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Davos 2023: Recession casts shadow over WEF summit opening

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

Two-thirds of chief private and public sector economists surveyed by the WEF expect a global recession this year, with some 18% seeing it as ‘extremely likely’, more than double the previous year. survey conducted in September 2022.

“The current high inflation, low growth, high debt and high fragmentation environment reduce the incentives for the investments needed to restore growth and raise living standards for the world’s most vulnerable,” Saadia Zahidi said. , chief executive of the WEF, in a statement accompanying the survey results. .

The WEF survey was based on 22 responses from a group of experienced economists from international agencies, including the International Monetary Fund, investment banks, multinational corporations and reinsurance groups.

Meanwhile, a survey of CEO attitudes by PwC released in Davos on Monday was the darkest since the ‘Big Four’ auditor launched the poll a decade ago, marking a significant shift from the optimistic outlook. in 2021 and 2022.

The World Bank last week lowered its 2023 growth forecasts to near-recessionary levels for many countries as the impact of central bank rate hikes intensifies, Russia’s war in Ukraine continues and the main global economic engines are collapsing.

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

Regarding inflation, the WEF survey found wide regional variations: the proportion expecting high inflation in 2023 ranged from just 5% for China to 57% for Europe, where the he impact of last year’s high energy prices has reverberated throughout the economy.

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

“It’s clear there’s a massive drop in demand, inventory isn’t going down, orders aren’t coming in,” Yuvraj Narayan, deputy chief executive and chief financial officer of the global logistics company, told Reuters. DP World based in Dubai.

“There are far too many constraints imposed. It is no longer a smooth global economy and unless they find the right solutions it will only get worse,” he said, adding that the group expects freight rates to drop between 15% and 20% in 2023.


Few sectors expect to be completely immune.

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

“Since New Years, when I catch up with other tech CEOs, they’re like, ‘Did you notice the sky is falling on us? “” he told Reuters.

PwC’s survey found that companies’ confidence in their growth prospects has fallen the most since the 2007-2008 global financial crisis, although a majority of CEOs have no plans to downsize their workforce over the next 12 months or cut compensation as they try to retain talent.

“They’re trying to cut costs without changes in human capital or massive layoffs,” said PwC Global Chairman Bob Moritz.

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

“We hear the same mixed picture from most of our customers. People are expecting a market that is going to be tougher,” 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 overseas development assistance was being cut in budgets as donors began to feel the pinch, while the recession would hit local health services hard.

A common concern among many Davos attendees was the level of uncertainty for the year ahead – from the length and intensity of the war in Ukraine to the next moves by major central banks seeking to reduce inflation with sharp rate hikes.

The chief financial officer of a listed U.S. company told Reuters he was preparing widely varying scenarios for 2023 in light of economic uncertainty – much of it related to interest rate developments this year.

While there are few upsides on the horizon, some have noted that a full recession could give pause to policy-tightening plans by the U.S. Federal Reserve and other major central banks that return borrowing. more and more expensive.

“I want the outlook to weaken a bit so that Fed rates start to come down and all the sucking of liquidity by global central banks eases,” Chief Executive Sumant Sinha told Reuters. of the Indian clean energy group ReNew Power.

“This will not only benefit India but the whole world,” he said, adding that the current round of rate hikes is making 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; Editing by Alexander Smith

Our standards: The Thomson Reuters Trust Principles.

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