How to solve the cost of living crisis was the issue on the lips of the world’s business leaders yesterday as the annual meeting of the global elite kicked off in Davos.
The bosses, politicians and luminaries gathering in the Swiss ski town may not be feeling the pinch in their own pockets yet – helicopters could still be heard whirring into the Swiss resort as the World Economic Forum’s (WEF) conference began.
But they were eager to address the issue of rising prices which are posing a threat to their businesses and citizens.
Inflation battle: Business leaders gathering in the Swiss ski town of Davos were eager to address the issue of rising prices which are posing a threat to their businesses and citizens
The WEF is holding its annual meeting at a turbulent time.
Not only is the conference happening four months later than usual – with sharply suited delegates mopping their brows in the spring humidity rather than stamping their feet in the winter snow – but there are a confluence of factors threatening to tip the world into a recession.
In a bleak update, Kristalina Georgieva, managing director of the International Monetary Fund (IMF), said red-hot inflation, an energy crisis and growing protectionism were threatening the global economy.
Even since April, when the IMF downgraded its growth forecasts for more than 100 countries including the UK, Georgieva said the ‘horizon has darkened’ yet further.
‘The consequences of the conflict in Ukraine are growing further and faster,’ she said. ‘We are looking down 2022 as a tough year.’
When asked whether she expected a recession for the world’s major economies, she said: ‘No, not at this point. But it doesn’t mean it is out of the question.’
The rising cost of food, she added, would be particularly harmful.
But Citigroup’s boss Jane Fraser – who sounded the alarm about inflation as early as last year – was more black-and-white.
Asked whether she was near-certain there would be a recession in Europe, she simply said: ‘Yes’.
She added: ‘Europe is right in the middle of the storms from supply chains, from the energy crisis, and obviously just the proximity to some of the atrocities that are occurring in Ukraine.’
Late arrival: ECB president Christine Lagarde told Davos delegates that Europe is set to follow the UK and US with interest rate hikes
Back in Frankfurt, the European Central Bank (ECB) finally started to show the extent of its own concern. In a blog post which analysts dubbed ‘remarkably explicit’, ECB president Christine Lagarde suggested interest rates in the European Union would be raised in July from their current level of minus 0.5 per cent.
The ECB has so far held off bumping up interest rates, unlike the UK and the US, worrying that it could halt the recovery from Covid.
While higher interest rates theoretically cool rising prices, encouraging households and businesses to hold on to their money rather than spend, this also stymies activity.
But sky-high levels of inflation, or the rise in the cost of living, have pushed officials to make a move. Explaining that the ECB would start ending its massive money-printing programme from ‘very early in the third quarter’, she added: ‘This would allow us a rate lift-off at our meeting in July, in line with our forward guidance.’
Throughout several of the panel sessions at the WEF, the brains of the business world urged global leaders to keep cooperating.
Saadia Zahidi, managing director at the forum, warned that the world is on ‘the cusp of a vicious cycle’.
IMF boss Kristalina Georgieva (pictured) said red-hot inflation, an energy crisis and growing protectionism were threatening the global economy
She added: ‘Leaders face difficult choices and trade-offs domestically when it comes to debt, inflation and investment.
‘Yet business and government leaders must also recognise the absolute necessity of global cooperation to prevent economic misery and hunger for millions around the world.’
Davos’s elite were not entirely full of doom and gloom before they left for their evening champagne receptions.
David Rubenstein, co-founder and co-chairman of US private equity giant the Carlyle Group, repeatedly replaced the word recession with ‘banana’ – echoing a former adviser to President Carter who eschewed the ‘R-word’ in an effort not to alarm the electorate.
There would probably not be a ‘banana’, he argued, saying both the Covid crash and the financial crisis of 2008 had been more severe. If there was, he said, it would likely be mild.
Davos delegates – who will be at the conference until its close on Thursday, with no chance of a spot of skiing to lift the spirits as in previous years – may be hoping that optimism continues.