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World Economic Forum optimistic about future of global growth despite headwinds

World Economic Forum optimistic about future of global growth despite headwinds
Dino
Kurbegovic
3 weeks ago
4 mins read

On May 25, the World Economic Forum at Davos put together a panel discussion on what is next for global growth following the COVID-19 pandemic, which has been uneven both within nations and across them, depending on their different levels of financial resources and access to vaccines.

The panel discussion was led by Tom Keen, managing director of Bloomberg Television and Radio. Alongside Keen other panelists included Jim Hagemann Snabe, Siemens AG Chairman;  Mariana Mazzucato, Professor at University College London (UCL); and Gita Gopinath, First Deputy Managing Director of the International Monetary Fund (IMF). 

Gopinath’s opening comments stretched throughout the entire talk. They pertained to the impact that the conflict in Ukraine has had on prices, the inflationary pressures placed on consumers, and other headwinds that the world is facing.

“The war in Ukraine has been a major setback to the global recovery. We had a serious downgrade in global growth in April. And the world continues to face headwinds because we have a cost of living crisis as prices of commodities, including fuel, food, are going up around the world.”

She added:

“So we have the advanced economies that, based on our projections, will basically get back to where they would have been in the absence of the pandemic in 2024. So, literally, no output losses. But we have emerging and developing economies that will be around 5% below where they would have been in the absence of the pandemic. And it is this gap that’s going along with now a food crisis. Cost of living increases the risk of financial turbulence on a much greater scale. That’s really worrisome.”

Wage growth

The problems involving food, fuel, and resources now threaten to derail an equitable recovery even further, but another issue remains the matter of wage growth.

Mazzucato focused the discussion on the fact that private debt is rising and is close to the levels seen before the financial crisis in 2008. According to her, the real issue lies in the fact that real wage growth has not kept pace with rising costs and now the pressures caused by inflation. 

“You know, we use this word resiliency. For example, with climate, we’re not using it again in terms of making sure that people’s incomes are growing. Real wages have not been growing for the last 30 years. Even during the COVID-19 recovery, we had, for example, loans being given out to small companies, to people with help-to-buy schemes. We’re talking mainly here about the West. That’s not necessarily what you want to do; just pile on even more debt.” 

Decarbonization for growth 

Elsewhere, Snabe shared his vision of decarbonization of all value chains in order to kick start growth, and to do it on a micro level, which should then spill over onto the macro level of things. 

“So my answer to the growth opportunity is that we need to dramatically accelerate the investments in decarbonising all of the critical infrastructures. This is the energy systems, the food systems, the transportation systems, the healthcare systems. We can make them more affordable, and we can decarbonise them.” 

He also added:

“And that, in my mind, is the biggest growth opportunity. And I am convinced that those companies who take the lead in driving that through innovation, re-skilling their workforce, and engaging in global cooperation – those will be the winners when we come out of this phase.”

Summing up

The panelists were optimistic on the future of global growth, arguing that an inflation rate of around 2% is healthy and required as it focuses business and investors to make smarter investments. On the other hand, in terms of the current bottlenecks, the panelists at the Forum agree that as soon as the transportation capacity is fixed, prices will go down, and growth will accelerate. 

Furthermore, the optimism stems from the view the panelists have on the headwinds the global community is facing, seeing it more as a leadership moment, where the focus needs to shift to collaboration and talking about solutions, not just talking about the issues that are present.

Once supply chain issues are resolved, and the war in Ukraine grinds to a halt, global growth should resume as usual, as a larger set of growth foundations secure the economy’s long-term success and a return to international convergence.

All in all, investors could look forward to a brighter future after experiencing various shocks throughout 2022 so far. 

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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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Dino Kurbegovic
Author

Dino is an investor and technology enthusiast with years of experience in managing complex projects. At Finbold he covers stories on stocks, investing, micro and macroeconomic trends. Also, he’s also building a micro solar power plants in his hometown.

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