Anxiety in the air as Davos World Economic Forum kicks off
The World Economic Forum logo is pictured through a window on the eve of the opening of the Annual Meeting of the World Economic Forum, WEF, in Davos, Switzerland, Tuesday, Jan. 19, 2016. (Jean-Christophe Bott/Keystone via AP)
Pan Pylas and Carlo Piovano, The Associated Press
Published Wednesday, January 20, 2016 8:36AM EST
Last Updated Wednesday, January 20, 2016 3:09PM EST
DAVOS, Switzerland -- In the couple of hours before Morgan Stanley chief James Gorman sat down Wednesday to speak on a panel in Davos, Switzerland, he had lost some $600,000 on the value of his shares in the bank.
As the world's richest business leaders and public figures kicked off the World Economic Forum's annual meeting in the Swiss ski resort, a renewed plunge in stock markets and global oil prices clouded the air with anxiety. Gorman is not alone -- already this year trillions of dollars have been wiped off the value of shares around the world.
Some participants voiced a high degree of concern over the global economy, saying the recent turbulence in financial markets -- which saw the Dow plunge over 500 points on Wednesday -- was akin to a "meltdown." Others sought to describe it as a natural adjustment. Not many were upbeat.
"The new normal is a low-growth world," said Martin Sorrell, chairman of U.K.-based advertising giant WPP.
Uncertainty over the slowdown in China, the plunge in energy costs and the potential disruption of new technologies dominated discussion at the 45-year-old annual gathering, which tries to bring together leaders from every field and has become a key networking event.
Pope Francis sought to remind the elite gathering about the world's poor, calling for new business models that create dignified work for all while protecting the environment. A message from the pope read out at the meeting Wednesday told the crowd they cannot be fully human or happy if they ignore poverty, and fail to realize that their own actions are causing injustice.
Sorrell worried that companies are not confident enough to invest in new projects that might create growth and jobs. Instead, they increasingly prefer to reward shareholders with dividend payments and share buybacks.
And consumers, Sorrell said, remain wary -- nearly eight years after the global financial crisis saw the collapse of many banking groups and triggered the deepest recession since World War II.
That wariness is why consumers don't appear to be spending the windfall they earn from lower oil prices. Money saved at the pump could be spent elsewhere, but that doesn't appear to be happening now.
Tensions in the Middle East are also a concern. Iran's foreign minister, speaking to The Associated Press in Davos, denounced new U.S. sanctions over Iran's ballistic missile program and warned that warmer diplomatic ties with Washington remain "far away" despite a landmark nuclear deal.
Min Zhu, Deputy Managing Director of the International Monetary Fund, which this week cut its global growth forecast, said political uncertainties are behind much of the recent market volatility, and the reason for companies' reluctance to invest $7 trillion or so of cash lying in the banks.
To boost global growth, Zhu said it's paramount that governments make deep reforms to pension systems and labour markets, given that there's little room for central banks to stimulate the economy by cutting interest rates and state budgets are stretched.
Paul Singer, CEO of hedge fund Elliot Management, blames a "very distorted policy mix" following the 2008 financial crisis for the current market turmoil, because it put the burden of boosting economic growth mainly on central banks. His suggestion to help soften the impact of future shocks is to make the banking sector more resilient and transparent.
The plunge in oil prices was also identified as a growing threat to the world's goal to reduce emissions.
The head of the International Energy Agency, which advises oil-importing countries, said the drop in costs for oil and gas is likely to reduce governments' incentives to improve energy efficiency -- in transportation networks, for example -- as well as the installation of renewable energy plants.
Fatih Birol says energy efficiency has been driven not so much by environmental concerns in recent years but an interest in saving money, which is disappearing as fossil fuels become cheaper.
World governments agreed in Paris in December to limit the rise in global temperatures, a move that will require a ramp-up in the amount of energy that comes from renewable sources.
"For renewables, life will not be easy," he warned.
Nicole Winfield in Rome and Jamey Keaten in Davos contributed to this report.