Economic optimism at WEF in Davos

In the Swiss Alps, politicians and business leaders will be gathering  at the World Economic Forum tomorrow in Davos.

An annual gathering of the powerful elite, each year it proves a barometer of the economic mood and outlook. It seems likely that the mood will be quite positive this year, given the positive economic indicators.

Last year, the gathering felt a little tense. Many were still reeling from the UK’s decision to leave the EU. The French elections were provoking anxiety, President Trump was about to be inaugurated, and many feared the worst about the possible fallout of this for the World Trade Organisation (WTO), Nato and the Paris climate agreement.

Fast forward a year to the present day, and we have a very different picture. The IMF just released their forecasts which are very positive. The IMF says we will see in 2018 “the broadest synchronised growth upswing since 2010” and so forecasts have been upgraded. The world economy is predicted to grow 3.9%, and The UK was the only country to see a downgrade in its forecast, but that was somewhat predictable given there is still uncertainty over Brexit negotiations. Asia was top of the class regarding the fastest growing region, with special mention given to China and India.

Where has all this optimism come from? Part of it seems to be a sentiment that the worst did not happen. The WTO and Nato appeared to have survived a year of the Trump presidency. We have not yet seen a trade war between the US and China. France did not embrace Madame Le Pen. The Spanish, who had been so worried about lack of employment prospects for their young, have seen economic improvements, even in the face of the Catalan bid for independence. Neither have the worst fears over potential Chinese slowdowns, depression in Brazil or NAFTA woes for Mexico been realised.

The US has seen cuts in regulations which have likely pleased the business community. Wealthier American households have seen tax cuts. This on top of the fact that the US is essentially still gaining from the Obama stimulus, even after President Obama’s term in office ended, means that the mood is positive among the economic elite in the US.

Europe’s economic situation also improved. President Macron’s polling is improving, and he appears to have successfully navigated the treacherous path of achieving enough changes to labour laws to satisfy business and preserve enough of workers’ rights to suit his French landscape. Macron said in China: “France is back, Europe is back”. He clearly wants an ambitious Europe, with France at the heart of it, a message that is in stark contrast to President Trump’s pulling the US back from its traditional role of global leader. Macron has been actively pursuing reciprocity regarding access to Chinese and European markets.

But it won’t all be rosy optimism at Davos. We are still far from stabilising the stand-off between President Trump and his North Korean counterpart. And fears about a possible trade war between China and the US have not gone away. In fact, North Korea plays a part in tensions in the Chinese-US relationship as the US remains irritated by China’s reluctance to refuse fuel to North Korea.

The NAFTA situation between the US, Canada and Mexico remains an issue. Germany’s politics have not fully stabilized, which weakens Macron’s grand visions for the continent.

Brexit is still a worry, especially with where it will leave trade and financial services. There is a lot to resolve if we would like Davos
2019 to be as jolly as 2018 will likely be this week.