WEF seeks light in dark out­look

The Pak Banker - - BUSINESS -

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.

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