The ritzy Swiss Alpine town of Davos is set to again host global dignitaries, from political elites to business leaders, for the annual gathering of the World Economic Forum (WEF), where talks of how to revive the world economy will take center stage.
Sluggish growth has dogged the world economy for too long. Earlier this week, the World Bank expected global economic growth to slow down for a third straight year to a "sorry record by the end of 2024," hampered by tight monetary policies, geopolitical tensions and feeble global trade and investment.
This backdrop has made the WEF, running from Jan. 15 to Jan. 19 this year, more relevant to the world. Klaus Schwab, founder and executive chairman of the WEF, called on the international community to rebuild trust and take strong and effective global measures to invigorate the ailing world economy.
AILING WORLD ECONOMY
Factors such as debt crises, high inflation and interest rates, and weak trade performance have hampered global economic growth, WEF President Borge Brende said.
The current total global debt accounts for more than 200 percent of the global gross domestic product (GDP), the highest level in more than a century. "The situation is severe," Brende said.
Global trade has been lackluster, with the World Trade Organization downgrading its forecast for world merchandise trade volume growth to 0.8 percent in 2023. Brende said that performance had held back the momentum of economic recovery as global trade is one of the engines of global economic growth.
Brende further argued that inflation has a domino effect on interest rates and investment. If global inflation levels decline, interest rates will drop accordingly, stimulating investment growth, creating more jobs, and fueling economic recovery, he said.
The Organization for Economic Cooperation and Development has also predicted that 2024 will be the slowest year for global economic growth since 2020.
The United Nations (UN) has voiced similar concerns. In the newly released World Economic Situation and Prospects 2024, the UN said that persistently high interest rates, further escalation of conflicts, sluggish international trade, and increasing climate disasters pose significant challenges to global growth. Global economic growth is projected to slow from an estimated 2.7 percent in 2023 to 2.4 percent in 2024, trending below the pre-pandemic growth rate of 3.0 percent, the report said.
Growth in several large, developed economies, especially the United States, is projected to decelerate in 2024 given high interest rates, slowing consumer spending and weaker labor markets, it continued.
The short-term growth prospects for many developing countries -- particularly in East Asia, West Asia and Latin America and the Caribbean -- are also deteriorating because of tighter financial conditions, shrinking fiscal space and sluggish external demand, it warned.
CHINA REMAINS ENGINE FOR GROWTH
Brende said that despite the severe challenges facing the world economy, China remains an important engine of global economic growth.
Brende is optimistic about China's economic development prospects, saying China has enough policy tools to boost the economy while shifting from growth based on investment and infrastructure to growth based on new areas such as electric vehicles.
Transitioning from exports to services and digital trade, China is also an important producer of renewable energy-related equipment, the WEF president added.
The 2024 Global Risks Report recently released by the WEF estimated that the coming years will be marked by persistent economic uncertainty and growing economic and technological divides.
"Uncertainty is the key word for most economies around the world, including China. The positive is that China is one of the very few large economies in the world that is not struggling with inflation, that is not struggling with very high interest rates at present," said WEF managing director Saadia Zahidi.
"The measures taken by the Chinese leadership are starting to work and starting to bear fruit, whether that is more focused on the manufacturing sector, whether that's more focused on green technologies, whether it's making sure that there's a revival in trade," she said.
Liang Guoyong, a senior economist with the United Nations Conference on Trade and Development, said that China's economy is vital to the world, as China will continue to promote a high-level opening-up with its economy scale, which is of great significance in promoting the development of international trade and the growth of the world economy.
Dismissing concerns about China's growth prospects, UBS plans to expand China onshore wealth and the asset management business. The Swiss bank sees the "bright spots" in China's economy, believing the country's government can do more to grow the economy "with a lot of tools in the toolbox," Eugene Qian, country head for UBS, was quoted as saying by Bloomberg.
REBUILDING TRUST, DRIVING GROWTH
The main topics at the forum range from achieving security and cooperation in a divided world, creating jobs and growth for a new era to a long-term strategy for climate, nature and energy. Analysts believe those topics are relevant to paving the way for reviving global economic growth.
Days before this annual meeting, Schwab said in an article that intensifying divisions, increasing hostility and ongoing conflicts together constitute the characteristics of the current global situation. "The current level of pessimism is unprecedented and rebuilding trust in the future is crucial," he said.
Schwab urged countries to take advantage of the opportunities of developing a green, digital and inclusive economy to create jobs, increase purchasing power and ultimately promote sustained economic growth.
The UN report also called for strong and effective global cooperation measures to avoid a debt crisis and provide adequate funds to developing countries. Low-income and middle-income countries with fragile fiscal positions need debt relief and debt restructuring to avoid a long-term cycle of weak investment, slow growth and heavy debt service burdens, it said.
"2024 must be the year when we break out of this quagmire. By unlocking big, bold investments we can drive sustainable development and climate action, and put the global economy on a stronger growth path for all," said UN Secretary-General Antonio Guterres.
