Lord Cameron, the original Tory man in Davos, lands in Switzerland on Wednesday with a new mission: instead of courting business leaders, he will meet with Gulf states for diplomatic talks as the conflict in the region deepens.
The war in the Gaza Strip and strikes in the Red Sea have cast a long shadow over the meeting.
Shell on Tuesday became the latest company to announce an indefinite suspension of shipments through the Red Sea following repeated attacks on ships in the region.
It comes just days after the UK and US launched strikes against Houthi rebel targets in Yemen as tensions rise in the Middle East.
White House national security adviser Jake Sullivan insisted on Tuesday that the United States “is not looking for a regional conflict.”
“Through a combination of sustained deterrence and resilient diplomacy, we seek to stop the spread of conflict and create the conditions for de-escalation,” Sullivan said in his Davos speech.< /p>
Despite Sullivan's warm words, money managers are preparing for another long war.
Thomas Donilon, chairman of the BlackRock Investment Institute (BII), says he believes , fighting in the Gaza Strip “will continue for a long time.”
“I think there are still several months of fighting ahead, and … the longer the better. The intensive phase of hostilities continues, the higher the risk of escalation “.
The conflict in the region threatens to prolong the inflation crisis that has gripped the world for the past two years.
By adding weeks to delivery times to Europe and thousands to costs, strikes in the Red Sea could keep prices high. Hopes for a rapid fall in interest rates appear to be dashed.
This is simply the latest crisis in a chain that has rocked the world in recent years, claiming countless lives and livelihoods.< /p>
“There are too many wars in the world, affecting not only the lives and well-being of people, but also businesses,” says Matthias Rebellius, a board member of German industrial giant Siemens.
p>But for some observers, the crisis in the Middle East is a symptom of the way of the world. Disruption and instability have become the new normal, and as a result, a return to the interest rates seen over the past decade may simply be wishful thinking.
Donilon believes that a “reshaping of globalization” has long been underway, which is not only turning friends into enemies, but also making relations between countries more transactional.
This realignment, he says, is one of the reasons why interest rates and inflation is unlikely to return to the lows of several years ago.
Gita Gopinath, deputy managing director of the International Monetary Fund (IMF), is just one of a growing chorus of economists and business leaders who believe the work to curb inflation is not yet done.
At Davos, Gopinath called out market rates for This year's aggressive rate cuts are “excessive” and said borrowing costs will remain higher for the foreseeable future than the average over the past decade and a half.
“At the very least, central banks will be much more cautious about further inflation,” Gopinath said on Tuesday. “We're moving to a regime where central bankers are going to be a little more cautious about warming up the economy and not waiting too long before they see inflation rising.”
It's going to be a shock. Many working people today have never known an extended period of higher interest rates.
“If you're 40 years old or younger, you think that's how 0pc works,” says Chuck Robbins, chairman and CEO of Cisco. “And that's not true. So I'm a little worried.”
The Bank of England cut rates to 0.5% in 2009 after the financial crisis and lowered borrowing costs to 0.1% before policymakers began raising them in 2021. .
“For a very long time we had a free money mentality, so money was spent on everything,” says Robbins. “Some people call this the new normal. This is fine. We've just moved away from it for a very long time.”
Bob Moritz, chairman of PwC, said higher rates would test the mettle of a generation of executives accustomed to rock-bottom borrowing costs. .
“What we've seen and what I've experienced is that the quality of the leadership team will really determine differentiation in the future,” he said on the sidelines of the World Economic Forum in Davos. .
“We grew up with leaders who for the last probably 15 years have known nothing but low interest rates resulting from the 2008 crisis. In fact, in some countries we have had negative interest rates.
“Many of these people don't know how to navigate a high or higher interest rate environment. The same goes for energy price volatility.
“We will face challenges for management teams.”
Those struggling are unlikely to receive the same helping hand from government that businesses have relied on in the past. Covid-related handouts and decades of money printing by central banks left scars in the minds of politicians.
“We've gone through three years where governments [are] seen as insurers of last resort, where [politicians] come in and send money to households and firms quite liberally,” Gopinath said.
“This has created expectations, and you can see that it is actually much more difficult to withdraw subsidies that were provided during the pandemic.”
Rising costs associated with the Covid pandemic have created a “huge temptation to finance everything by issuing debt” rather than raising taxes or cutting spending, the IMF chief has warned. This can only end badly.
“If you look at the political economy around the world, given the election period we're in right now, it's hard to imagine anyone sitting around thinking about this issue quite complex.” .
Patrick Gelsinger, chief executive of Intel, warns that 2024 will be a “turbulent year” with nearly half the world's population voting at the ballot box. The results are yet another unknown that could increase inflation, undermine economic growth – or do the opposite. Everything is up in the air.
At the moment, Gelsinger and his colleagues are focused on resolving the situation in the Middle East. Like many others, Intel products have been forced to reroute around the Cape of Good Hope.
But even if the Red Sea crisis resolves itself, the Davos Man fears the world will not return to the way it was before. A new, tougher norm has arrived.
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