Today we take a look at the discussions that are taking place at the 2008 World Economic Forum Annual Meeting.
This year it looks like the turmoil in the U.S. and world economy is taking the stage away from partying and celebrities. The Forum this year is actually about the world economy. It kicked off when stock markets around the world were tumbling on U.S. recession fears and as the Federal Reserve slashed interest rates 75bps – attracting and reviving a lot of criticism on the delay with which it is acting. While there is a substantial agreement that the U.S. will fall into recession, the debate on the consequences for the global economy is still open. We discussed these themes extensively in many previous notes and in our coverage: “Global Economic Outlook for 2008: Will the World Economy Withstand the U.S. Downturn?”, “Bernanke Put: Were the Fed’s Emergency Cuts Effective?” and “Financial Globalization and Systemic Risk: Channel for Risk Sharing or Contagion?”
And even if bad economic news is creating anxiety, the discussions at Davos touch other important themes as well.
In his Global EconoMonitor, Nouriel Roubini suggests that SWFs’s ‘It girl’ status at this years Davos discussions, like that of private equity and hedge funds in years past, is perhaps overdone. Although these funds (managing $2 trillion) have become a key capital source, backing the recapitalizations of key banks, some growth projections seem overstated, particularly if domestic spending picks up and slowing demand for commodities and exports shrinks surpluses. Meanwhile political concerns about the passive activism of sovereign funds and the overall lack of transparency – Norway excluded – are mounting. In recent posts on the RGE Analysts’ EconoMonitor and in our coverage, Rachel Ziemba has assessed the new activism and strategy shifts of some funds, the vulnerability of sovereign funds to the credit crunch, the stabilizing role of sovereign demand and the catch-up game being played by some sovereign investors (Kuwait, Korea, Saudi Arabia and Russia to name a few). See: “How Will Sovereign Investors Influence Global Markets in 2008 and Beyond?” and “Active or Passive? What Kind of Investors are SWFs?”
Despite recent political uncertainty, Asian leaders at the World Economic Forum meetings affirmed their commitment to democracy and growth. Pervez Musharraf pledged to hold free and fair elections in February and combat extremism even as recent political turmoil has posed a risk to Pakistan’s economic prospects. Hamid Karzai’s struggle to rebuild Afghanistan contends with NATO troop shortages, opium trade resurgence and slow economic and institutional reforms. Similarly Bangladesh, currently under emergency rule, plans to hold elections by year end even as politics has taken a toll on the country’s exports and foreign investment.
Participants at the Davos forum are cautiously optimistic about reducing greenhouse emissions, pushing for greater cooperation between rich and poor countries on Post-Kyoto climate change policy and a mechanism to cut emissions. In a similar vein they sought out political will to tackle looming water and food shortages, an issue cited in the recent WEF risk briefing as needing optimal roles for private sector and application of new technologies.