It’s time for the final set-piece event in Davos today – a session on the global economic outlook.
On the panel we have IMF managing director Kristalina Georgieva, Saudi Arabia’s economy and planning minister Faisal Alibrahim, BlackRock CEO Larry Fink, ECB president Christine Lagarde, and Singapore’s president Tharman Shanmugaratnam.
The introduction to the session says:
Nearly five years since the COVID-19 pandemic upended the global economy, growth is slow but stable, inflation has gradually declined in advanced economies and trade trends have turned positive. Despite this, there remain challenges such as high public debt burdens, ongoing geo-economic tensions and the potential impact of industrial policies on smaller countries.
Given this landscape, what are the plausible scenarios for the global economy in 2025?
Key events
Larry Fink then explains that the US economy has a major advantage over Europe – the deep foundations of its capital markets make it easier for entrepreneurs to raise capital.
That allows the US to change direction and modify faster than another other economy in the world.
Fink: European pessimism has gone too far
There is too much pessimism about the state of the European economy, according to BlackRock’s Larry Fink
He tells delegates at the World Economic Forum that his number one observation this week in Davos is the high levels of pessimism about Europe.
The pessimism have never been more profound, says Fink (who has himself been pessimistic about Europe for the last decade).
He adds:
I believe it is probably time to be investing back into Europe, focusing on it.
Europe does still have problems, Fink adds – for example, it needs banking union and capital markets union.
It’s time for the final set-piece event in Davos today – a session on the global economic outlook.
On the panel we have IMF managing director Kristalina Georgieva, Saudi Arabia’s economy and planning minister Faisal Alibrahim, BlackRock CEO Larry Fink, ECB president Christine Lagarde, and Singapore’s president Tharman Shanmugaratnam.
The introduction to the session says:
Nearly five years since the COVID-19 pandemic upended the global economy, growth is slow but stable, inflation has gradually declined in advanced economies and trade trends have turned positive. Despite this, there remain challenges such as high public debt burdens, ongoing geo-economic tensions and the potential impact of industrial policies on smaller countries.
Given this landscape, what are the plausible scenarios for the global economy in 2025?
The US and China could be dragged into a catastrophic war within the next two decades, if they fall into the “Thucydides trap”, Davos has heard.
Political scientist Graham Allison is explaining that Athenian historian Thucydides argued that rapidly rising power seriously threatens to displace a ruling power, usually through a war and frequently through a catastrophic war.
Allison reveals that the late Henry Kissinger, in the last year of his life, would regularly tell Allison he was seeing more and more signs we are heading towards a 1914-style scenario.
Allison says that tension between an incumbent (the US, in this scenario) and an upstart (China) is rooted in animal and human behaviour.
He, like Thucydides, believes that 75% of this story is “in the structure”.
That, he says, means:
If I was betting, over next two decades we will see a catastrophic war between the US and China.
But that still leaves a 25% where actions – either by US and Chinese policymakers, or others such as in Europe – could lead to different conclusion.
More positively, Allison predicts that in a year’s time we will be surprised to the upside by US-China relations.
Q: Who wins in a catastrophic war?
In a world of mutually-assured destruction, there are no winners, Allison replies. A nuclear war cannot be won, because however much damage you’ve done to the other side, if you’ve lost your own country you can’t claim a win.
Europe has a role to remind US and China that we live on a small planet, so they shouldn’t screw it up, he says.
Graham Allison is Douglas Dillon professor of government at Harvard Kennedy School of Government, and has written a book on Thucydides’s Trap.
Sir Robin Niblett, distinguished fellow at Chatham House, argues that we could end up in a situation short of full-blown war – such as if China blockaded Taiwan.
Would the US try to break that blockade, and would Europe help?
Ministers from World Trade Organization member countries have held an informal meeting on the sidelines of the World Economic Forum here in Davos, Switzerland.
Rising grievances against governments, businesses and the rich
The World Economic Forum are being warned this morning that grievance levels against businesses, governments and the rich have risen.
Richard Edelman, CEO of Edelman, is explaining that the latest Edelman Trust Barometer (released this week) shows that in recent years economic fears have evolved first into polarisation, and now into grievance.
Grievance is defined as the belief that government and business harm them and serve narrow interests, and ultimately the wealthy benefit while regular people struggle.
Edelmen explains that half of generation Z don’t believe in democratic institutions.
Across the age range, 40% say they support hostile activism to achieve change – which includes attacking people online, intentionally spreading disinformation, threatening or committing violence, and damaging public or private property.
Over 50% of those aged 18-34 – Gen Z – believe in hostile activism, he says.
Tirana Hassan, executive director at Human Rights Watch, tells Davos that in an era of misinformation, the fact that some social media companies are walking away from their responsibilities to moderate content and ensure safe free speech is eroding trust.
Business secretary Jonathan Reynolds has left the door open to joining a tariff-free trading scheme with Europe, following a meeting with the EU trade commissioner here in Davos.
Jonathan Reynolds met with Maros Sefcovic on Thursday, after Sefcovic suggested Britain could join the Pan-Euro-Mediterranean Convention (PEM), which allows for tariff-free trade of goods across Europe, as well as some North African and Levantine nations.
Reynolds described Mr Sefcovic’s comments as “incredibly positive” and “helpful”, and suggested joining the PEM could be acceptable as it “is not a customs union”.
“We can improve the terms of trade with the EU in a way which doesn’t revisit customs unions or single markets or the arguments of Brexit, and we can do that whilst pursuing closer trade links around the world.”
NEW
🚨 Trade Sec Jonathan Reynolds tells @BBCNews after Trump speech US does not need to apply tariffs to UK because there is no goods trade deficit.
🚨 Reynolds also clarified that both UK joining PEM and a Brexit vet deal with dynamic alignment would not cross red lines. pic.twitter.com/WoeEVMiFmG— Faisal Islam (@faisalislam) January 24, 2025
As we reported in the blog yesterday, Reynolds does not expect the UK to be badly affected by any tariffs imposed by Trump, because we are not among the countries with which the US has a large trade deficit.
Back in the UK, the future of Thames Water is hanging in the balance after the UK government reportedly approached multiple restructuring advisers for the role of special administrator for the company.
Teneo, Interpath and EY are among the companies reportedly contacted by the government as it prepares contingency plans should Britain’s largest water company be forced into nationalisation.
My colleague Jasper Jolly explains:
Thames Water, which provides water and sewerage services to 16 million customers in London and south-east England, has been teetering on the edge of collapse for months as it struggles under a £15bn debt pile.
A special administration regime, or SAR, would take the company into temporary government ownership in order to ensure that vital water supplies continue to function even if the company becomes bankrupt. The government previously appointed Teneo to run the SAR for Bulb, an energy company that collapsed in the aftermath of Russia’s invasion of Ukraine.
BoJ lifts interest rates
Over in Japan, the central bank has raised interest rates – just hours after Donald Trump told Davos that borrowing costs around the would should come down.
The Bank of Japan raised interest rates to their highest since the 2008 global financial crisis, and also revised up its inflation forecasts.
The move lifts Japan’s short-term policy rate from 0.25% to 0.5%.
Yesterday, Trump told WEF that he will demand that US interest rates “drop immediately”, adding:.
And likewise, they should be dropping all over the world. Interest rates should follow us.
Introduction: US economy outperforming as Trump rocks Davos
Good morning from Davos, where it’s the final day of the World Economic Forum.
The global elite here in Davos are catching their breath after being addressed by Donald Trump last night.
In a bombastic speech by videolink, Trump declared he wanted lower global oil prices, interest rates and taxes, as well as a big jump in Nato military spending.
He also appeared to indicate he would impose tariffs on all imports to the US – although there were few details really.
As Trump put it:
“Come make your product in America and we will give you among the lowest taxes as any nation on earth.
“But if you don’t make your product in America, which is your prerogative, then very simply, you will have to pay a tariff — differing amounts — but a tariff, which will direct hundreds of billions of dollars and even trillions of dollars into our treasury to strengthen our economy and pay down debt under the Trump administration.”
Trump’s comments moved the markets, with the oil price dipping after he told Davos he would push Saudi Arabia and Opec to lower crude prices.
His call for lower interest rates lifted the S&P 500 to a record high.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:
Except for the aim of lowering energy prices, most of Trump’s wishes are inflation-boosters.
The new U.S. administration has been a main topic of discussion at WEF this week, along with AI, Europe’s lagging economy, the energy transition and the future of globalisation.
S&P Global Ratings’ chief economist, Paul Gruenwald, reckons delegates here have got used to Trump’s operating model, saying:
The likely volatility and ongoing uncertainties in Trump 2.0 have been internalized and are now seen as a cost of doing business.
The U.S. economy is seen by everyone in Davos as outperforming the rest of the world by a large margin on the back of productivity gains as well as fiscal largesse. Non-U.S. attendees, in particular, noted a dissonance between the positive U.S. macro performance and the negative political tone of the new administration.
Today we’ll hear how top policymakers feel about the situation, with IMF managing director Kristalina Georgieva and ECB president Christine Lagarde.
The agenda
9am CET / 8am GMT: Session on Renewing the Promise of Democracy
10.15am CET / 9.15am GMT: A session on the US-EU-China Triangle
11am CET/10am GMT: A session on the Global Economic Outlook with IMF chief Kristalina Georgieva, Saudi Arabia’s economy minister Faisal Alibrahim, BlackRock CEO Larry Fink, ECB president Christine Lagarde, and Singapore’s president Tharman Shanmugaratnam.
12pm CET/11am GMT: Closing Remarks by Børge Brende, President and CEO, World Economic Forum
