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Davos Delves Into Recession Discussions


FILE - The sign of the World Economic Forum, WEF, is displayed at an entrance door at the congress center at the eve of the meeting in Davos, Jan. 20, 2019. This year's Davos summit is once again being held in the Swiss resort city after 2021's COVID-driven virtual meeting.

Multiple threats to the global economy topped the worries of the world's well-heeled at the annual Davos think-fest on Monday, with some flagging the risk of a worldwide recession.

The tone of the 2022 Davos annual gathering of the world's top financial experts was somberly set by German Vice Chancellor Robert Habeck.

"We have at least four crises, which are interwoven. We have high inflation ... we have an energy crisis... we have food poverty, and we have a climate crisis. And we can't solve the problems if we concentrate on only one of the crises,"

Added together, he says, the global economic forecast looks cloudy, even stomy.

"But if none of the problems are solved, I'm really afraid we're running into a global recession with tremendous effect .. on global stability," Habeck said.

The repercussions on oil and food markets of Russia's invasion of Ukraine in February - which Moscow describes as a "special military operation" - and COVID-19 lockdowns in China with no clear end have compounded the gloom.

The International Monetary Fund (IMF) last month cut its global growth outlook for the second time this year, citing the war in Ukraine and singling out inflation as a "clear and present danger" for many countries.

These price rises have undermined consumer confidence and shaken the world's financial markets, prompting central banks including the U.S. Federal Reserve to raise interest rates.

European Central Bank (ECB) President Christine Lagarde has warned that growth and inflation are on opposing paths, as mounting price pressures curb economic activity and devastate household purchasing power.

"The Russia-Ukraine war may well prove to be a tipping point for hyper-globalization," Lagarde said in a blog post on Monday.

"That could lead to supply chains becoming less efficient for a while and, during the transition, create more persistent cost pressures for the economy," Lagarde added.

Still, she essentially promised rate hikes in both July and September to put a brake on inflation, even if rising borrowing costs are bound to weigh on growth.

While many major economic powers brace for a slowdown, key emerging markets, including China, are still expected to see growth this year, even if at a slower pace than previously estimated.

Marcos Troyjo, president of the New Development Bank set up by Brazil, Russia, India, China and South Africa, said his bank still expects "robust growth" this year in China, India and Brazil.

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