DAVOS // The World Economic Forum got off to a gloomy start in the Alpine town of Davos, as global business leaders took stock of the deteriorating economic and financial situation since the turn of the year.
In the early sessions of the WEF’s 46th annual meeting, speaker after speaker warned of the repercussions of falling stock markets, declining world economic growth, plummeting oil prices and volatile currency markets.
The Harvard economic professor Ken Rogoff, on a panel considering how to prevent future financial shocks, said: “The new normal is a world where there is low growth and high levels of deflation, and we have to get used to that.”
Martin Sorrell, chief executive of the communications company WPP, told the same panel that the fall in the oil price last year has not had any noticeable effect on consumer demand or growth. "That's been a permanent problem for the world since the crash of Lehman Brothers. For the past two years, the biggest companies in the world have taken a view on the global economy, and they've taken their money out in the form of dividends and buy-backs."
Mr Sorrell listed the most pressing economic problems as China, oil, Saudi Arabia, the US economy, Brexit and migration. “That’s quite a list,” he added.
The billionaire American hedge fund manager Paul Singer said that “economies have been held up for way too long by central banks. Policymakers have done nothing in the way of structural reform and now we’re seeing the consequences”.”
On the collapse in energy prices, the meeting heard a pessimistic prognosis from Fatih Birol, executive director of the International Energy Agency. “The downward pressure on oil prices is likely to continue in 2016. By the end we’ll have had three years of oversupply, and I cannot see any surprise factors that might push up the price.
“What worries us most is that in the last year oil investment dropped 20 per cent, the biggest fall ever. But it will still drop by a further 16 per cent this year, we believe.”
Daniel Yergin, the Pulitzer Prize-winning energy author and vice chairman of the IHS consultancy, said: “This time last year the falling oil price was supposed to be the world’s big ‘tax cut’, but that just has not happened. For US energy firms the effect has been much more mixed. Shale companies employ 2 million people directly or indirectly and are a crucial part of the supply chain, They are hurting and it can only get worse if prices stay low. There will be a 35-40 per cent drop in energy investment by 2020, taking $1.8 trillion out of the business.
“The effect has coincided with the slowing of Chinese growth, which has brought the price down even further,” `Mr Yergin added.
A rare note of optimism came from Min Zhu, deputy managing director of the IMF. “I do not think we are in a meltdown, I think it is an adjustment. The global economy will grow by between 3 and 4 per cent this year, even after the downgrades. That is still good growth,” he said.
fkane@thenational.ae
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