A POLARISED US presidential race; question marks over China’s economic management; and a once-dominant German chancellor suddenly under threat.
Those were the flash points that dominated last week’s annual gathering of the World Economic Forum (WEF) as executives, investors and policy makers fretted about the lack of leadership in a world beset by multiple crises. With the global economy already slowing and financial markets whipsawing, the risk is that an otherwise manageable set of challenges could cascade out of control without a firmer hand from governments.
“There are too many moving parts, jittery parts, and those parts don’t seem to talk particularly well with each other,” Ton Büechner, CEO of Dutch industrial group AkzoNobel, said in an interview in Davos. “There’s just a high number of simultaneous concerns taking place.”
The week began with WEF founder Klaus Schwab warning that the slump in commodities could multiply the number of refugees seeking asylum in Europe.
It ended with Salesforce.com CEO Marc Benioff lamenting “a leadership crisis” in the face of rapid technological innovations that may worsen the economic prospects of the middle class.
“We need stronger leaders, who are able to give us a stronger vision for where we are going,” Benioff said.
China topped many attendees’ list of concerns. The world’s second-largest economy is slowing as it rebalances from investment and exports to consumption and services, undermining demand for oil and a host of other commodities. Difficulty propping up the yuan and a botched effort to do the same for stocks have fanned criticism the government is losing control of its economy.
Also to be navigated: the US Federal Reserve’s long-awaited shift from the near-zero interest rates that have fuelled the world economy since 2008, recessions in once-booming emerging economies such as Russia and Brazil, and still anaemic growth in Europe. Underscoring the scale of the challenge, the International Monetary Fund last week cut its 2016 global growth forecast for the third time in less than a year, to 3.4% from 3.6% in October.
“These are the shifting tectonics of the global economy,” said UK Chancellor of the Exchequer George Osborne. “These shifts create tremors. The question is how large will these tremors be.”
The worry for those in Davos was that the tremors could intensify without stronger leadership from governments. That, in turn, could roil national politics even further.
When economies suffer, “leaders get desperate for ways to rally or distract their citizens”, said Bill Browder, the founder of hedge fund Hermitage Capital.
Such a populist push is already under way in the US, where President Barack Obama is increasingly a lame duck ahead of November’s election. Property magnate Donald Trump is topping the Republican polls, while self-declared socialist Bernie Sanders gains ground on establishment favourite Hillary Clinton in the Democratic field.
No matter who wins the White House, business people “aren’t particularly optimistic” he or she would break a deadlock in government, said Cathy Engelbert, the CEO of consulting firm Deloitte.
Europe was also a focus of anxiety as pillars of the region’s post-Second World War start to wobble. The UK is nearing a referendum on its membership in the European Union (UE) that pollsters believe will be close. Prime Minister David Cameron is yet to declare an official position on the vote, even as executives from companies such as Siemens and BAE have urged Britain to stay put.
Meanwhile, European leaders “have just a few weeks to deliver” solutions to the unprecedented flow of refugees from the Middle East as warmer weather makes travel conditions easier for migrants and refugees, French Economy Minister Emmanuel Macron said last week.
The crisis has grown so severe as to prompt speculation that German Chancellor Angela Merkel could be forced from office unless she changes tack on her open-door policy.
“The EU is in an existential crisis” because of migration pressures, billionaire investor George Soros said. “It’s falling apart. And that’s a time when you need to have a major initiative, a Marshall Plan.”
“The big worry from the point of view of geopolitics remains not just the Middle East, but the Middle East, North Africa and South-East Asia, where sectarian conflict risks destabilising more states,” said Niall Ferguson, a historian at Harvard University.
The upshot is that Davos delegates returned to their offices bracing for more turmoil across geopolitics and markets. “I hope there is a disconnect between markets and the economy, as there often can be,” said Vittorio Grilli, a JPMorgan Chase executive and a former Italian finance minister.
“But there are too many unprecedented factors for anyone to say with certainty.”