Why Davos is Anxious

I’m in Davos this week to bring you the most important discussions, developments and ideas. I’ll be giving you a regular download here on the most important things that happened that day. Be sure to follow along. With day 1 winding down, here’s my first update…

Truth be told, this is the most negative, fearful environment I’ve experienced at Davos since 2009, right after the financial crisis hit. But it makes sense. We’ve had two weeks of miserable headlines. Just as everyone started to arrive in Davos yesterday, the IMF downgraded its global growth projection for 2016. The decision to make a revision so early into the new year highlights just how volatile the current global economic situation is. That said, the mood was very good in 2007… and we saw how that turned out. If anything, a sense of alarm makes it more likely that people will act, rather than go back to complacency. If I had to rank the order of concerns, I’d say it goes Europe, China, Middle East/oil prices, and US elections (a distant fourth).

Concern about Europe is immense here, with a particular focus on Merkel’s perceived vulnerability. It doesn’t help that she cancelled her Davos speech—the German chancellor is usually the most notable plenary at these meetings. A year ago, Merkel was hailed as the leader holding Europe together through sheer force of will. Now there are serious worries about her political longevity. Of course there’s lots of talk about refugees, Greece’s ongoing struggles, and Brexit too. I’m not as negative on these issues as many, but it’s easy to see why concerns are rising.

People at Davos are all over the map when it comes to China. Can you trust the economic data coming out of Beijing? Is the market volatility and the economic slowdown causing broader internal instability? Lots of people have come to Davos to be reassured and to hear challenges to the conventional wisdom about the world’s most impactful economy. So far, they’re hearing that challenge… but aren’t being reassured. China is opaque and complex, but it’s easy to underestimate Beijing’s willingness to deploy all its tools to keep economic growth in line with what the population demands. The worry isn’t whether China falls off a cliff tomorrow. It won’t. What we need to think about is what happens 10 years down the line.

Other observations:

• Latin America is here in full force. In a year of huge general foreboding, a good chunk of Latin America looks stable and promising (relatively speaking), and they know it. Mexican President Enrique Pena Nieto and newly elected Argentine President Mauricio Macri are getting a lot of attention.
• The Japanese contingent, as always, is large, coordinated and efficient.
• The US delegation is pretty big, but everyone is off doing their own thing. Al Gore is also here. Davos is like his Christmas.
• The Russian contingent used to descend on Davos in force, renting out a mansion that was a central hub of activity. They’ve downgraded this year, renting out a coffee shop instead to use as their home base. Make of that what you will.

My takeaway for the day: That people are worried does not mean the sky is falling. But there is something more structural at work here than just market jitters. The common purpose of the WEF for decades has been to promote globalization, strong governance and free trade. Now, when the proponents of those values look out into the world, they see erratic Russia, opaque China, chaotic ISIS… but no champions of the old order. And that’s unnerving. Rightly so.

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Come back tomorrow for more.