The Alps have experienced a climate shift this winter, and it isn’t simply that snow has finally fallen after an abnormally mild December.
Chief executives and government officials from around the world are converging in Davos, Switzerland, for the annual World Economic Forum (WEF), where the focus has been very much on how to deal with the massive sequence of shocks that has hit the global economy over the previous three years.
Pandemic and war have conditioned a road of record inflation and swelling indebtedness, with a third of the world predicted to be in recession this year, from the damp market of Wuhan to the Kremlin’s crazy calculations.
However, there is some hope at the end of the tunnel. And, as remote as a ski resort full of global leaders may sound, WEF is the kind of venue where you can get a sense of whether a three-year storm is about to calm down.
There are some indications that the early signs of skyrocketing inflation in the global economy are beginning to normalise. After being clogged during the pandemic, supply chains for the parts and materials used to create the items we buy have been repaired.
Elon Musk’s Tesla, for example, linked its decision to lower the prices of its electric automobiles last week to this trend. Shipping expenses are falling. And, in principle, China’s “great reopening” after the pandemic – the removal of rigorous zero-Covid lockdowns and restrictions – should boost the global economy, albeit the health consequences of widespread illnesses may be so high that it does not.
Inflation, while still high, appears to have peaked around the world. Incredibly, most of Europe has managed to wean itself from Russian gas in less than a year by building temporary terminals to handle shipped liquid gas rather than relying on pipelines from Siberia.
However, other tensions are forming, increasing concerns about how far inflation will eventually fall and about Britain’s position in a drastically transformed globe.
The danger of a transatlantic green trade war casts a large shadow here. Joe Biden’s proposed legislation to develop the green economy of the United States contains £300 billion in subsidies for the purchase of electric vehicles, but only if they are mostly built in North America. The Inflation Reduction Act also has an impact on other manufacturing and production, and it is convincing several European corporations to shift plants to the United States. Even fertiliser businesses are scratching their heads, wondering why European leaders aren’t enacting comparable legislation.
The United States claims that its new legislation is intended to compete with China. But EU leaders are enraged and preparing to reply, possibly with hefty subsidies of their own, likely with “Buy European” conditions.
However, other tensions are forming, increasing concerns about how far inflation will eventually fall and about Britain’s position in a drastically transformed globe.
What should “global Britain” do if the three big trade blocs try to out-subsidize each other? The “world” with which Britain attempted to “re-engage” following Boris Johnson’s post-Brexit divorce with Europe’s single market is very different now.
Would the EU’s “buy European” restrictions apply to the United Kingdom? In a letter to the White House, the government highlighted some worries, but it is unclear what Britain’s strategy is, if one exists at all. It’s not only about low-carbon manufacturing.
Similar dynamics – an intended US-EU carve-up – may be seen in the recent push to re-shore semiconductor production from east Asia.
This new split Davos background to the global economy could have far-reaching implications for how much products cost and where they are manufactured. It is a complete reversal of the decades-long consensus at the World Economic Forum. Everything is up for grabs here.
Finally, many corporate executives appear to have spent their Christmases stunned by the cost-cutting potential of the new artificial intelligence platform ChatGPT 3. Some believe that the next edition of OpenAI’s ChatGPT technology, ChatGPT 4, will have such an impact that it will trigger a global economic shock. It will be a technological revolution, but at the expense of making millions of existing employment obsolete.
