WEF seeks light in dark outlook
Leaders of the global economy sought glimmers of light amid the darkest outlook since the financial crisis tipped the world into recession seven years ago.
As markets convulsed anew on Wednesday with oil plunging and European equities sinking, the World Economic Forum's annual meeting began in Davos, Switzerland, with the list of worries ranging from China's slowdown to tumbling commodity prices and geopolitical tensions. The concerns were tempered by the hope that markets will soon stabilise.
"We're going to have a very tough first half and we're not done on the downside," said Dominic Barton, managing director of McKinsey & Co. things will then pick up."
There are numerous threats to occupy the attention of the 2,500 business executives, bankers and investors gathered in the Alpine resort for four days of talks and cocktail parties. China just recorded its weakest annual growth since 1990 and is trying to manage that slowdown along with a decline in the yuan. Oil has tumbled to near its lowest level in more than a decade and stocks have suffered their worst January ever. The Federal Reserve is testing nerves by raising interest rates.
"We're going through a correction and clearly global growth has come down," said UBS Group Chairman Axel Weber. "It's a normal correction, it will last for
"I hope some more time." The first mantra of the oil crisis was "lower for longer." Then "lower for even longer." Now in Davos, oil executives are starting to talk - or rather, whisper - about a new nightmare scenario: "A lot lower for a lot longer."
Oil executives, policy makers and banks said in the first days of the World Economic Forum that a recovery will remain elusive in 2016 as major producers keep pumping and China's fuel appetite slackens. And they fret that prices could take another hit as Iranian crude freed from sanctions flows back on to world markets. "It is the third year in a row we have more supply than demand," Fatih Birol, executive director of the International Energy Agency, told Francine Lacqua in a Bloomberg Television interview. "Prices will be still under pressure. I don't see any reason why we have a surprise increase in the price in 2016."
Things won't get better until energy markets have weathered the "supply shock," said Tony Hayward, chairman of Glencore, one of the world's largest trading houses. Quite simply, there's "too much oil," he said. Unprecedented cutbacks in spending - a 16 per cent investment reduction this year will follow last year's 20 per cent decline - is setting the stage for a recovery, but it will be 2017 before this materialises, the IEA's Birol predicts. The scale of the spending cuts means the rebound will be all the harder when it comes, according to Crescent Petroleum Co.
"This will have an impact in the future, making the cycle more extreme," Majid Jafar, chief executive officer of UAE-based Crescent, said in an interview. Still, crude won't recover to levels seen during the boom years, said Daniel Yergin, vice chairman of consultants IHS. Oil prices will probably be a "good deal higher than they are today" in the second half of 2016, but "not $100, not $70, not $60," Yergin said.
For Crescent's Jafar, "$50 is a possibility." That's about half the value oil was trading at only 18 months ago. - Bloomberg China, which now accounts for about 15 per cent of global output and helped propel the world out of recession in 2009, lies behind much of the anxiety. President Xi Jinping's efforts to shift his country's economy toward consumption and services rather than investment and manufacturing have decreased demand from other countries, and the yuan has weakened.Those factors, combined with a botched effort to prop up stocks, have spooked investors. There are major ripple effects. Oil is down about a fifth this year, also undermined by expectations of a surge in crude exports from Iran after the removal of sanctions. Equities have slumped, with almost $7 trillion knocked off their value globally since the start of the year. "It's not yet a meltdown," said Paul Singer, founder of Elliott Management.