Contrary to popular belief, there is no Davos consensus on the health of the world economy. How could there be, when economists themselves are the first to provide the type of on-the-one-hand, on-the-other-hand analysis that, dissatisfying as it may be, entirely befits the complexity of the global economic picture?
True to form, a Jan. 17 panel featuring a trio of economists at the World Economic Forum 2023 annual meeting in Davos, Switzerland, offered observations that ranged from worrisome to inspiring. We listened in and picked out one risk, one opportunity, and one silver lining each panelist provided over the course of their discussion about the economy in 2023.
Nela Richardson, chief economist, ADP
Risk: “What could be persistent [in the US] is slow growth, and that’s really, in my mind, even worse than a recession—because slow growth can last for a really long time.”
Opportunity: “I’m excited by India’s resilience.”
Silver lining: “Diversification—diversifying supply chains, diversifying the workforce, diversifying a skill set. I think that’s where you’re going to see the excitement come.”
Gilles Moëc, chief economist, AXA
Risk: “There’s no free lunch. The shift from efficiency to resilience comes with a cost, and the cost might be structurally high inflation. And if we actually get into some form of deglobalization…there’s a price to pay.”
Opportunity: “In some ways, what we’re facing is an engineered recession. If things get out of control, the Fed has the ability to reverse it.”
Silver lining: “The resilience of the labor market.”
Raghuram Rajan, professor of finance, University of Chicago
Risk: “Certainly central banks are looking for some labor market slack to give them confidence they can pause. The problem is, every time there’s a hint they can pause, financial markets take off. …That’s going to take them quite a ways into tightening. And there could be cliff effects here.”
Employers “have just been through a period where it’s been very difficult to hire. But once you see others laying off workers,” it’s natural to examine your headcount. “In housing, what you see in the US is, there are no sales going on, but prices haven’t dropped. But once people are forced to sell because they lose their job, then you might see prices dropping. So the worry is, the central bank will have to go further than they’d ideally like to … but if they do go further, then there’s the risk of these cliff effects, which means that we go from a mild to a not-so-mild recession.”
Opportunity: “If Mr. Putin decides to end this war, fantasic. And China, its recovery could be potential upside for the global economy.”
Silver lining: “I think tech is going to be the source of a bright spot if we use it well. A lot of [tech] services can be provided from Nigeria or India or the Philippines. …Service exports is the next big thing.”
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