Economy

Economists in Davos Predict High Inflation Risk and Global Globalization Reversal

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The Ukrainian War and the resulting inflationary pressures, combined with fears of lower growth in China and the energy crisis, will cause new bumps in the global economy and postpone a post-pandemic recovery, with risks of price escalation, especially in Latin American countries. and in the United States, say economists.

The warning is in a remarkably somber report signed by a group of 47 prominent names in large banks and multinationals affiliated with the World Economic Forum and distributed this Monday (23) at the entity’s annual meeting in Davos (Switzerland).

The previous survey, from November 2021, pointed to short-term inflationary risks. The scenario has changed, mainly driven by the War in Ukraine and the expectation of weak or very weak growth in China, something predicted by 37% of respondents.

For 86% of the collegiate, there is a high risk of inflation in Latin America this year, and those who project “very high” risk are 47%, the highest rate of all regions. In the American case, 96% see high or very high risk, with 38% pointing to “very high”.

As for Europe, 93% see high or very high risk (17% being “very high”). Inflation also haunts Sub-Saharan Africa (77% see high risk) and the Middle East and North Africa (75%).

“We are on the cusp of a vicious circle that can affect societies for years,” writes Saadia Zahidi, managing director of the Forum, in the report. “Leaders face difficult choices and domestic bargains when it comes to inflation, debt and investment.”

At the same time that inflation rises and more austere monetary policies are adopted (ie, higher interest rates), economists see a need for some fiscal easing. They also recommend special attention to the energy sector and measures to mitigate the climate crisis. In the case of the poorest countries, there is a risk of food insecurity.

Nearly 9 in 10 of respondents say it will be necessary to subsidize food – whose prices are more pressured – in low-income economies. In the case of the richest countries, an energy subsidy would be necessary, according to the survey.

​In all these regions, inflationary expectations are at least moderate for the group of economists, including Brazilians Mansueto Almeida (BTG), Fernando Honorato (Bradesco) and Mario Mesquita (Itaú Unibanco).

Specialists are still not very optimistic about the progress of globalization in the next three years and predict greater politicization of production chains, with a tendency towards nationalization. In other words, protectionism will increase, with a negative effect on economic integration.

Most of them expect greater fragmentation in the supply chains (79%), technology (65%) and in the labor market (54%). In the service sector alone, the expectation of disintegration, although predominant, is not the majority (46%, with 39% expecting stability).

“The uncertainties, risk and strain of the global economy are extremely high at the moment. The unfolding war in Ukraine is pushing economies already weakened by the pandemic to the limit of their capacity, revealing structural dependencies and bringing unforeseen consequences”, reads the resulting report from the search.

“The potential for a devastating secondary crisis is high.”

In the labor market, the picture painted by the survey is especially worrying for globalization enthusiasts: none of the group members expects greater integration by 2025.

Experts also spoke about the impact of sanctions against Russia on the duration of the Ukrainian War. For 53%, this effect is small or null, compared to 38% who think it is large and 10%, very large.

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