Davos 2023: Outlook brighter than feared, fraught with risks

The year ahead looks better than feared for the global economy but remains fraught with risks including escalation of the conflict in Ukraine and the emergence of a transatlantic trade war, the World Economic Forum’s final panel concluded.

International Monetary Fund (IMF) Managing Director Kristalina Georgieva told the Davos audience that what had improved was the potential for China to boost growth and that the IMF now forecast Chinese growth of 4.4 per cent for 2023.

While that was likely to prompt the IMF in coming days to upgrade its current forecast of 2.7 per cent growth for the year ahead, she cautioned against expecting any “dramatic improvement” on that figure.

One risk tied to China’s re-opening, with its potential to heat up global demand and prices for energy, was that it triggered a new wave of inflationary pressures only months after this bout had reached its peak.

The week-long meeting was dominated by debate on a brewing dispute between the United States and Europe on subsidies for green energy transition, the growing debt distress in developing nations and abundant geopolitical risk around the planet.

“My deepest concern is clearly the war in Ukraine,” French Finance Minister Bruno Le Maire told the panel, warning that escalation was possible while also arguing it had pushed the European Union to become more of a political force in its resolve to remain supportive of Ukraine.

Le Maire, who is involved in efforts to resolve the dispute with Washington over a $369 billion, state-subsidised climate transition which Europe says is anti-competition, said the plan must be compatible with similar efforts across the world.

“‘Stay the course’ is my mantra on monetary policy,” she said, reaffirming that the ECB planned to continue tightening for as long as needed.