DAVOS, Switzerland, May 23 (Reuters) - Multiple threats to
the global economy topped the worries of the world's well-heeled
at the annual Davos think-fest on Monday, with some flagging the
risk of a worldwide recession.
Political and business leaders gathering for the World
Economic Forum (WEF) meet against a backdrop of inflation at its
highest level in a generation in major economies including the
United States, Britain and Europe.
These price rises have undermined consumer confidence and
shaken the world's financial markets, prompting central banks
including the U.S. Federal Reserve to raise interest rates.
Meanwhile, the repercussions on oil and food markets of
Russia's invasion of Ukraine in February - which Moscow
describes as a "special military operation" - and COVID-19
lockdowns in China with no clear end have compounded the gloom.
"We have at least four crises, which are interwoven. We have
high inflation ... we have an energy crisis... we have food
poverty, and we have a climate crisis. And we can't solve the
problems if we concentrate on only one of the crises," German
Vice Chancellor Robert Habeck said.
"But if none of the problems are solved, I'm really afraid
we're running into a global recession with tremendous effect ..
on global stability," Habeck said during a WEF panel discussion.
The International Monetary Fund (IMF) last month cut its
global growth outlook for the second time this year, citing the
war in Ukraine and singling out inflation as a "clear and
present danger" for many countries.
IMF Managing Director Kristalina Georgieva, speaking in
Davos on Monday, said the war, tighter financial conditions and
price shocks - for food in particular - have clearly "darkened"
the outlook in the month since, though she is not yet expecting
a recession.
Asked at a panel whether she expected a recession, Georgieva
said: "No, not at this point. It doesnt mean it is out of the
question."
TIPPING POINT
European Central Bank (ECB) President Christine Lagarde, due
to speak in Davos on Tuesday, has warned that growth and
inflation are on opposing paths, as mounting price pressures
curb economic activity and devastate household purchasing power.
"The Russia-Ukraine war may well prove to be a tipping point
for hyper-globalization," she said in a blog post on Monday.
"That could lead to supply chains becoming less efficient
for a while and, during the transition, create more persistent
cost pressures for the economy," Lagarde added.
Still, she essentially promised rate hikes in both July and
September to put a brake on inflation, even if rising borrowing
costs are bound to weigh on growth.
"We knew, all knew from Day One that this war was bad
economic news. Less growth and more inflation," French
policymaker Francois Villeroy de Galhau said. "This is the price
we accepted together to pay to protect our values ... It was
worth paying this price."
"I would play down the idea of a short-term trade off
between inflation and growth," he said. "In the short run, our
priority is clearly ... fighting inflation."
While the economic drag from the Ukraine crisis is being
most keenly felt in Europe, it is the U.S. economy that is
experiencing the greatest price pressures.
The Consumer Price Index shot from near zero two years ago
to a 40-year high of 8.5% in March. The Fed responded earlier
this month with its largest rate hike in 22 years, and Chair
Jerome Powell has signaled increases of a similar magnitude -
half a percentage point - at its next two meetings at least.
The higher rates and expectations for more, though, have yet
to weaken consumer spending and a red-hot U.S. job market.
"We're not seeing it materialize in our business yet,"
Marriott International Inc Chief Executive Anthony
Capuano said of the threat of recession, adding: "There
continues to be pent-up demand."
Harvard University economist Jason Furman, head of the
Council of Economic Advisers under former President Barack
Obama, said his baseline probability for a recession in any year
is 15%. Now "I'm a little bit higher that 15," he said, citing
the strength of household balance sheets and expectations for
more people to return to the workforce in coming months.
Looking beyond that, however, he said he was concerned the
Fed may need to lift rates higher than most officials and
forecasters currently expect. "But that's more like a year and a
half, two and a half years from now."
Key emerging markets, including China, are still expected to
see growth this year, even if at a slower pace than previously
estimated.
Marcos Troyjo, president of the New Development Bank set up
by Brazil, Russia, India, China and South Africa, said his bank
still expects "robust growth" this year in China, India and
Brazil.
(Additional reporting by Jessica DiNapoli; Editing by Alexander
Smith, Jan Harvey and Nick Zieminski)