The Davos Forum – a significant part of the world's political, business, financial and intellectual elite – is preparing for a new economic era. There is no consensus on how we should deal with this, but there is consensus that the world is facing a change that is taking us into a significantly different phase than the previous one. ECB President Christine Lagarde fleshed out the concept in a debate held this Friday in the Swiss Alpine town, pointing out that the global economy was showing signs of stabilization but was moving in a different direction: “We are starting to have a “To see normalization.”, but to something that is not normal. “We will move from normalization to non-normality,” he said.
Lagarde's verbal style reflects well the spirit of the debates that took place at the Davos Forum this week. After the crises of the pandemic and the invasion of Ukraine, the economy is showing signs of resilience, coping better than many expected, for example in this forum last year. But the scale of the transformative forces currently taking place is enormous and poses a major challenge. Their names are clear: generative artificial intelligence, unstable and uncertain geopolitical environment, out-of-control climate urgency, limiting political polarization, high accumulated debt, and others. These forces determine the new scenario to which the economy must adapt.
At Davos there were repeated references to the need for major investments with several priorities: protecting the sectors of advanced societies most exposed to the negative consequences of the transformations (and thus avoiding the political destabilization that their unrest causes); to protect less developed countries (which are more exposed to the negative impacts of climate change or rising debt interest rates); or simply to maintain competitiveness in an environment of fierce competition for power.
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Of course, there is no consensus on how the necessary investments should be financed. Significantly, there were strong calls for public investment from figures who would not inherently be associated with positions typical of broader social democratic or progressive visions. They were led by French President Emmanuel Macron, a liberal; or, in the same Lagarde panel, the President of Singapore, Tharman Shanmugaratnam, who certainly cannot be seen as a classic social democratic fiefdom.
The idea of managing public spending to promote skills in strategic sectors or to care for the disadvantaged is met with resistance from those who want to rely on the market sector. With the rhetoric and brutality of Argentina's new president, Javier Milei, shown here; or with the less eccentric ideas, but definitely the antipodes, of the German Finance Minister Christian Lindner, who is also present in the debate this Friday.
Lindner called for the mobilization of European savings for investments through improved integration of the European capital market. “The debt is high. This reduced the space for financing the transformations. “I fear that Europe wants to get involved in a subsidy race with the USA. We have to avoid that, we can’t afford that,” said Lindner, which sounded like a reaction to the idea of evading Eurobonds, revived by Macron here on Wednesday. to finance a new major wave of investment in the EU focused on the green, digital and defense sectors. Lindner agreed with Lagarde that the economy is moving toward a “new normal.”
Argentina's President Javier Milei speaks during the 54th Annual Meeting of the World Economic Forum in Davos, Switzerland.DENIS BALIBOUSE (Portal)
The President of the ECB named three symptoms of a stabilization of the economy. First, the weakening of the forces that have driven consumption enormously in recent years, with labor markets strong if somewhat weaker, and the huge savings being reduced. Secondly, a recovery in world trade after a period of recession – the director of the WTO agreed with this, but pointed out that the expansion of trade was in any case proportionally lower than that of GDP. And thirdly, an improvement in inflation. Lagarde did not make any specific references to the euro zone, as there is a meeting of the ECB Council next week and the institution's rules prescribe discretion the previous week.
This stabilization provides time to adapt to the huge changes. Perhaps most exciting is the increasingly accelerated introduction of generative AI into the lives of companies. This promises major increases in productivity. Also significant destruction of jobs, which may be replaced by others, but not necessarily at the same time and not for the same people.
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Climate change is progressing at a gallop. This has already begun to generate large movements of people, which are likely to increase. Beyond climate refugees, there are major battles for technological supremacy – bringing with them subsidies, tariffs and tensions between governments. Or big debates about a global carbon tax or, as Lindner tried to suggest, a global carbon market in which the money is invested not in gradually reducing emissions in very expensive sectors – like German heavy industry – but in promoting green ones Energy is invested in production measures in places where investments are more profitable.
The Davos legacy
The geopolitical tensions that have erupted at unprecedented levels in decades will not go away as far as the eye can see. The theme of the Davos Forum this year was “Rebuilding trust”. One participant noted that dealing wisely with mistrust was a major achievement.
This mistrust is already leading to business moves, albeit slowly. Lagarde noted that efficiency had been an absolute priority for decades and that it now made sense to bring security a little more into the equation. The West talks a lot about reducing the risk of its dependence on China. Movements to reconfigure the supply chain have begun. Specific tensions such as those in the Red Sea require changes to sea transport routes. All of this could lead to an increase in costs with some permanent inflationary tendency.
This is the image that must be faced. The consensus at Davos is that this will require major adjustments and major policy steps to stimulate positive change and mitigate negative impacts. In Western countries, this demand arises in a year with a very important electoral cycle and a level of polarization and ideologization that complicates the perspective. “What I fear most about this entire scenario is the incapacity of our (US) political system,” summarized David Rubenstein, a former government adviser, president of the Council on Foreign Relations and an entrepreneur.
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