January 27, 2016    3 minute read

Worries in Davos 2016

   January 27, 2016    3 minute read

Worries in Davos 2016

The recent 43rd annual World Economic Forum conference ended with numerous concerns and unanswered questions. For one week of the year, Davos-a picturesque, Swiss city transformed into a centre of discussion panels, seminars and interviews. This time’s planned topic was the 4th industrial revolution, which had been partly set aside, leaving more room for Chinese volatility and commodity market debates.

Davos 2016 was quite different compared to previous gatherings. Whilst the global economy has crawled out of recession, the markets are yet not so strong to bear the current downturns. The anxious atmosphere among 2,500 delegates from over 100 countries and 1,500 entrepreneurs, did not ease the meetings. The rising concern of Chinese transformation from an export and investment-led economy towards consumption and internal growth focused one, was the main issue. From the financial viewpoint, the 18% Chinese index decline in recent weeks and lower oil consumption, led to both weakening of the yuan and a mass stock sell-off. Further, the growing concern of a falling oil price as a result of a supply-demand disequilibrium, was discussed with some of the delegates worrying more about the future of the commodities market rather than current low prices. In addition to the aforementioned global topics, the discussion panels covered potential Brexit and the EU migration crisis.

“There’s just a high number of simultaneous concerns taking place.”

Ton Buechner, CEO of Dutch company AkzoNobel NV

Whilst typically the topics of discussion are quite equally spread among arts, equality, development and economics; it’s understandable that this year’s conference was in great part dedicated to the relation between markets and the economy. Most of the economists were clearly down beating the financial predictions preoccupied by pessimistic forecasts and bearish forces dominating worldwide.

“I hope there is a disconnect between markets and the economy, as there often can be”

Vittorio Grilli, a JPMorgan Chase & Co. executive

He was referring to an influence gap between economic outlook and the stock results. Contrary to such, it was Christine Lagarde, Managing Director of IMF who downgraded the prediction of world economic growth to 3.4% from 3.6% for 2017, partly due to volatility, which the politician believes will continue throughout the year.

Three days of intensive talks are definitely just a fraction of what should be done to address the issues. In addition, the anti-globalism supporters that tend to criticise annual meetings and debates for their lack of reflection in reality. Many believes that Davos serves just as a wealthy spot for politicians to advertise themselves and sometimes their countries.

Unlike the US, no high-positioned politicians attended the forum from China or Russia. On the EU arena, ECB’s President Mario Draghi, when asked about a pressure of deflation in the Eurozone stated “we have plenty of instruments to boost the euro” reassuring investors about union’s stability.

The decisions taken during conference are yet unclear, delegations left Davos peaceful for the next 51 weeks, returning to offices with a feeling of completed duty to their respective countries. But is just a pure attendance and a “promotional” speech a good testimony of actions and steps taken to combat market failures or is it just a political tactic to calm down the investors and guarantee the stability of the system?

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