Davos: Business leaders warn global outlook has 'darkened'

Asked whether expected a recession, IMF head Kristalina Georgieva said: "No, not at this point. It doesn’t mean it is out of the question."

IMF managing director Kristalina Georgieva is not yet expecting a recession.

Multiple threats to the global economy topped the worries of the world's well-heeled at the annual Davos think-fest, with some flagging the risk of a worldwide recession.

Political and business leaders gathering for the World Economic Forum (WEF) meet against a backdrop of inflation at its highest level in a generation in many rich economies. 

These price rises have undermined consumer confidence and shaken the world's financial markets, prompting central banks, including the US Federal Reserve, to raise interest rates.

Meanwhile, the repercussions on oil and food markets of Russia's invasion of Ukraine in February and Covid-19 lockdowns in China with no clear end have compounded the gloom.

German Vice-Chancellor Robert Habeck said:

We have at least four crises, which are interwoven. We have high inflation ... we have an energy crisis... we have food poverty, and we have a climate crisis. 

"And we can't solve the problems if we concentrate on only one of the crises. But if none of the problems are solved, I'm really afraid we're running into a global recession with tremendous effect .. on global stability," Mr Habeck said during a WEF panel discussion.

The IMF last month cut its global growth outlook for the second time this year, citing the war in Ukraine and singling out inflation as a "clear and present danger" for many countries. IMF managing director Kristalina Georgieva, speaking in Davos on Monday, said the war, tighter financial conditions and price shocks - for food in particular - have clearly "darkened" the outlook in the month since, though she is not yet expecting a recession.

Asked at a panel whether she expected a recession, Georgieva said: "No, not at this point. It doesn’t mean it is out of the question."

ECB President Christine Lagarde, due to speak in Davos on Tuesday, has warned that growth and inflation are on opposing paths, as mounting price pressures curb economic activity and devastate household purchasing power.

Still, she essentially promised rate hikes in both July and September to put a brake on inflation. 

"We knew, all knew from Day One that this war was bad economic news. Less growth and more inflation," French policymaker Francois Villeroy de Galhau said. "This is the price we accepted together to pay to protect our values ... It was worth paying this price."

While the economic drag from the Ukraine crisis is being most keenly felt in Europe, it is the US economy that is experiencing the greatest price pressures. "We're not seeing it materialise in our business yet," Marriott chief executive Anthony Capuano said of the threat of recession, adding: "There continues to be pent-up demand." 

Marcos Troyjo, president of the New Development Bank set up by Brazil, Russia, India, China and South Africa, said his bank still expects "robust growth" this year in China, India and Brazil. 

Reuters