The strength of the global economic recovery from the COVID-19 pandemic depends on who wins the “race between a mutating virus and the vaccines,” Kristalina Georgieva, managing director of the International Monetary Fund (IMF), warned Tuesday.
Speaking by video link to the virtual World Economic Forum in Davos, she said the IMF had forecast global growth to reach 5.5% this year, after contracting by an estimated 3.3% in 2020.
Georgieva noted how the pandemic had widened the gap between advanced and underdeveloped countries and said that global cooperation on how to deal with the crisis last year was “not up to par.”
The IMF chief hailed the huge government stimulus programs on both sides of the Atlantic that have prioritized the Green agenda, which she said would help foster a new collaborative effort to speed up the recovery. This would be further boosted, she said, from new US President Joe Biden announcing plans to reenter the 2015 Paris Agreement on climate change.
“Having the US back in the Paris Agreement tells us that a big systemic and significant economy is on the same path as the Europeans.”
Several speakers said the post-COVID recovery will depend on the strength of developing countries, which have contributed about a third of global growth over the past decade.
“If you look ahead to the next 10-20 years, that is where the largest opportunities for growth lies,” said Tharman Shanmugaratnam, Singapore’s senior minister. “It’s in everyone’s interest … that we invest in infrastructure, international networks and globalization for the developing world.”
That view was echoed by Germany’s Economy Minister Peter Altmaier, who predicted the emerging markets recovery could take up to two years. With global energy consumption expected to grow 50% by 2050, Altmaier spoke of the need to create “synergies” around climate protection. As an example, he described how many developing countries are ideally positioned to produce green hydrogen, among other green technologies, both for their domestic markets and export to advanced economies.
With the world’s multinationals facing unprecedented political and public pressure to commit to the UN climate goals and reduce income, gender and race inequality, stronger boardroom ethics are moving to the fore, according to Dmitri De Vreeze, co-chief executive officer of the Dutch multinational Royal DSM.
“The economic system that we have today is too monodimensional towards purely profit,” De Vreeze said, before describing the need to reshape companies toward the concept of “people, planet and then profits.”
He warned that firms that failed to adapt to the new paradigm would quickly become “dinosaurs.”
New taxes to meet the huge cost of the pandemic, as well as economic stimulus measures, could stimy the recovery, world leaders warned. French Finance Minister Bruno Le Maire seized upon the questions of where the burden should fall and to what extent tax rises could harm future growth.
“The winners of this economic crisis are the digital giants,” Le Maire said, referring to how lockdowns have helped tech firms’ profits. “How can you explain to some sectors that have been severely hit by the crisis and are paying their due level of taxes that the digital giants will not have to pay the same amount of taxes? This is unfair.”
Paris has long demanded a clampdown on tech firms like Facebook and Google, who often use legal loopholes to register their profits in low-tax countries. A new digital tax has also been welcomed by the new US administration.
The Trump era was synonymous with protectionism and the bitter trade war with China. Many world leaders will have breathed a sight of relief at Biden’s inauguration speech pledge to “repair our alliances and engage with the world once again.”
Beijing’s huge state-led firms are set to benefit, along with multinationals like German automaker Volkswagen, which now counts China as its number one market.
“We are hopefully heading back to a more open world with free trade,” Herbert Diess, VW’s CEO told the virtual Davos delegates. “It’s much better to cooperate and work with China than try to isolate China.”
While many speakers worried about virus variants and the efficacy of vaccines, others raised concerns about whether another major stock market sell-off would hamper the recovery.
Financial markets responded positively to the vaccine announcements in the fall. The promise of additional stimulus — up to $1.9 trillion being mooted in the US — is fuelling what some analysts think is a huge bubble.
“I certainly see things in the market that are concerning to me,” said David Soloman, CEO of the US investment bank Goldman Sachs. “When you have low rates and capital is very inexpensive, it does fuel some speculation.”
“At some point, the market will naturally flush some of this excess out, but it doesn’t mean that we have some sort of market crisis. It can be some sort of rebalancing of markets over a period of time.”