CHANGING TIMES

It was the first World Economic Forum (WEF) held in Davos in a face-to-face format after the pandemic and, contrary to tradition, in late May. The event was marked with the predominance of political topics on the urgent global economic problems. The developments in Ukraine were in the focus of almost all discussions, while the economic issues followed the discussions primarily as consequences of the war. The Russian delegation was not invited to Davos. But there were the Ukrainian Minister of Foreign Affairs, a group of MPs and the mayor of Kiev. 

Azerbaijan was represented by the Economy Minister Mikayil Jabbarov, who took part in discussions on the fuel market and the prospects of green energy.

Risk of recession

The Guardian described the outcome of the forum succinctly: “...it felt as if the meeting was taking place not in May 2022 but in July 1914 or August 1939, times past when the world has stood on the brink of the precipice.” Three years of turmoil have caused uncertainty, risks and stress with unpredictable consequences, increasing panic among the business elite as well.

But leaving aside the loud political statements observed this year in Davos, the participants unanimously acknowledged that the war in Ukraine would have a negative effect on the global economy. The only question is how strong this effect would be. The forecasts vary from mild stagflation to a global depression. There was no talk at Davos about easing sanctions against Russia, but everyone agreed that the Ukrainian conflict would lead to higher energy and food prices.

"Developing countries face a three-fold crisis in terms of food, fuel and financial shortage," UN Development Programme Administrator Achim Steiner said.

German Vice Chancellor Robert Habeck, Minister of Economic Affairs and Climate Protection, mentioned at least four crises: energy, food, climate and high inflation crises in many countries. "We cannot solve the problems if we only focus on one of them. If none is solved, I really fear that we will move towards a global recession," Habek said.

Citigroup head Jane Fraser said a recession in Europe was likely, while the Dutch Prime Minister Mark Rutte said Western populations would become slightly poorer due to inflation and high energy prices.

"Food prices go up, up, and up. We can reduce petrol consumption when the growth slows down, but we have to eat every day," IMF Managing Director Kristalina Georgieva said.

Existing problems, recession and crisis have been known before the forum. The real question is if the powerful economic minds were able to find ways to ease the suffering of the world population. Globally, no! Prescriptions are the same: increase spending, subsidies, fiscal stimulus packages, support for poor countries. All of this is a direct route to higher inflation and government debt, and therefore to lower prosperity and higher poverty.

But even in this case, according to David M. Rubinstein, co-founder of The Carlyle Group, the mission of central banks must change. It no longer makes sense for them to focus on lowering inflation and maintaining the stability of the national currency, but rather to concentrate on fighting unemployment, the rate of which usually goes up following the increasing key interest rates.

So, no hope? Perhaps the most original idea to get out of the crisis came from Joseph Stiglitz, the Nobel Prize-winning economist, who urged to change the very nature of economic growth. "Higher quality of life is not the same thing as higher level of material wealth. The things that I enjoy the most are reading books or discussing ideas, not just consuming as many material goods as possible," Stiglitz said.

Apparently, he is right: consumer-oriented economic policies in many countries have indeed proved false. It is the imbalance between production and consumption that resulted in a tangible crisis in a time of strained logistics and trade relations.

Finally, the IMF chief urged economists not to exaggerate, saying that "it's a very long way from a fall to 3.6% growth to recession".

Rejection of cryptocurrencies?

In addition to discussing the upcoming crises, there were two more particularly interesting topics on the Davos agenda. One was market-specific: the future of cryptocurrencies. Financial giants are notoriously averse to this topic. It turns out that even two years of the pandemic and rapid digitalisation in many sectors of the economy have not made everyone reconsider their position.

For example, the head of the World Bank, David Malpass, said that his organisation would not support the development of a crypto-investment hub in the Central African Republic, and also expressed concerns about the legalisation of BTC in Belarus.

The head of cryptocurrency payment platform Ripple, Brad Garlinghouse, noted that most existing cryptocurrencies will not survive in the long term.

According to other market participants, bitcoin has failed to prove its reliability as an investment instrument and its value will fall several times in the future.

Meanwhile, Kristalina Georgieva sent an unexpectedly positive message to cryptocurrency investors: she urged not to abandon all cryptocurrencies after the recent collapse of the popular Terra stablecoin because of their value to the global community. That said, regulators around the world have a responsibility to better protect and educate investors, she said.

Globalisation: do we need it at all?

The second topic of discussions, also very cautiously touched upon during the discussions, was globalisation. How relevant is it to the current geopolitical realities? Some participants have explicitly stated that globalisation was not fair, that a number of countries were rather losing from it.

According to The Wall Street Journal, the absence of Russians in Davos for the first time in 30 years is highly symbolic. After all, those three decades went down to history as a period of globalisation and economic integration, which are now under attack due to the renewed competition between the big powers and the fragmentation of global supply chains. The Davos meetings have been a symbol of an era of globalisation, which many participants felt was now over. The war in Ukraine has hastened its end.

At one of the panel sessions, The Economic Iron Curtain: Scenarios and What They Mean, IMF chief Kristalina Georgieva said her biggest concern was that "we are entering a more fractured world with trade and currency blocs, where the integrated global economy may disintegrate".

Chancellor Olaf Scholz called on the international community to remain committed to globalisation despite the escalating global crisis. According to him, seeking a way out of the growing global political and economic crises through the introduction of national restrictions on international trade by individual countries is a misguided strategy. International cooperation must be more unanimous and intelligent and pay more attention to global resources, Scholz said.

Either way, we have to wait until the next meeting in Davos to know if the global community was able to maintain global economic interconnections or of a political and national split were inevitable. The world is no longer on the brink of changes, it is already experiencing them waiting how it ends.