Confidence is back in style in Davos, but it’s not equally shared.
After two years of anxiety about the global economic and financial crisis, CEOs and financiers are in a relatively upbeat mood at the annual World Economic Forum in this Swiss Alpine resort. Growth has recovered led by continued robust activity in emerging markets, the banking system has stabilized, corporate balance sheets are flush with cash and trade is up sharply.
“Confidence is coming back, and it’s coming back very strongly,” says Dennis Nally. Chairman of Pricewaterhouse Coopers International. The accountancy firm released the results of a survey of 1,200 CEOs from around the world in which 48 percent of respondents said they were confident about the outlook for the next 12 months, up from only 31 percent a year ago. Even more significant, 51 percent of CEOs said they expected to add jobs in the next 12 months, up from 39 percent a year earlier; the number expecting to cut their work force fell to 16 percent from 25 percent.
Those jobs, just like the growth that’s fueling them, will not be spread evenly, though. The global recovery remains very much a multi-speed one, with China and India setting a torrid pace and other emerging markets growing vigorously while the developed economies lag, even if the U.S. and Germany show greater signs of life.
The International Monetary Fund updated its economic forecast this week, predicting growth of 6.5 percent in developing economies and just 2.5 percent in the advanced countries of North America, Western Europe and Japan. Money continues to follow the growth. Private capital flows to emerging market economies rebounded sharply to $908 billion last year from $602 billion in 2008, and those flows are likely to hit to $960 billion this year, according to the Institute of International Finance, a lobbying and research group for the banking industry.
“The message is clear where you make your investment in capital and you don’t want to make it in the Western world,” Sir Martin Sorrell, chief executive of advertising giant WPP Group, told a forum panel on the economy.
Economist Nouriel Roubini raised his water glass at an opening session and declared it symbolic of the economic outlook: half full and half empty. The full side includes those corporate balance sheets and emerging markets; the empty side is the slow growth and fiscal crises in the West.
There was plenty of speculation about fallout from Europe’s debt crisis. Although the EU’s bailout fund successfully floated its first bond issue on Tuesday, the Bloomberg news agency released a poll of traders and investors that found that 59 percent of respondents said at least one of the 17 euro countries would exit the single currency by 2016 because of debt problems. And President Barack Obama’s State of the Union address calling for significant deficit reduction in the medium term won little applause here. Most participants say they want to see actions, not words. “There is an unwillingness to deal with the real gorilla in the room,” said Sorrell.
It all suggests a skeptical audience when German Chancellor Angela Merkel, French President Nicolas Sarkozy and U.S. Treasury Secretary Timothy Geithner come to the forum later this week.
