Anxiety in the air as Davos World Economic Forum kicks off

DAVOS, Switzerland -- As stock markets around the world took another dive amid concerns over plunging oil prices and China's slowdown, anxiety clouded the air in the Swiss ski resort of Davos, where the World Economic Forum's annual meeting kicked off Wednesday.

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With Europe's main indexes down another 3 per cent or so and many around the world officially in bear territory, powerful global executives in Davos voiced a high degree of concern over the outlook for the global economy. Some said the recent turbulence in financial markets was akin to a "meltdown," while others sought to describe it as a natural adjustment.

"The new normal is a low-growth world," said Martin Sorrell, chairman of U.K.-based advertising giant WPP.

Whatever the description, uncertainty and the recent turn in global growth fortunes dominated discussion at the 45-year-old annual gathering of political and business leaders in the Alps.

Sorrell also worried that too-low inflation in many parts of the world was reducing the pricing power of companies, which they need to generate the returns needed to invest and boost growth. Instead of using their cash to invest in projects to promote growth, companies are increasingly sitting tight and often rewarding shareholders with big dividend payments and buybacks.

And as for consumers, Sorrell said they remain wary -- nearly eight years after the global financial crisis saw the collapse of many banking groups and triggered the deepest recession since World War II.

That wariness is why consumers don't appear to be using the windfall garnered from low oil prices. Money saved at the pump could be used for spending elsewhere, but that doesn't appear to be happening now.

Min Zhu, Deputy Managing Director of the International Monetary Fund, which on Tuesday cut its global growth forecast, said global political uncertainties are behind much of the recent market volatility, and the reason for companies' reluctance to invest $7 trillion or so of cash lying in the banks.

Tensions in the Middle East are among those uncertainties. Iran's foreign minister, speaking Wednesday to The Associated Press at Davos, denounced new U.S. sanctions over Iran's ballistic missile program and warned that warmer diplomatic ties with Washington remain "far away" despite a landmark nuclear deal.

To boost global growth, Zhu said it's paramount that governments make deep changes to things like pension systems and labour markets, given that there's little room on interest rates and budgets are stretched.

Paul Singer, CEO of hedge fund Elliot Management, blames a "very distorted policy mix" following 2008 for the current turmoil, because it saw the burden put heavily on the shoulders of monetary policy. His suggestion to help soften the impact of future shocks is to make the banking sector more resilient and transparent.

The plunge in oil prices was also identified as a growing threat to the world's goal to reduce emissions.

The head of the International Energy Agency, which advises oil-importing countries, said the drop in costs for oil and gas threatens to reduce governments' incentives to improve energy efficiency -- in transportation networks, for example -- as well as the installation of renewable energy plants.

Fatih Birol says energy efficiency has been driven largely not so much by environmental concerns but an interest in saving money, which is disappearing as fossil fuels become cheaper.

World governments agreed in Paris in December to limit the rise in global temperatures, a move that will require a ramp-up in the amount of energy that comes from renewable sources.

Birol warned a panel of energy experts gathered in Davos: "For renewables, life will not be easy."

The head of the International Chamber of Commerce, John Danilovich, told The Associated Press in Davos that 2016 has already been very "unsettling" for global businesses, and adapting investment to meet lower-emissions goals will be among several struggles for companies this year.


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