January 20, 2023 | 16:49
Upbeat? Me? Hardly.
An interesting exercise was to go back a few years to see what the hot topics were at the World Economic Forum. For example, in 2019, there was a high absentee list. Then-President Trump stayed home to deal with the five-week government shutdown, then-PM May stayed home to deal with Brexit, and President Macron was handling the Yellow Vests. In 2020, the coronavirus was spreading in China but the WHO said it was “a bit too early” to declare a global emergency. And Greta Thunberg made her first appearance, warning leaders that “our house is still on fire”. In 2021, as President Biden was in Week 1 of his new job as leader of the free world, the IMF’s focus was on the “race between a mutating virus and vaccines”. Then, in 2022, discussion at the delayed gathering was all about Russia’s invasion of Ukraine, inflation, central bank tightening, and China’s slowdown.
That brings us to 2023. There seems to be more optimism, mostly caused by the IMF’s view that it will likely not downgrade growth for the fourth time. (Yes, the bar is low, apparently.) And, Managing Director Kristalina Georgieva believes that global growth will “bottom out this year” and 2024 will be a year in which “we finally see the world economy on an upside”. Perhaps she noted all the headlines as she inserted some caution on the final day of the Forum, warning that things weren’t “fabulous” and to be “careful not to get” too upbeat.
Way ahead of you, Kristalina! This week’s data out of China were not particularly encouraging. Although the economy managed to remain unchanged in Q4, real GDP clocked in its worst growth rate (3.0%) in 2022 since 1976. In Europe, the data were scarce, but one piece of good news was the big jump in German investor sentiment. The ZEW Survey landed in positive territory for the first time since the invasion. On the policy front, although it is looking increasingly likely that the Euro Area will escape a severe recession (watch the January PMIs next week to gauge how the year began), the ECB made it clear that it was not going to moderate its pace of rate hikes. President Lagarde said: “stay the course is my mantra for monetary policy purposes”. In fact, according to the Minutes from the last meeting in December, a “large number” of policymakers voted for a 75 bp hike but some of them eventually “expressed their willingness” for the 50 bp’er, given the more hawkish wording… that “rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive”. The BoE is also expected to raise rates 50 bps as core inflation was stuck at 6.3% last month, not far from a 30-year high, and wages grew at their fastest pace since data started being tracked in 1992. (It will be a tough sell, with consumer confidence at its third-lowest level since the mid-70s.)
So not to worry Kristalina. It is hard to imagine that anyone is getting too upbeat. Hopeful, yes, but not upbeat.