Russia’s invasion of Ukraine, surging inflation, Chinese lockdowns and growing uncertainty about globalisation have conspired to chill the business mood in Davos despite the springtime timing.
“There are three R words right now: It’s Russia, it’s recession and it’s [interest] rates,” said Citigroup CEO Jane Fraser. A lunch for the World Economic Forum’s International Business Council was “sombre”, reported one US CEO who attended, adding that while he didn’t see the world’s biggest economy falling into recession “there’s a danger we talk ourselves into it.”
Veteran investor George Soros labelled China’s decision to reinforce on its zero Covid policy the “worst mistake” of Xi Jinping’s presidency. “Coming on top of the real estate crisis, the damage will be so great that it will affect the global economy,” Soros said. “With the disruption of supply chains, global inflation is liable to turn into global depression.”
Other delegates worried an event emblematic of globalisation might also be at risk of talking itself into the idea of retrenchment. C Vijayakumar, chief executive of HCL Technologies, cautioned of the “imminent danger of accelerating deglobalisation”.
Foreign affairs were top of most executives’ minds. Two sessions titled “Russia — what next?” and “Cold War 2.0” filled up completely, while screens in the Congress Centre advertised scores of empty seats at other events focused on Covid-19 or economic issues.
Although he could only appear by video link, Volodymyr Zelensky was a bigger draw than any business leader. Ukraine’s president earned an ovation even after telling businesses, many of which have not entirely quit Russia, to stop “all trade with the aggressor . . . so that your brands will not be associated with war crimes.”
Sir Martin Sorrell, executive chair of the advertising group S4Capital, saw the question of what happens if the war drags on as one of “two big worries” dominating discussion. The increasingly fraught US relationship with China, which sent few delegates because of its zero Covid policy, was the other.
The annual meeting’s usual preoccupation with climate change, meanwhile, had “taken a back seat,” he said.
Where climate concerns showed up, they were largely in the debate about whether the new focus on energy security triggered by the war would derail a transition to cleaner energy.
Daniel Yergin, vice-chair of rating agency S&P Global and an energy markets expert, said he had never seen such a focus on geopolitics in 25 years of coming to the annual meetings. Business leaders were realising, he added, that transitioning to green energy would be “more complicated” than thought prior to Russia’s invasion.
The impending food crisis was high on the agenda. “Many people in the world have urgent needs for food, stability and shelter that weren’t really part of the conversation in the past,” said Karen Harris, managing director of consultants Bain & Co’s macro trends group.
The mood, described by Harris as “sober [and] uncertain”, extended to bankers, who spoke of low trading volumes, a dried-up deals market and the prospect of lay-offs among staff who had been hired in better times. “Everyone is entirely focused on and worried about when the deal market will reopen. Everything hinges on this for the rest of the year. I would not say I am optimistic at this point. The war isn’t going away,” said one senior US banker.
David Rubenstein of private equity group Carlyle told a panel he was reluctant to speak of recession but “the signs are not as favourable as I would like”.
Technology executives provided a break in the gloom, maintaining a characteristic optimism about their sector’s potential to work through the current crises. At a session on the outlook for the digital economy, senior executives from IBM, Nokia, Accenture, Hewlett Packard Enterprise and Google agreed that the outlook for long-term transformational innovation remained positive.
“Technology’s a secular, not a cyclical trend. We will see cycles and there are worrying signs in the air,” said Pekka Lundmark, chief executive of Finnish telecoms group Nokia. “We just need to be careful.”
Ruth Porat, Google’s chief financial officer, suggested the current crisis would, like previous episodes of turmoil, prove “a blip”. There would be volatility short term, she added, but “it’s our job as leaders to look through it and keep investing”.
One senior European banker was similarly cheery. Europe was “just horrible”, he said, but the underlying US economy was still strong. “In fact, I have told my broker already to buy on the dip, at the bottom, which I don’t think is far away.”
Several US delegates also voiced cautious hopes that the country’s economy may yet defy the pessimists. For Anthony Scaramucci, the one-time communications director for Donald Trump who is now a hedge fund manager, the bearishness of others was his cue to turn bullish.
“Everything they think is going to happen doesn’t happen,” he said, recalling the gloom most in Davos projected before the market started surging in 2009 and his difficulty convincing them in January 2020 that his former boss would not be reelected. “Everybody’s so negative, I’m overwhelmingly positive,” he said. “One more rate rise and then we’ll be off to the races.”