DAVOS – Global chief executives pinned their hopes on roaring growth in emerging markets at the start of the annual Davos forum on Wednesday but warned that rising inflation and political risks cast a shadow.
Business leaders at the World Economic Forum (WEF) said surging food prices could spark fresh social unrest and pointed to geopolitical worries over international conflicts erupting as well as internal strife.
“I’m optimistic because the world is growing; now we are seeing a much more self-assured developing world going more its own way,” Nestle Chief Executive Paul Bulcke told the organisers’ opening news conference.
But other CEOs at the event struck a more cautious tone, pointing to the numerous risks which could yet derail the fragile global revival. “Interest rates are zero today but they can only go up and higher interest rates will drive financing costs up as well,” John Krenicki, chairman and chief executive of GE Energy and vice chairman of GE stated.
“It’s not just inflation in energy but steel, cooper and general commodities.” The four-day Forum in the Swiss Alps will bring together at least 35 national leaders, including the presidents of Russia and France, and over 1,400 business chiefs. The number of participants from India and China is bigger than ever.
Bankers are keen to show their industry emerging successfully from the wreckage of the global financial crisis and politicians want to dispel the gloom hanging over the euro zone. Growth in developing countries is key.
“This year, we think we’ll see Western Europe continuing to be tepid, America more U-shaped and the fast-growing emerging markets will continue to be V-shaped,” Martin Sorrell, chief executive of the world’s biggest advertising group WPP, told the opening session. Resurgent inflation, however, is stalking many developing economies. Reports in China suggested new bank lending has surged in January, prompting fresh government measures to contain property price rises. India raised interest rates on Tuesday, warning that higher food prices could become entrenched if steps to boost output are not taken.
Nor is the threat confined to the emerging world. Eurozone inflation exceeded the European Central Bank’s two percent target for the first time in two years last month and Bank of England Governor Mervyn King warned on Tuesday that UK inflation could hit five percent soon. Sorrell put global economies into four divisions in terms of growth prospects: The BRICs – Brazil, Russia, India and China – in the top category, followed by the United States and Germany, then the rest of Western Europe, with Japan last.
Vimpelcom Chief Executive Alexander Izosimov, who is bidding for control of Egypt’s Orascom Telecom, said he was well aware of the risks in the Middle East after recent turmoil in Tunisia and Egypt. “As you go into emerging markets, it’s not unfortunately only growth and high returns, sometimes you have to deal with the risks,” he told Reuters Insider television.
Unprecedented protests in Egypt against President Hosni Mubarak’s 30-year rule in the wake of this month’s ‘Jasmine Revolution’ that ousted Tunisian president Zine al-Abidine Ben Ali were a hot topic in the corridors of Davos. Prince Turki al-Faisal, a member of Saudi Arabia’s ruling family and former intelligence chief and ambassador to Britain and the United States, said he could not be sure of Mubarak’s survival in power. “In Egypt, I really can’t say where this is going to go,” he told Reuters Insider. “Whether they can catch up as leaders to what the population is aiming (for) is still to be seen.”
