This year’s Davos crowd is nearly as worried as it is wealthy. As the Dow fell another 500 points Wednesday morning, a survey revealed that the chief executives gathering at the World Economic Forum are more pessimistic than they’ve been in years.
“Our expectation is that we do no better than 2 percent in 2016,” AT&T CEO Randall Stephenson told The Wall Street Journal, referring to the prospects for the U.S. economy. “And absent some fiscal policy move, we think there’s probably more downside than upside in that forecast.”
One day after the IMF revised its global growth projections downward, major indexes across Europe and the United States saw declines of multiple percentage points, while oil slipped beneath $27 a barrel — its lowest price since September 2003. Mediocre growth in the U.S., microscopic gains in Europe, and the collapse of a global commodity bubble inflated by China’s unsustainable construction spending are behind the market dip.
It remains to be seen whether it will be enough to put a damper on the event’s famous parties — and scenes like these:
Still, most economic thinkers at Davos argue that there is little risk of the developed world going into recession. “It feels to me that there is a panic in the markets that doesn’t necessarily translate into the real economy,” former IMF chief economist Ken Rogoff told The Guardian. “If China goes from 7 percent growth to minus 2 percent growth, then everybody will be in recession. If it goes to 3, 4 percent growth it will probably not be enough to cause a recession in the developed world. But it is definitely a very precarious situation for emerging markets.” Adam Posen of the Peterson Institute seconded that assessment, telling the paper, “I don’t think we are on the edge of another financial crisis. I don’t even think we are on the edge of another crash. The idea that things are as overvalued as they were last time is false.”
But while there is some skepticism at Davos about an impending financial crash, there seems to be general agreement that global growth is slowing — a development that will land hardest on developing countries. Even if the world economy weathers the decline of Chinese growth, it may soon be sent into crisis by the continuing rise of robots. Reuters reports that a majority of the executives at Davos believe we are on the verge of a “fourth industrial age,” one that could bring implantable mobile phones, 3-D-printed organs, and cyborg corporate directors within the next decade.
Sending Snapchats via your new 3-D-printed, Wi-Fi-enabled kidney may sound awesome, but rapid advances in artificial intelligence pose a long-term threat to the prosperity of the third world. “The fourth industrial revolution has potentially inverted the competitive advantage that emerging markets have had in the form of low-cost labor,” UBS emerging markets analyst Lutfey Siddiqi told the news service. “It is likely, I would think, that it will exacerbate inequality if policy measures are not taken.”
In his message to the WEF Wednesday, Pope Francis implored the Davos set not to replace poor workers with “soulless machines,” while asking the executives to consider their own role in creating poverty. Clearly, the shrewd investor should put some money into the robo-pope.