By Peter Thal Larsen and Lauren Silva Laughlin
DAVOS, Switzerland- Three things were in shorter supply than usual at last week’s World Economic Forum in Davos: snow, delegates, and reasons to be cheerful.
The confab of politicians, financiers, business leaders and hangerson reconvened in the Swiss mountain resort after a pandemic-induced absence of more than two years.
The consensus that emerged is that the world is beset by problems, many of which are going to get worse. The best hope is that the unreliable prognosticator known as “Davos Man” has got it wrong once again.
It wasn’t just the lack of icy pavements and glitzy parties or the free seats in the normally crowded conference center that distinguished this year’s gathering from the usual late-January schmooze-fest. Attendees also noted a pervasive economic and political gloom. Russia’s invasion of Ukraine, now in its fourth month, has tipped the world into a myriad of crises.
Top of mind are soaring energy costs. Europe is trying to wean itself off Russian oil and gas, urged on by Ukrainian politicians who fanned out across Davos to press the case for a full embargo. But alternative sources are scarce. Western banks are sticking to their commitments to reduce carbon emissions to net zero, making it “very hard to finance any new” fossil fuel projects, one senior European banker noted.
Officials from Saudi Aramco, the world’s largest oil company, warned of a shortage of supply of the commodity.
The steep rise in oil prices is adding to a severe shortage of food. The global farming community cannot replace the wheat that normally comes from the fields of both Russia and Ukraine.
Heavy importers like Egypt and Tunisia may struggle to put food on the table. David Beasley, executive director of the United Nations World Food Programme, said hundreds of millions of people were “marching to starvation”. Political instability is likely to follow.
Then there are the lingering effects of Covid-19. Though only a handful of Davos delegates sported face masks, many fretted about the new round of harsh lockdowns in China, which have depressed growth in the world’s second-largest economy and further disrupted supply chains.
Multinationals are seeking backup suppliers in places like southeast Asia, or bringing production closer to home. Meanwhile, governments are reviewing their dependence on imports of energy, semiconductors, and pharmaceuticals. As companies duplicate manufacturing facilities and hold higher inventories, margins will be squeezed.
China is also causing consternation for other reasons. As the conference kicked off, US President Joe Biden – who chose to visit Asia rather than Switzerland — said he was willing to use force to defend Taiwan. That raised the prospect of the West deploying sweeping sanctions against the People’s Republic. It’s one of the few areas of agreement among US political leaders now bickering about gun control after yet another shooting in an American elementary school.
But one senior European banker warned that imposing Russian style sanctions on China would be so disastrous for both sides that it amounted to an economic form of the “mutually assured destruction” of the Cold War.
