Hopes of global resilience resound at World Economic Forum

The second day of the World Economic Forum in Davos, Switzerland, was full of acknowledgements that the global economy has been more resilient than expected and hopes that the worst of current downturn could end by the second half of this year, Bloomberg and Reuters reported.

The International Monetary Fund's No 2 official Gita Gopinath said the global economy has shown "signs of resilience" adding that headline inflation has likely peaked. European Central Bank Governing Council member Francois Villeroy de Galhau predicted that the euro region should avoid a recession this year, in line with the general tone of cautious optimism at the event in the Swiss Alps.

"But we must stay the course in our battle against inflation, I am very clear about that," Villeroy, who is also the governor of the Bank of France, told Bloomberg TV. "We will win this battle, let me be extremely straightforward. We will bring inflation back towards 2% by the end of 2024/25."

A speech by German Chancellor Olaf Scholz, the only Group of Seven leader due to attend the event, was one of Wednesday's highlights. Scholz spoke with Bloomberg Editor-in-Chief John Micklethwait in Berlin on Tuesday and said he's convinced Europe's biggest economy won't contract in 2023.

Furthermore, China's reopening from pandemic restrictions could drive global growth beyond expectations and help avoid a broader recession, top finance officials said.

"The reopening of China has to be the major event and it will be a key driver for growth," Laura M Cha, the Chairman of Hong Kong Exchanges and Clearing, told the forum in Davos.

"Asia is where the growth factor will be, you know, not only China, (but also) India, Indonesia; these are all emerging and very strong economies."

Her comments were echoed by others who saw China as the key to the global recovery.

"There's pent-up savings, there's pent-up demand, so we think that China will see very strong growth, especially as you get later in the year," Douglas L Peterson, the President and CEO of S&P Global told a panel discussion.

The world's second largest economy can resurrect global growth even as the United States, the euro zone and Britain flirt with a "mild-to-moderate" recession over the coming quarters.

Peterson said he still expected a "very mild" recession in the United States, Europe and the Britain, but full year net growth was still going to be positive.

"Strong labour markets are not consistent with what we see with a recession and the labour markets are strong almost everywhere in the world," he added.

Headline inflation has probably peaked but some of "the more sticky components" such as the services sector are still trending up in some countries, Gita Gopinath, the International Monetary Fund's No 2 official, told Bloomberg TV, adding that 2023 will be a "tough year."

The new IMF forecasts for the global economy, due at the end of the month, will be "in the ballpark of what we put out in October," she said. "After going through about three rounds of downgrades at least we don't have a worse outcome we're looking at this time around."

"While we have global growth bottoming out this year, it improves towards the second half of this year and then into 2024," Gopinath added. "That's because we're seeing signs of resilience."

Earlier, on Tuesday, IMF Managing Director Kristalina Georgieva said, "Since the beginning of the year we do see some good news. We also expect in 2023 growth to bottom out, to start the process in which we go up rather than down," she said.

Georgieva said the three very significant challenges were the Russia-Ukraine war, the cost of living crisis and interest rates at a level unseen in decades. The world must manage the adjustment to more security of supply smartly, she added.

"The context is: It is not great," she added.

Yet, hopes the worst may be over by the second-half was repeated by others.

"Since autumn we have seen some positive signs [in the EU]," European Commission Vice President Valdis Dombrovskis told Bloomberg TV in Brussels yesterday. Energy prices are "lower than previously expected because our gas storages were full at the beginning of the winter" and the weather has been relatively mild, he added.

Dombrovskis also pointed to a price cap on Russian oil, and the EU's crisis response including its recovery plan helping the economies of member states. "So indeed we are expecting shallower economic contraction around the turn of the year than it was expected previously, maybe we can also escape this technical recession," he said.