Recession Fears Control Narrative At Davos

World leaders gathered in Davos to discuss the prospect of a recession. | Image by World Economic Forum.

The World Economic Forum kicked off January 16 in Davos, Switzerland, and the sentiment is markedly different this year. The annual event brings politicians, business leaders, and economists together in the Swiss Alps. This year, the talk is dominated by high-interest rates and the steps central banks are taking to prevent an impending recession, according to the Wall Street Journal (WSJ).

One of the most significant issues this year is inflation and whether or not it will persist. Many businesses are cutting costs, and others are eliminating jobs to be cautious because of concerns about another recession. Others are holding out, hoping to pounce on opportunities if a rebound is in store.

“The mood is somber,” said Nick Studer, CEO of the Oliver Wyman Group consultancy. “At the same time, you’ve got a lot of people hoping that the U.S. and the UK environment — if it’s recessionary — is either short or shallow.”

Although GDP fell for two consecutive quarters in the U.S., the technical definition of a recession, GDP growth took a surprising turn to the upside in the third quarter. Now, several business leaders at the Swiss conference believe that whether the U.S. is entering another recession remains an open question, according to the WSJ. Consumer spending is still strong, and unemployment was at a historic 3.5% low in December.

Business leaders are also watching closely for potential conflict between China and the U.S. over Taiwan and what Congress decides about raising the debt ceiling.

Stanley Bergman, CEO of Henry Schein Inc., said that the supply chain issues that clouded 2022 are not settled either. He also noted that younger business leaders are inexperienced in a high interest-rate environment.

“If you talk to people on Wall Street who are 35 years and younger, they think it’s the end of the world,” Bergman said. “You talk to people 50 and over, we’ve been through this many times.”

Annette Clayton, chief executive of energy management company Schneider Electric North America, said wage inflation is stabilizing, and a slowing of hiring in tech is making it easier for some companies to entice workers.

“You’re competing a lot less with an Amazon factory, Amazon distribution center than you were just a year ago,” Clayton said.

Technology has arguably been the most affected by the end of the free-money era. Understandably, tech leaders are more cautious as priorities have become marked by layoffs and restraint. Microsoft is the latest company to face layoffs, with up to 11,000 job cuts expected.

Other executives said the impact of how much China’s reopening could help businesses is being undervalued.

“There is without doubt a view that China will open up faster than some people anticipated,” said Tim Ryan, U.S. chairman at PricewaterhouseCoopers LLP, who spoke with leaders across various industries at Davos.

Ryan said that geopolitical factors are making companies more cautious, noting the war in Ukraine.

C.P. Gurnani, CEO of India-based IT company Tech Mahindra, has a much more optimistic view, noting that the economies of India and countries in the Middle East are performing well and pointing to low unemployment in the U.S.

“I think we are talking ourselves into recession,” said Gurnani. “I look at the data, and it’s not bad.”

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