In Davos there is only one concern: global inflation

In Davos there is only one concern: global inflation

At the World Economic Forum, the price race dominates the scenario along with the consequences of covid, the new cases in China and the effects of the war in Ukraine

The first World Economic Forum of Davos after the pandemic of the new coronavirus (Covid-19) ended its first day this Monday, 23, with a watchword: inflation.

The first to arrive this morning and speak at Davos was the German Economy Minister, Robert Habeck, which warned about the risk of inflation caused by the economic effects of Covid, that disrupted global production chains.

This, together with the effects of the war in Ukraine, which raised fuel prices even more, could generate a serious recession for much of the world, mainly the European Union and the United States.

A scenario later denied by the director of the International Monetary Fund (IMF), Kristalina Georgieva who expressed doubts about whether global growth would eventually contract.

Inflation biggest concern in Davos

In addition to the technical dispute, it is clear that the post-Covid recovery that should have given economies on both sides of the Atlantic a galloping growth trend in the Gross Domestic Product (GDP), is completely derailed.

Among the analysts of the main world financial institutions who spoke on this first day of the World Economic Forum, the message expressed was quite alarmist.

The price race in the US and Europe will not stop, nor will the tendency of the global economy not to grow.

Furthermore, despite rising inflation, salary are not going up either. On the contrary, they run the risk of weakening.

The war in Ukraine, combined with new variants of Covid and the supply-side shock, which causes constant interruptions in the supply of goods, are weighing on inflation expectations.

More than 90% of the analysts interviewed by the Forum of Davos expect “high” or “very high” inflation in 2022 in all countries except China and East Asia.

And two-thirds of economists polled expect real household incomes to decline in the world’s most advanced economies.

High interest rates will be the response of Central Banks

A reaction from central banks to the increase in inflation has already come from the United States and the Bank of England, which have started to raise interest rates in recent months and signal the end of the phase of monetary expansion caused by the emergency. Covid.

And the President of the European Central Bank (ECB), Christine Lagardeexpected in Davos in the coming days, he hinted that “according to current economic estimates” it may be possible to “end negative interest rates by the end of the third quarter”, that is, by September.

The ECB has not raised rates in eleven years. Since 2014 the fees are negative at -0.50%.

After the president’s words, the euro soared and reached its highest level in the last month against the dollar.

food crisis alert

Finally, the greatest risk the world runs is feed.

The Russian-ordered naval blockade is crippling millions of tons of wheat and grain in Ukrainian ports.

And that could trigger an “unprecedented” food crisis in recent history, according to analysts who spoke at the Forum’s panels. Davos.

Source: Exam

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