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Davos Forum: Government and business leaders warn that economic outlook has worsened

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The meeting is taking place amid inflation at its highest level in decades in major economies, including the United States, the United Kingdom and Europe.

These price increases have undermined consumer confidence and shaken global financial markets, prompting central banks, including the US Federal Reserve, to raise interest rates.

Meanwhile, the repercussions on the oil and food markets of Russia’s invasion of Ukraine in February – which Moscow describes as “a special military operation” – and the Covid-19 blockades in China, with no clear end, have exacerbated the tragedy.

“We have at least four crises, which are intertwined. We have high inflation … we have an energy crisis … we have food poverty and we have a climate crisis. And we can’t solve the problems if we focus only on one of the crises. one of the problems will not be solved, I am really afraid that we are facing a global recession with an extraordinary effect … on global stability “, said the German vice-chancellor Robert Habeck.

The International Monetary Fund (IMF) cut its global growth forecast last month for the second time this year, citing the war in Ukraine and highlighting inflation as “a clear and present danger” for many countries.

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Speaking in Davos on Monday, IMF Managing Director Kristalina Georgieva said the war, tighter financial conditions and price shocks – especially for food – have clearly “overshadowed” the economic outlook, although she does not yet expect a recession. .

Asked at a roundtable if she expected a recession, Georgieva said: “No, not right now. That doesn’t mean it’s out of the question. “

European Central Bank (ECB) President Christine Lagarde, who is due to speak in Davos on Tuesday, warned that growth and inflation are on the opposite path, as rising price pressures limit economic activity and devastate households’ purchasing power.

“The Russia-Ukraine war could prove to be a crucial point for hyper-globalization. This could make supply chains less efficient for a while and, during the transition, could create more persistent cost pressures for the economy, “she said in a blog post on Monday.

However, it essentially promised interest rate hikes in both July and September to stop inflation, even though rising borrowing costs will certainly affect growth.

“I knew, everyone knew from day one that this war was bad economic news. Less growth and more inflation. That’s the price we agreed to pay together to protect our values ​​… It was worth paying this price, “said French politician Francois Villeroy de Galhau.

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While the economic impact of the crisis in Ukraine is strongest in Europe, it is the US economy that is facing the biggest price pressures. The consumer price index rose from almost zero two years ago to a 40-year high of 8.5% in March.

The Fed responded earlier this month with the largest increase in key interest rates in 22 years, and President Jerome Powell reported increases of a similar magnitude – half a percentage point – in at least the next two meetings.

However, higher interest rates and expectations for more have not yet weakened consumer spending and a strong US labor market.

Key emerging markets, including China, are still expected to grow this year, albeit at a slower pace than previously expected.

Marcos Troyjo, president of the New Development Bank set up by Brazil, Russia, India, China and South Africa, said his bank still expects “solid growth” this year in China, India and Brazil.

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