News from Davos

Hasnat Abdul Hye | Published: February 07, 2015 00:00:00 | Updated: November 30, 2024 06:01:00

For a change the World Economic Forum (WEF) held its four-day talk-fest at the Swiss ski resort Davos peacefully this year. There was no ugly and noisy demonstration by youths with protest placards in their hands struggling with security forces. There was no skirmishes and bloodshed resulting from violence. Discussions of the WEF were held according to schedule in cosy atmosphere surrounded by picturesque mountains. It was an ideal retreat for the harried and weary leaders of politics, business and finance. Â
Nothing extraordinary happened at Davos during the four days when the WEF held 280 sessions of discussion. As usual participants deliberated on contemporary issues of concern among themselves and met the press. Through exchange of views they heightened the awareness about the problems that confront the world at present creating tension and thwarting progress. Since awareness creation on issues was brought under focus the meeting at Davos this year has been a success. Views expressed, however, ranged from hopeful to cautious, some even sounding pessimistic. Most of these issues centred around the world economy and its outlook in the near term.
Describing 2015 as a make or break year the International Monetary Fund (IMF) chief Christiane Lagarde said, the global economy faced the risk of getting stuck in a 'new mediocre' or a prolonged period of slow growth and feeble job creation. She said, 'at the start of 2015 policy makers faced three fundamental choices: to strife for economic growth or accept stagnation; to work to improve stability or risk succumbing to fragility; and to co-operate or go it alone.' The stake could not be higher, 2015 promised to be a make or brake year, according to her. She said growth and jobs were needed to support stability and social cohesion in the wake of the Great Recession that began in 2008. It was pointed out that six years after the financial crisis the recovery remained weak and uneven. Global growth was projected by IMF at just 3.3 per cent in 2014 and 3.8 per cent in 2015. What was worrying to many was that some important economies were still fighting deflation. More than 200 million people remained unemployed. The global economy was facing multiple challenges including crisis in the euro zone and slowing Chinese economy. The only silver lining was signs shown by the US economy of a confident recovery.
As the annual meeting of the 45th summit of the WEF came to an end world leaders were still scrambling to find ways to stimulate economic growth. Discussions at the various sessions of the Forum suggested that the global economy was facing strong headwinds of unemployment, geo-political unrest, low investment and slow progression of structural reforms. According to the result of a survey released by PricewaterhouseCoopers, the chief executive officers around the world were less confident about global economy prospects than a year ago.
Bankers attending the summit at Davos said central banks had done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and pro-investments policies to boost growth. After the European Central Bank (ECB) launched a bold bond-buying drive to revive inflation in euro zone, a top ECB official warned that Europe's common currency project could come unstuck if the bloc limped on with sluggish growth and mass unemployment. The banks could not do everything to lift growth in a lasting way, he said. The ECB president Mario Draghi urged governments to redouble efforts to create a genuine economic union. He said reforms were needed to raise competition, cut bureaucracy and improve labour market flexibility. Other central bankers present in Davos praised the ECB's bold action to buy government bonds with printed money over 18 months from March 2015 in a drive to raise the inflation rate from the current 0.7 per cent towards its target of 2.0 per cent. ECB's easy money policy follows similar measures of quantitative easing in the United States, Britain and Japan designed to revive the economy and avert deflation.
Bank of England governor Mark Carney said in the meeting that there was a greater danger of reckless risk-taking in the financial industry when rates of interest were at rock bottom. He cautioned that regulators would have to be more aware of the problem and ready to respond.
Bank of Japan governor Haruhiku Kuroda described the ECB move as 'significant' and predicted that it would greatly improve the world economic outlook because the euro zone was the biggest economic area in the world. Kuroda urged a Davos panel not to succumb to pessimism over the state of the world economy as he welcome the 'big decision' by the ECB to embark on a huge bond-buying spree. According to him some of the pessimism prevailing in Davos this year was exaggerated. Along with the diving price of oil, the ECB move could be great for the world economy, Kuruda said.
Speaking of emerging economies, Joaquim Levy, Brazil's finance minister was optimistic that the benefits of cheaper oil will make transition for their economies easier. He hoped that the fall of oil price will have positive impact on the global economy.
Hand wringing over the fate of a wobbly Europe has become a Davos tradition. This year was no different with Greece elections just around the corner with the risk of reversing the bailout programme for the country. The imminent decision by ECB to buy bond posed another uncertainty. In both cases Germany sounded warning against departing from the path of austerity. Germany stirred debate and came up for criticism for its blind push for austerity and imposing its singular economic vision on others. Former US Treasury secretary Lawrence Summers said, 'It is the failure to recognise that a one-off model that worked to produce export-led growth for Germany in the early part of the decade will lead to similar outcome for others has made German stand irrelevant in the context of the present crisis.' The German Vice-chancellor Sigmar Gabriel acknowledged that the task for Germany today was to support the EU through its own policies, particularly in regard to investment. His views stood in contrast to those of Angela Markel, a staunch supporter of austerity. The challenge according to her was for countries to look for benefit from structural reform.
The World Economic Forum met in 288 sessions this year which were attended by 25,000 participants. By all accounts it is the biggest conference in the world where the high and mighty are present. It is disappointing that though critical global issues are discussed spiritedly little by way of consensus is reached. The Forum's deliberations will appear useful when decisions are taken and recommendations are made to relevant world bodies. Till it happens the WEF at Davos will remain only a talk-fest and a very expensive one at that.
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