DAVOS: Soaring inflation. Russia’s war in Ukraine. Squeezed supply chains. The threat of food insecurity around the world. The lingering Covid-19 pandemic.
The risks to the global economy are many, and it’s led to an increasingly gloomy view of the months ahead as corporate leaders, government officials and other VIPs gather in Davos, Switzerland, for the World Economic Forum's annual meeting.
The managing director of the International Monetary Fund sought to dispel the gloom during an economic panel this week, saying a global recession isn’t in the cards but “it doesn’t mean it’s out of the question.”
Kristalina Georgieva noted that the IMF last month forecast 3.6% economic growth for 2022, which is “a long way to global recession.” But she acknowledged that it’s going to be a “tough year” and that one of the big problems is surging food prices, partly fueled by the Russia-Ukraine war. “The anxiety around access to food at a reasonable price globally is hitting the roof,” she said.
The brewing food crisis — especially for countries in Africa, the Middle East and Asia that rely on affordable wheat, barley and sunflower oil that are blocked in the ports of major producer Ukraine — has been a key topic in Davos.
European Commission President Ursula von der Leyen accused Russia of deliberately bombarding grain warehouses across Ukraine and using food supplies as a weapon.
Besides that, “Russia is now hoarding its own food exports as a form of blackmail — holding back supplies to increase global prices, or trading wheat in exchange for political support," said von der Leyen, the head of the European Union's executive arm. “This is using hunger and grain to wield power.”
The elites that huddle every year about ways to help save the world also are focused Wednesday on the future of Europe and of the internet, helping poorer countries with low-cost medicine, and on climate change, including an expansion of a corporate effort to decarbonize the economy.
While there are many panel discussions and announcements, it’s unclear how much concrete action the meeting produces.
In Davos, economic and central bank officials debated the effects of moving abstract policy levers at their disposal, while company bosses outlined their worries about the business outlook.
“As we run our business, we think a correction is now well underway” in the global economy, Pat Gelsinger, CEO of chipmaker Intel, said on the sidelines of the meeting.
Gelsinger said the semiconductor industry is still grappling with supply chain issues, including a slowdown in deliveries of the advanced equipment used to manufacture computer chips.
A global shortage of chips, used in everything from cars to kitchen appliances, erupted last year as demand recovered after the pandemic.
Gelsinger said Intel is better positioned than rivals to handle the supply chain issues because it has more control over sourcing.
“But like everybody, we’re having to cope with the same challenges economically as others are,” he said at a press roundtable. Gelsinger said he doesn't expect the semiconductor industry to work out the kinks in the supply chain until 2024.
The aviation industry, decimated during the pandemic as travel restrictions forced airlines to ground flights and killed demand for business and leisure trips, is rebounding strongly, said Hassan El Houry, CEO of National Aviation Services.
The Kuwait-based company provides services for airlines like staff to check-in passengers and shuttle to and from planes, load and unload baggage, and handle air cargo. It's merging with a U.K. rival to become the world's biggest aviation services company.
“Almost every airline I speak with is reporting a huge rebound, especially for this summer and particularly in leisure travel. So that is the positive note," El Houry said in an interview.
He predicted the airline industry would return to pre-pandemic levels earlier than airline industry group IATA's forecast of 2025. “I think it might be much sooner. I think end of 2022, maybe, you know, mid-2023, we’ll see volumes back to 2019 levels,” he said.
However, the aviation industry is still overshadowed by $200 billion worth of losses racked up during the pandemic. Half of that is government grants and loans that need to be repaid, he said.
The other big problem is the surge in oil prices fueled by the Russia-Ukraine war, which will force airlines to raise airfares — and potentially dampen travel demand. Fewer air passengers means El Houry's company serves fewer flights.
"Our biggest customers are the airlines. And when airlines are feeling the pressure, guess what? They’re going to pass on that pressure to us," El Houry said.
Davos-goers had a pessimistic view of the global economic outlook if a straw poll during a session on the global economic outlook on Monday is anything to go by.
At the start of the session, a moderator asked the audience if they thought there was a chance of a recession. Most of the crowd of about 100 put their hands up.
While IMF chief Georgieva tamped down the expectation of a recession, she listed a host of challenges: rising interest rates, inflation, the strengthening dollar, a slowdown in China, the climate crisis and a recent “rough spot” for cryptocurrencies.
Others highlighted the uncertainty that’s rattling financial markets and complicating investment decisions for businesses. Adena Friedman, president of the NASDAQ stock exchange company, said “a selling decision is much easier than a buying decision” for investors who can’t see where things are headed.