World Economy

Davos Policymakers Struggle for Answers

Davos Policymakers Struggle for AnswersDavos Policymakers Struggle for Answers

Angela Merkel was missing from Davos this year, but the German leader’s optimistic mantra “we can do this” echoed through the snowy resort in the Swiss Alps.

China’s economic slowdown? Manageable. Plunging financial markets? Temporary. And Europe’s refugee crisis? A big challenge, but one which will ultimately push the bloc’s members closer together, audiences were told over and over again, Reuters reported.

Beneath the veneer of can-do optimism at the World Economic Forum, however, was a creeping concern that the politicians, diplomats and central bankers who flock each year to this gathering of the global elite are at the mercy of geopolitical and economic forces beyond their control.

At the top of the lengthy list of worries was Europe, whose policymakers remain deeply divided in their approach to the refugee crisis at a time when the bloc faces a host of other threats, from Islamic extremism and the rise of far-right populists, to a possible British exit from the European Union.

Amid reassuring messages on the refugee crisis, came stark warnings from people like International Monetary Fund Chief Christine Lagarde that Europe faced a “make or break” moment. Dutch Prime Minister Mark Rutte and his Swedish counterpart Stefan Lofven gave the bloc 6-8 weeks to get its act together.

And frustration boiled over after Austria became the latest country in Europe’s Schengen passport-free travel zone to unveil unilateral steps at the border to stem the tide.

 Clear Limit

On the economic front, there was also a growing sense of policymaker impotence.

Last January, in a bold sign of policy activism, the European Central Bank unveiled its hotly anticipated stimulus, or quantitative easing, program in a bid to kick-start growth and inflation in a eurozone still reeling from financial turmoil and breakup fears.

A year later, despite Mario Draghi’s assertion that the bank still has “plenty of instruments” at its disposal, the consensus in Davos was that it has now used up all its monetary ammunition and that politicians have failed to use the time the ECB bought them to implement economic reforms at home. Meanwhile growth remains subdued and inflation close to zero.

“We understand that there may be no limit to what the ECB is willing to do but there’s a very clear limit to what the ECB can and will achieve,” chairman of Swiss bank UBS and former Bundesbank chief Axel Weber said after Draghi signaled yet more monetary easing.

The central theme of this year’s meeting was the “Fourth Industrial Revolution”–the idea that technological advances will allow ever greater levels of automation, transforming the global economy in profound ways.

But in a sobering report on the implications of these advances, UBS said they were likely to increase inequality across the globe, and the authors expressed scepticism about whether politicians could put a halt to this trend.

 Optimism on China

On the positive side, there was optimism that the Chinese economy was heading for a soft rather than a hard landing, despite the struggles of policymakers there to manage the shift to lower growth rates.

And few doomsayers thought that what Credit Suisse CEO Tidjane Thiam described in the final session on Saturday as “the worst start to any year on record in financial markets ever” was a harbinger of another global financial crisis.

The optimists pointed to the climate deal struck in Paris in December as a sign of what policymakers can still do at a global level when they put their minds to it.