‘Wake Up!’ Global Elites Confront a World Full of Risks at Davos

bloomberg: European Central Bank President Christine Lagarde vowed to continue the fight to rein in inflation, which she said is “way too high,” adding a note of caution to a generally upbeat gathering of the global elite in Davos.

Deutsche Bank AG Chief Executive Officer Christian Sewing was supportive of the ECB’s efforts, calling surging consumer prices “poison” for the economy.

UniCredit SpA Chief Executive Officer Andrea Orcel earlier joined the chorus of tentative optimism on the penultimate day of the World Economic Forum, saying Europe may see slightly positive growth this year, even as risks remain including the war in Ukraine and rising borrowing costs.

Boosting work flexibility through changes such as a four-day week may both raise productivity and reverse the growing trend toward burnout, according to a panel of experts.

A study coordinated by nonprofit advocacy group 4 Day Week Global involving dozens of companies showed a reduction in stress and anxiety, and gains in efficiency and revenue, said Adam Grant, an organizational psychologist at the University of Pennsylvania. “We’re running quickly into a burnout society,” said Dutch Labor Minister Karien van Gennip.

Bill Winters, CEO of Standard Chartered, said carbon pricing is key to financing the fight against climate change, but warned that a lack of political will was holding back progress.

“You’ve got to get the money into the right hands,” he told a climate-finance panel. “If we have a proper price for carbon, paying for” preserving natural carbon sinks isn’t an issue, but “we need trillions and we’re talking billions.”

Dutch Prime Minister Mark Rutte said he’s worried about inflation in combination with low-growth prospects in Europe. “We need to bring down government borrowing,” he said on a panel. “It’s still too high in Italy, France and other countries.”

“We do not want Europe to become a sort of museum where you go to because of the beautiful cities,” he added. “It has to be the place of growth, innovation and industry base.”

WTO Director General Ngozi Okonjo-Iweala paid tribute to Jacinda Ardern, calling the New Zealand prime minister “such a good example” after her surprise resignation ahead of a general election later this year.

“Let me put it in a positive fashion: women know when to step down,” Okonjo-Iweala told Bloomberg TV. “When they think they’ve given their best and they’re ready to go they say so and we shouldn’t overread anything into it,” she said, adding that “their egos are lower” and “work does not define them.”

Guggenheim’s Anne Walsh struck a more downbeat note than many Davos attendees, warning the investment firm expects a recession by the middle of 2023.

In this week’s episode of the Stephanomics podcast, host Stephanie Flanders chats with international economists, finance ministers and corporate chieftains from Davos, including Gita Gopinath, first deputy managing director of the IMF, and Raghuram Rajan, a finance professor at the University of Chicago and former governor of the Reserve Bank of India.

Lagarde said inflation remains far too elevated, vowing that policy makers won’t let up in their efforts to return price growth to target.

“Inflation by all accounts, whichever way you look at it, is way too high,” Lagarde told a panel. “We shall stay the course until such time we have moved into restrictive territory for long enough so that we can return inflation to 2% in a timely manner.”

Sewing said that he’s not concerned about any potential over-tightening by the ECB since he continues to see inflation as the biggest economic risk.

He said he shares the more upbeat economic outlook presented by economists and said that Europe can grow if it can get inflation back under control. He repeated his comments that inflation is ‘poison’ for the economy.

Merck KGaA has as much as €20 billion ($21.6 billion) of dealmaking firepower and is “scanning the market permanently” as the German company looks to accelerate growth, Chief Executive Officer Belen Garijo told Bloomberg TV.

Merck especially likes the life sciences sector — which includes research labs and biotech and pharma companies — because of predictable and stable demand, Garijo said. The company is interested in either bolt-on or bigger takeovers to bolster its portfolio of medicines or strengthen its semiconductor-solutions business. Merck’s last multibillion deal was the 2019 purchase of Versum Materials Inc. for $6.4 billion.

Takeda Pharmaceutical’s CEO Christophe Weber said tackling health disparities between nations and within populations in the same country is morally necessary, and also good for business.

“We have been looking at our clinical trial diversity, and we know it’s not where we should be in terms of recruitment of patients,” Weber said. “If you don’t have the data for a certain group of patients, then they potentially won’t trust the vaccines or the treatment.”

Irish Prime Minister Leo Varadkar said there’s risk of a “tit for tat scenario” between the US and EU whereby they try to outdo one another on subsidies or implement trade restrictions.

“That never works,” he said on the sidelines. “Europe and America benefit from free trade won’t benefit from any form of protectionism,” adding that the two side are “a long way from a trade war.”

President Joe Biden’s multi-billion dollar green subsidy program is “dangerous,” Britain’s business secretary said on a panel at Davos. Grant Shapps said the Inflation Reduction Act “at the edges is dangerous because it could slip into protectionism.”

Shapps said countries have learned from both the pandemic and Russia’s invasion of Ukraine that “you’ve got to be self-reliant,” but leaders also need to ensure they keep “the world as open as possible.” On the IRA, he said “it is protectionism, whether it is intentional protectionism or not is the debate.”

The raft of US subsidies on everything from green-energy manufacturing to microchips has infuriated Brussels, as European businesses threaten to shift production to America. The EU is preparing a response that could include watering down state-aid rules.

Paolo Gentiloni, the European Union’s economy commissioner, said it will be “very challenging” for the 27 member states to reach an agreement by March on the review of the bloc’s fiscal rules.

Still, he said that the controversial reform of the bloc’s deficit and debt thresholds is being tackled with a “shared awareness of the fact that we need more flexible rules and more enforceable rules,” he told Bloomberg TV. EU governments disagree over how far the Stability and Growth Pact should be watered down to allow for more spending — fueled by debt — to support growth.

The head of Goldman Sachs Group Inc. international said the bank’s recent round of job cuts has “right-sized” it for the economic environment. The firm will continue to hire and is due to add more than 3,000 graduates this year, as well as more selectively at other levels of the firm, Richard Gnodde told Bloomberg TV.

“We’ve sized the firm to suit what we think the outlook to be,” he added. “But of course you have to be nimble.” He also said bonuses, reflecting overall performance, would be lower. “You have to take a long-term view and look through the cycle.”

UniCredit’s Orcel said the bank is expecting Europe to avoid a recession this year and may even see slightly positive growth.

Rising rates are a tailwind for the bank, which could still potentially pay investors a higher dividend for 2022 than a year earlier. The Italian lender is also seeing its stock of non-performing loans decline, though it has created an extra buffer to protect against loans going bad this year.

Ukrainian President Volodymyr Zelenskiy put additional pressure on Germany to step up and deliver battle tanks.

Without naming Berlin directly, he said it was wrong for countries to say they will only supply his government with battle tanks if an ally outside the European Union, such as the US, does the same. Chancellor Olaf Scholz has indicated the ruling coalition in Berlin won’t move unilaterally to supply Leopard 2 tanks.

Speaking via video link, Zelenskiy told a WEF breakfast meeting that artillery and missile systems won’t be used to strike inside Russia but to target occupied territories from where Russian forces are launching attacks. Asked whether Ukraine would target Russian-occupied Crimea, he said: “This is not our intention, it is our land. Give us your weapons and we’ll bring our land back.”

Former UK Prime Minister Boris Johnson told an audience in Davos that allies should increase their support for Ukraine and focus on that rather than trying to analyze Russian President Vladimir Putin’s plans.

Johnson said governments should give Ukraine weapons, including tanks. He said there is little point debating whether Putin will use nuclear weapons because he won’t.

Ugandan climate activist Vanessa Nakate is in Davos to press politicians and business leaders to halt new fossil-fuel investments.

“There is a disconnect between what people say here and what is happening on the ground - they don’t get the urgency of the climate crisis,” Nakate told Bloomberg. “Economic growth shouldn’t leave people and communities behind,” she said, adding that Davos isn’t accessible for many and the event should be open to activists who highlight the real challenges.