scorecardresearchWar, Inflation Create Risks for Global Economy: Davos Update

War, Inflation Create Risks for Global Economy: Davos Update

Updated: 24 May 2022, 07:49 AM IST

International Monetary Fund chief Kristalina Georgieva acknowledged that risks to the global economy have intensified but pushed back against concerns of a recession.

International Monetary Fund (IMF) managing director Kristalina Georgieva looks on during a session at the World Economic Forum (WEF) annual meeting in Davos on May 23, 2022. (Photo by Fabrice COFFRINI / AFP)

International Monetary Fund (IMF) managing director Kristalina Georgieva looks on during a session at the World Economic Forum (WEF) annual meeting in Davos on May 23, 2022. (Photo by Fabrice COFFRINI / AFP)

(Bloomberg) -- International Monetary Fund chief Kristalina Georgieva acknowledged that risks to the global economy have intensified but pushed back against concerns of a recession. 

The World Economic Forum’s annual meeting in Davos began Monday after a two-year hiatus due to the pandemic, albeit with fewer big names from Wall Street and politics. Rampant inflation, risks of food shortages and climate change is giving the elite plenty to worry about, while the war in Ukraine was creating a “sad” mood at the event, according to Davide Serra, chief executive officer of Algebris Investments.

In a keynote speech, Ukraine President Volodymyr Zelenskiy reinforced his call for embargoes on oil, technology and other trade with Russia, and said there should be no exceptions in sanctions on the country’s banking sector.

“The world is united because of threats, the war, Russian aggression. I don’t want you to lose this unity,” he said, adding that Russian authorities are “afraid of this strong fist.”

Key Developments

  • Zelenskiy Issues Davos Demand to Shun Russia, Invest in Ukraine
  • Biden, Georgieva Push Against Recession Fears Amid Davos Gloom
  • Credit Suisse CEO Says We’ll Never Go Back to Office Full Time
  • Saudi Arabia to Use Oil Windfall to Boost Private Sector
  • Thailand Central Bank Signals It’s in No Hurry to Raise Rates

All times CET:

Bridgewater Highlights Dollar Vulnerability (1:30 p.m.)

The U.S. dollar is vulnerable on a cyclical as well as on a structural basis, according to Rebecca Patterson, the chief investment strategist at Bridgewater Associates, the world’s largest hedge fund. The current account deficit for the US had widened to about 3.5% of gross domestic product officially, but her firm’s latest estimates suggest that it’s closer to as much as 6%, she said.

“For the dollar to stay supported, we need to continue getting enough capital to offset them, and we think there’s a growing risk around that,” she said in an interview with Bloomberg Television. “The most important thing to understand about the dollar right now is how quickly our external need for foreign capital is increasing.”

Anti-Russia Unity to Endure, Latvian President Says (1:25 p.m.)

The “unusual unity” against Russia is likely to last as countries now have “no illusions” about the dangers posed by Moscow, according to Latvian President Egils Levits. That includes an appreciation of the threat to global agricultural supply posed by the conflict, he told Bloomberg News.

Phasing out Russian oil and gas will be difficult for all countries in Europe, and harder for some, Levits added. Despite the difficulties, he insisted that the will remained to agree on an oil embargo as “we shouldn’t finance the war against Ukraine.” There is an understanding that some countries require special consideration and exemptions on potential time lines, he said.

AstraZeneca Seeks Partnerships to Boost Vaccines Unit (1:20 p.m.)

AstraZeneca Plc is looking for partnerships to expand its newly-created vaccine and immune therapies unit as well as seeking to speed its existing portfolio, unit chief Iskra Reic said. The UK drugmaker is interested in partnerships that would give it access to new technologies or accelerate development in the areas of vaccines or antibody treatments.

“We are really looking at how to accelerate and step up with internal resources, and as always we are very much open to external partnership,” Reic said in an interview on the sidelines of the WEF. The UK company still sees a role for its Covid vaccine in places like Latin America and Asia, where it’s the most-used vaccine, she said.

Bankers Not Rushing Back to the Office (12:05 p.m.)

Credit Suisse Chief Executive Officer Thomas Gottstein doesn’t think banks will ever return to working full-time from the office. “It’s unrealistic and it is not what employees want,” he said in an interview. “We are in a soft way trying to encourage people to come back, but it’s counterproductive if you push too hard.”

“We will never go back to the old 80% to 90% of the people in the office,” Gottstein said. Based on the company’s policies, about 60% of employees should be working from the office but the true number is 37%, and Gottstein indicated there’s not much that can be done to force people back.

Zelenskiy Asks for Help With Grain, Reconstruction (11:55 a.m.)

Zelenskiy also said Russia was stealing Ukraine’s grain supplies and asked for help from the international community to reject shipments, while urging safe corridors so the country can import its own supplies.

He also asked for financial assistance to help the Ukraine recover from Putin’s invasion. Russia is “blocking our ports, they ruined our refinery, our fuel deposits,” he said, responding to questions from WEF Chairman Klaus Schwab. “Ukraine faces many challenges,” Zelenskiy added. “I ask for help for Ukraine. The economy must work. I ask you to act promptly. If it is not promptly, we will lose a lot.”

Zelenskiy Calls for Russian Isolation (11:45 a.m.)

In a video address, Zelenskiy also called on the international community to establish a precedent to deter the Kremlin now as well as prevent future aggression.

“If brute force dominates, then there is no need to gather in Davos,” he said in a keynote address. “Brute force does not discuss, It kills.” He said that Ukraine was open for companies that leave Russia. “You will have access not only to a market of 40 million consumers but also to the EU market,” he said, with reference to his country’s comprehensive trade deal with bloc.

Thai Central Bank Upbeat on Inflation Target (11:45 a.m.)

Thailand’s central bank is confident inflation will return to target next year, signaling there was no rush to change monetary policy settings just yet to check price gains hovering around a 13-year high.

“Inflation is no doubt trending higher,” Governor Sethaput Suthiwartnarueput said in an interview with Bloomberg TV. “It’s relatively concentrated in energy and food. And we don’t see the kind of demand-side inflationary pressures in terms of an overheating economy.”

Hong Kong IPOs ‘Held Back by Sentiment’ (11:40 a.m.)

Hong Kong Exchanges & Clearing Ltd. Chief Executive Officer Nicolas Aguzin said that the main message he took with him from a recent visit to mainland China was the importance of Hong Kong continuing to develop as a key international financial center.

The CEO also said the pipeline of initial public offerings in the city also remains high -- with between 170 to 180 applications -- but are being held back by market sentiment. It was too early to predict when deals will pick up again, but “eventually the market will come back,” he said in an interview in with Bloomberg TV.

Winters ‘Skeptical’ of HSBC Breakup (11:30 a.m.)

Standard Chartered Plc Chief Executive Officer Bill Winters said he was “skeptical” of any push to break up rival lender HSBC Holdings Plc, which is under pressure from its largest shareholder to consider carving out its Asian operations.

“You end up taking something which is a reasonably well-functioning whole and splitting it up in pieces,” he said in an interview with Bloomberg TV. “Certainly for Standard Chartered bank, the cost would be much greater than the benefit. But frankly, nobody is suggesting that in our case.”

Canada Offers Help With ‘Critical Minerals’ (11:20 a.m.)

Canada can be “part of the solution” as countries and businesses seek more energy security, Francois-Philippe Champagne, Canada’s innovation, science and industry minister, told Bloomberg TV.

Supply chains are becoming more regional, “certainly more emphasis on resiliency than pure efficiency,” and Canada can help with critical minerals, he said. The country can also help power the world with “greener solutions,” he said.

Ukraine Makes War Crimes Case (11:05 a.m.)

Ukrainian officials in Davos, including a group of mayors, launched an exhibit of photos and video showing alleged war crimes committed by Russian troops. Speaking at the exhibition launch by video address, Andriy Yermak -- an aide to President Zelenskiy -- said the exhibit, which features 4,600 pieces of evidence, was not just a symbolic move. “It is honest, it is fair,” he said.

The WEF this year features a large Ukrainian continent, including Zelenskiy’s keynote via video link, and no Russian presence. The site of exhibit was particularly poignant, occupying the building that usually serves as “Russia House” at the WEF, but now dubbed “Russian War Crimes House.”

Germany Wants Market Changes to Limit Energy Prices (10:45 a.m.)

German Economy Minister Robert Habeck called for changes in the rules governing energy markets to try to keep a lid on surging prices and limit Russia’s earnings from selling fossil fuels.

“Not only Gazprom and Putin have earned a fortune but also some companies have,” Habeck said on an energy panel. “So this is what I meant when I said that we have to keep the markets open but we have to change the rules,” he said, adding that one option could be for consumers to “agree that we don’t pay any price.”

“There has to be more creativity, more flexibility to think the unthinkable, to find solutions over the short term that we don’t give all the money to Putin,” Habeck said. “We have to find new solutions and we have to find them fast.”

Oil Surge Is a Global Problem (10:40 a.m.)

Indian Oil and Gas Minister Hardeep Singh Puri says high crude prices are escalating inflation and causing living standards to decline in a number of countries. “Let’s make no mistake: oil at $110 a barrel constitutes a challenge for the entire world,” he said. Several of India’s neighbors in “severe dire straits.”

Pain is being felt in India itself, where 60 million citizens fill up at the pump every day, he added. The ongoing energy crises show that consumers “need to move on the green path faster” with the transition to renewable energy sources. In the interim, governments need to ensure there’s enough hydrocarbon-based fuels to satisfy present demand. “We need to make sure there is no energy shortage in any form in a large country,” he said.

Ukraine Calls for Further Russian Isolation (10:35 a.m.)

Speaking hours before Zelenskiy addresses the conference virtually, Ukraine’s First Deputy Prime Minister Yulia Svyrydenko took to a Davos stage to say Russia’s invasion had put the “world on edge” and more could be done to isolate it.

“Russia uses its leverage like a weapon,” she said. “Food, energy. Now it’s treating the world with world hunger. Their actions are intentional. There should be reaction on its weaponization of everything.”

She said companies that have bypassed the economic curbs imposed after the invasion should face sanctions too. “Armies win battles but the economy wins wars,” she said. “Now is not the time for a cost benefit analysis. We have to cut Russia off from the global economy completely.”

Tougher Sanctions on Russia Urged (9:30 a.m.)

The world needs to do more to “impose pain on Russia’s elite,” Republican Congresswoman Ann Wagner said. “The Russian elite must understand that continued support for Putin is no longer in their interests,” she said.

During a panel on sanctions, Eric Cantor, vice chairman of Moelis & Co., also called for “tightening the vice” on Russia but stressed that the US should secure the support of its allies. Because of the dollar’s status as a reserve currency, “every time we use it even our allies and our friends start to wonder why is it that you can do this, and how are we going to make sure that we don’t become subject to those sanctions,” he said.

Further Forecast Downgrades Possible: IMF (9:20 a.m.)

The International Monetary Fund may need to further trim forecasts for economic growth this year but doesn’t expect a global recession, according to Managing Director Kristalina Georgieva.

She told Bloomberg TV in Davos that there have been some “incremental changes” since the Fund last month cut its global growth forecast to 3.6%, including “tightening of financial conditions,” the rise in the value of the dollar and a “slowdown in China.”

“All of this is making further downgrades not out of the question and for some countries there is now an increased risk of recession,” she said. “But we do not anticipate a global recession.”

Producers Must Prove Clean Energy Credentials: Sharma (9:15 a.m.)

Oil and gas producers making “extraordinary” profits due to high prices must show how they are investing their promised billions of dollars in clean energy in order to avoid windfall tax in the UK, according to COP26 President Alok Sharma.

Sharma, a member of the British Government, said he wants producers to set out quarterly plans showing how they are delivering on a clean-energy transition. If they fail to do so, then “all options are on the table”, he said. “What they’ve talked about is investing some of that money –- billions -- in clean energy,” he said. “It’s a matter of transparency, it’s a matter of fairness.”

Pain And Gain on the Path to a Cleaner Climate (9:15 a.m.)

Political and business leaders need to be clear with the public that “there will be pain in the process” of getting to net zero and a nature-positive world, said Kjerstin Braathen, CEO of Norways’s DNB Bank, citing energy shortages and inflationary pressures. “We need to start talking about that because if we don’t there’s no business, there’s no economy, there’s no welfare.”

During a panel on what governments and business can do to accelerate progress, Patrick Odier, chairman of the board of directors at Bank Lombard Odier in Switzerland, said that the environment needs be “at the center of capital allocation and credit activities.” He said “the stars are aligned” to accelerate the process because the financial sector has identified gaps in the market, while companies recognize the value of nature as an asset and government are addressing social impacts. 

Algebris Sees Stocks Tumbling Further (9:10 a.m.)

U.S. stocks have further to fall because expectations for earnings are still too high, according to Davide Serra, chief executive officer of Algebris Investments.

The S&P 500 will fall to a base of 3200 to 3400 points, down from 3901 currently, Serra said in a Bloomberg TV interview. The money manager, who founded Algebris in 2006, also flagged a “sad” mood at Davos because of the war in Ukraine. “Three hours from here, people are dying and shooting each other,” he said. “And so I think that’s why it’s different.”

IEA’s Birol Warns of Global Recession Risk (8:45 a.m.)

Oil producers need to act responsibly to help keep a lid on prices otherwise there is a risk of global recession, according to Fatih Birol, the executive director of the International Energy Agency.

“If we don’t make a positive contribution here we may see prices even going higher, being much more volatile and becoming a major risk for recession for the global economy,” Birol said in an interview with Bloomberg TV from Davos. “This summer will be difficult because as we know in summer oil demand normally goes up,” he said, adding that a major question is whether demand from China will remain flat due to weakness in the economy there.

Credit Suisse CEO Says He Has ‘Clear Mandate’ (8:25 a.m.)

Credit Suisse CEO Gottstein, who has been under pressure because of a string of scandals and earnings setbacks, said he has a “clear mandate” from the board to continue in his position.

Responding to questions about his future, Gottstein said in a Bloomberg Television interview that he is focused on executing the bank’s strategy and is working well with other members of the executive board.

Germany Warns of Food ‘Catastrophe’ (8 a.m.)

Germany’s Habeck said the WEF can help policy makers coordinate strategy on how to address a looming global food “catastrophe” and reiterated an accusation that Russian President Vladimir Putin is weaponizing hunger.

“We shouldn’t kid ourselves that there are limits to Putin’s brutality,” Habeck said in an interview with Germany’s Deutschlandfunk radio. “The task here at Davos is for us to recognize that hunger is being used as a weapon,” he added. “That’s why it’s good that the discussions are taking place in person here again and so many people are coming.”

WHO Envoy Sees Cost-of-Living Risks (7:55 a.m.)

A special envoy to the World Health Organization warned that 94 countries are at risk of facing severe hunger or famine and that surging consumer prices threatens disruption.

“This cost-of-living crisis could lead to the worst set of economic and social challenges we’ve seen in four or five decades,” David Nabarro, special envoy for Covid-19 at the WHO, said at the launch of the Edelman Trust Barometer in Davos. Energy shortages are driving up production costs and leading to shortages of fertilizer, potentially affecting 1.7 billion people, he added. 

First Published: 24 May 2022, 07:49 AM IST