At Davos, elites ponder what’s next for a world fragmented by Covid and the Ukraine invasion

The World Economic Forum, that great liturgy that the globalized world holds in Davos each year, is taking place this week in the Swiss resort under disturbing warning signs. Looking ahead at the immediate future, and despite the fact that the last few months have produced some encouraging data in terms of inflation and growth, the majority consensus seems to be that 2023 is going to be bleak. On a deeper level, and perhaps more importantly, the disruptive forces that are fragmenting the world seem unstoppable. The great expansive phase of globalization of the last three decades has undergone a radical shift.

There are two major triggers for this trend. First came the Covid pandemic, which caused profound disruption to global supply chains and underscored the importance of maintaining some degree of self-sufficiency in certain strategic products. Then came the Russian invasion of Ukraine, one of the main focuses of the forum; this huge geopolitical shock has completely severed ties between the West and Russia and stimulated reflection on whether it is appropriate for liberal democracies to maintain a high degree of dependence on China, another adversary that could one day become an enemy.

Driven by these two shocks, a protectionist race has begun with huge subsidies to sustain national industries in strategic sectors such as the energy transition and cutting-edge digital technology. The United States has approved large aid packages for microchips and green technologies (over €400 billion combined); the European Union has done the same with the first (around €40 billion) and is preparing to do the same with the second (approximately €350 billion to to counteract the US government’s plan and prevent energy investments from being diverted there). Other developed economies will no doubt follow suit.

Washington, in addition, is promoting tough restrictions on exports to China in key areas involving pioneering technologies, and it would like other Western nations to follow suit. Meanwhile, the US government is encouraging private companies to reformulate their supply chains to depend less on Chinese manufacturing and shift to countries considered friendly.

Protectionism, restrictions on free trade, segmented productive reorganization, geopolitical blocs: this, then, is the scenario up for analysis by the world’s elite gathered this week in the Swiss Alps.

The gathering also represents a return to the World Economic Forum’s traditional winter meeting following the disruption caused by the pandemic and a spring edition held last year. The organization said that more than 2,600 delegates will be attending, including 50 heads of state or government, over 100 foreign, finance or trade ministers and more than 600 business leaders, from Microsoft’s Nadella to JP Morgan’s Dimon; there will also be around 20 central bank governors as well as prominent figures from the world of academia, the media and civil society.

In addition to addressing the great geostrategic transformation taking place globally, short-term issues will undoubtedly play a leading role in the forum. On the one hand, there is the pressing issue of the war in Ukraine, with important pending decisions regarding the delivery of battle tanks and the prospect of a new round of sanctions against Russian oil, in this case refined products.

In the short term, there is also the matter of the current economic scenario, with the corresponding decisions that will have to be taken by public authorities and private companies. In this respect at least, the forecasts now have less catastrophic overtones than the vast majority of experts had expected after the Russian invasion of Ukraine, partly thanks to a particularly mild autumn and early winter in Europe that has allowed everyone to use less gas. Overall, inflation has been declining in many countries while growth data has exceeded expectations. Labor markets remain dynamic.

But the outlook is not without its clouds. A survey published by the forum ahead of the gathering shows that two-thirds of the leading economists who were consulted, both from the public and private spheres, consider a global recession likely in 2023. This is twice as many as in the previous consultation in September.

Another survey by Price Waterhouse Coopers (PwC) among 4,400 top executives in 105 countries shows that more than 70% foresee an economic downturn. Even so, most are not considering staff or salary reductions.

As for inflation, levels are easing in many countries, but core inflation remains a threat. There is no guarantee of a quick return to the path of normality. Meanwhile, the blow to many people’s purchasing power has been intense, in view of the fact that wages have lagged far behind the rise in prices nearly everywhere.

This has created a new risk factor that could intensify inequality, one of the underlying problems that has defined the era of globalization. While globalization has undoubtedly enabled hundreds of millions of people in emerging countries to be lifted out of poverty, China foremost, it (along with technological changes) has also made the position of many people in advanced societies more fragile. This has eroded popular support for the idea of an interconnected world and free trade, giving wings to politicians who defend other types of policies.

The charity organization Oxfam on Monday published a report about global inequality, noting that “the richest 1 percent grabbed nearly two-thirds of all new wealth worth $42 trillion created since 2020, almost twice as much money as the bottom 99 percent of the world’s population.” The report also lamented the poor efficiency of tax systems that allow the elites to pay very little.

And in the midst of this multi-sided crisis, there are many voices warning about another threat that is being neglected: climate change. A report on future risks published by the World Economic Forum right before the launch of the official program highlights this issue as one of the most pressing problems the world faces today.

Extraordinary problems that are precipitating a new era for the world are piling up on the debate tables of leaders gathered in Davos. An intense cold, with expected lows of -15ºC (5ºF), will blanket the event, as a kind of physical reminder of the hibernation phase that globalization – well symbolized by this gathering of global elites – appears to be entering.

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