With the global economic crisis receding and concerns about Europe and the US subsiding, there is a danger of complacency, global business and civil society leaders warned participants in the closing session of the 43rd World Economic Forum Annual Meeting.
“The optimism for recovery is there,” Axel A. Weber, Chairman of the Board of Directors of UBS, Switzerland, and a Meeting Co-Chair, declared. “The feeling is that the worst is behind us. But the mood bordered on complacency. On Wednesday, people talked about how the tail risk had been reduced. By Friday, the tail risk was removed.”
Fellow Co-Chair Frederico Curado, President and Chief Executive Officer of EMBRAER, Brazil, agrees.
“Hopefully, the good feelings this week were too optimistic but will translate into investments,” he says. “Jobs are the main issue. Unemployment is a huge issue for everyone.”
The role that central banks are playing to stimulate economies should not be overstated, Weber argues.
“Central banks cannot resolve the deeper problems. So, the time that they have bought has to be used to make credible structural solutions. Deficits are okay if they are used to make investments. The mood has been good – too good to be true. Expectation management is in order.”
A key challenge for business, government and civil society is to restore trust in both public and private sector institutions. The crisis and the austerity measures that governments have introduced to address fiscal deficits have undermined confidence in corporate and political leaders. Implementing reforms and recovery plans fully – without letting politics stall them – is essential.
In Japan, for example, “the most important thing is to implement the new growth strategy thoroughly so that the recovery can lead to the rebirth of the Japanese economy,” Meeting Co-Chair Atsutoshi Nishida, Chairman of the Board of Toshiba Corporation, Japan, explains.
In China, meanwhile, the central challenge is to stay the course of transforming the economy into one based on domestic consumption, with balanced and sustainable growth.
“The fundamental question is whether the necessary reforms will be carried out for the economy to continue to grow five years from now,” says Li Daokui, Head, Department of Finance; Director, Center for China in the World Economy (CCWE), Tsinghua University, People’s Republic of China.
All countries must also focus on addressing the persistent problem of corruption, concluded Huguette Labelle, Chair of Transparency International, Germany, who is also a Meeting Co-Chair. “The financial crisis is not over; corruption is not over.”
The global economic outlook was the subject of much debate. Mario Monti, Prime Minister of Italy, accepting that his country had “failed to take on the challenges of globalization”, defended his government’s record in office, claiming that “leadership is the opposite of short-termism”.
Christine Lagarde, Managing Director of the International Monetary Fund, predicted that 2013 would be a make-or-break year for the global economy. She urged leaders to maintain the reform momentum in pushing through the necessary restructuring that they have started.
This could also be a year when the global economy may again be vulnerable to a liquidity bubble, Ray Dalio, Founder and Chief Investment Officer of Bridgewater Associates, said in a session on the third day of the Meeting.
“The debt cycle will no longer be the driver; 2013 will be a transition year and the shift of cash will be a game changer,” he says.
Meanwhile, the Chinese renminbi is still a long way off from becoming a global reserve currency, participants heard in another session on fourth day of the Meeting.
With the debt crisis moderating, the future of Europe was a major topic of debate. The day after pledging in a speech that Britain would hold a referendum by the end of 2017 on whether it should stay in the European Union, British Prime Minister David Cameron said in a special message that Europe needs more political will, not more political institutions.
Later, German Chancellor Angela Merkel reiterated her support for reforms of financial governance structures in the Eurozone, noting that results are starting to show and Europe is “going in the right direction”.