Postcard from Davos

Given the fraught geopolitical context, there were many reasons to worry for the participants to the World Economic Forum, but the atmosphere was lifted by a sense that the rivalry between China and the US is better managed. De-globalisation was however still high on everyone’s mind. Discussions often revolved around whether the focus should lie on financial links rather than trade in goods. Yet, it may well be that Foreign Direct Investments strengthen, rather than mitigate, the reorganisation of the world economy across politically aligned “clubs”.

The US presidential elections were the “elephant in the room”. Beyond the additional geopolitical uncertainty that this could trigger, the notion that a Trump 2.0 administration could disrupt further the already fragile post-WW2 economic and financial order was pervasive. The EU would potentially be in a delicate position from a strategic point of view – revolving around the role of NATO – but also because its green agenda is conflated with its approach to international trade, which may lead to a confrontation with the US if they leave the Paris agreement again.

The highest number of sessions pertained to Artificial Intelligence, and its potential for lifting aggregate productivity. It is probably a sign of our troubled times that even when faced with a promising technology, attention tends to be more drawn towards its potential adverse effects, on employment stability and on how our democratic processes operate. We see this as another signal that the societal and political fragility of many countries looms large, at least in the West.

Christine Lagarde took the occasion of Davos to send a warning on the market expectations for the ECB trajectory – we expect this to be repeated this week at the press conference. We also explore intriguing statements by BdF Governor Villeroy de Galhau on the average level of the policy rate over the cycle.