franco-Spanish summit, must participate in the final panel on the world economic prospects this Friday in duet with Christine Lagarde.
Despite the number of participants, nevertheless lower than that of the last edition of January 2020, due to the weak Chinese presence and the disappearance of the Russian, Iranian and Turkish delegations, replaced by Ukraine and the Gulf countries, essential in this period of the gas and oil race, Davos 2023 appears a little groggy, out of solutions so much the world after the Covid and the war launched by Russia no longer resembles the myth of happy globalization that the World Economic Forum has embodied the caricature over the past decade.
Recession or not, de-globalization or re-globalization in the form of a “Near-Shoring” or a “Friend Shoring”, resilience and state aid, the words of this 53rd edition show a whole image to which we were accustomed.
Europe, a besieged citadel
Europe in particular has emerged as a beleaguered citadel, on the defensive against the American IRA and Chinese subsidies to its green industry. This race for green investments is fueling fears of protectionism. During a strong opening speech, the President of the European Commission, Ursula von der Leyen denounced the “aggressive attempts” and “unfair practices” aimed at attracting industrial capacities from Europe with subsidies, in particular those related to clean energy, to China and elsewhere. And to warn that the EU would not hesitate to open investigations if it deemed that foreign subsidies distort the market. She accused Beijing of openly encouraging energy-intensive companies “to relocate all or part of their production to its territory”, and which at the same time “massively subsidizes its industry and restricts access to its market for companies in the ‘EU’.
Europe, however, is a bit schizophrenic, because at the same time, it is reluctant to get angry with its main customers. While worrying about US President Joe Biden’s major climate investment plan, the famous IRA, which provides for large amounts of aid for companies established in the United States in the electric vehicle or renewable energy sector, Europeans are currently trying to obtain derogations from the American plan, in order to reduce the risk that their companies or European productions will suffer from it.
By the end of the week, however, the participants were smiling again. A wind of optimism blew over Davos, especially after statements by ECB President Christine Lagarde on the European economy. Economic activity in the euro zone has slowed compared to 2022, but will be “much better” this year than initially feared, despite inflation and the energy crisis, European Central Bank (ECB) President Christine Lagarde said on Thursday. . “The news has become much more positive in recent weeks,” so the current year “will not be bright, but much better than feared,” the official said at the Davos Economic Forum.
Markets are dynamic
Labor markets, in Europe in particular, “have never been so dynamic” with the number of unemployed “at the lowest compared to what we have had in the last 20 years”. Similarly, Germany, Europe’s largest economy, should escape recession in 2023, despite the still tense situation facing the energy crisis, according to statements by Chancellor Olaf Scholz during an interview Tuesday with Bloomberg from Davos.
Christine Lagarde, however, dampened the hopes of the bull markets by reaffirming her determination to fight against inflation which remains “far too high even though price increases have slowed after peaking more than 10% in October.
“Our determination at the Central Bank is to bring inflation back to 2% in a timely manner” by taking “all measures to achieve this”, she hammered.
The ECB raised interest rates by 0.5 percentage point in December. But many central bankers around the table initially wanted to raise them by 0.75 points, the only signal consistent in their eyes with the deterioration in the outlook for inflation, according to the document. Cumulatively, rates have been raised by 2.5 percentage points since July, a rise of unprecedented speed. The next meeting is scheduled for early February.
Another element likely to make investors smile again, the reopening of China, reaffirmed in Davos by one of the Vice Prime Minister Liu He who gave signs of relaxation also with the United States on the trade war between the two country during a meeting in Zurich with US Treasury Secretary Janet Yellen, on the sidelines of Davos. And if, finally, 2023 presents itself under much better days than the economic world feared this summer and this autumn. It is still a bit early to judge, but not to hope.