Davos 2023: Recession casts long shadow over opening of WEF summit

DAVOS, Switzerland, Jan 16 (Reuters) – The prospect of a looming global recession cast a long 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 businesses.

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

“The current high inflation, low growth, high debt and highly fragmented environment reduce the incentives for investment needed to return to growth and raise the living standards of the world’s most vulnerable,” WEF Managing Director Saadia Zahidi said in a statement accompanying the results from the survey.

The WEF survey is based on 22 responses from a panel of senior economists selected from international agencies, including the International Monetary Fund, investment banks, multinationals and reinsurance groups.

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

The World Bank last week cut its growth forecasts for 2023 to near-recession levels for many countries as the impact of central bank interest rate hikes deepens, Russia’s war in Ukraine continues and the world’s main economic drivers falter.

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

As for inflation, the WEF survey saw wide regional variation: the proportion expecting high inflation in 2023 ranged from just 5% in China to 57% in Europe, where the impact of last year’s energy price hike spread across more – the broader economy.

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

“Clearly there is a huge drop in demand, inventories are not being cleared, orders are not coming in,” Yuvraj Narayan, deputy chief executive and chief financial officer of Dubai-based global logistics company DP World, told Reuters.

“There are too many restrictions imposed. It’s no longer a free-flowing global economy and unless they find the right solutions, it’s only going to get worse,” he said, adding that the group expects freight prices to fall by between 15% and 20% in 2023.


Few sectors expect to be completely immune.

Matthew Prince, CEO of cloud services company Cloudflare Inc (NET.N)said Internet activity points to an economic slowdown.

“Since the New Year, when I catch up with other tech CEOs, they’re like, ‘have you noticed the sky is falling?'” he told Reuters.

The PwC survey found that confidence among companies in their growth prospects has fallen the most since the 2007-08 global financial crisis, despite the majority of CEOs having no plans to reduce the size of their workforce in the next 12 months or to cut wages while trying to retain talent.

“They’re trying to make cost reductions without human capital changes and big layoffs,” said PwC global chairman Bob Moritz.

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

“We are hearing the same mixed picture from most of our clients. People are expecting a market that will be more challenging,” Hibbert told Reuters.


Nowhere is the recession’s real-world impact more palpable than in efforts to address global poverty.

Peter Sands, executive director of the Global Fund to Fight AIDS, Tuberculosis and Malaria, said overseas development aid was being cut in budgets as donors began to feel the pinch, while the recession would hit local health care hard.

A common concern among many attendees at Davos was the sheer level of uncertainty for next year, from the length and intensity of the war in Ukraine to the next moves by top central banks looking to tame inflation with big rate hikes.

The chief financial officer of one U.S. publicly traded company told Reuters he was preparing many different scenarios for 2023 in light of economic uncertainty – largely related to the trend in interest rates this year.

Although there were few silver linings on the horizon, some noted that a full-blown recession could put a pause on plans to tighten policy by the US Federal Reserve and other major central banks, making borrowing increasingly expensive.

“I want the outlook to get a little softer so that Fed rates start to come down and all this liquidity-sucking from global central banks eases,” said Sumant Sinha, chairman and CEO of India’s Clean Energy Group ReNew Power, to Reuters.

“This will benefit not only India but globally,” 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 Kretzer, Divya Chowdhury and Paritosh Bansal; Editing by Alexander Smith

Our standards: Thomson Reuters Trust Principles.

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