HONG KONG: Amid the Alpine peaks of the Swiss resort of Davos in the week ahead, politicians, investors and executives will be busy debating whether we are witnessing peaks in key drivers of the world economy.
From oil demand, car production and the proportion of young people as a share of the population, to less measurable themes like globalisation, inequality and central banking power, there’s an argument each will ebb in the 2020s.
Strategists at Bank of America Corp are already telling clients to brace for a “groundbreaking ‘peak decade’” that will disrupt business and investing. Ian Bremmer, a delegate at the World Economy Forum’s annual meeting and founder of Eurasia Group, describes this year as a “tipping point.”
The theme is captured throughout the Davos program, which contains multiple panels on “stakeholder capitalism” and tackling inequality. Participants will also discuss the future of globalization and whether central banks are out of ammunition.
Here are the hot talking points:
> Peak globalisation?The era of people, goods and money flowing increasingly unchecked around the world may have past its high point as governments pursue protectionism and erect more obstacles to migration.
Already there are around 77 physical barriers delineating international borders compared with 15 in 1989 after the fall of the Berlin Wall, according to Bank of America. The World Trade Organization calculates the pace of growth in international commerce fell below the rate of economic expansion in 2019 for the fifth time since the financial crisis. Foreign direct investment inflows have been on the decline since 2015, says the United Nations. The US-China trade war is at the center of the shift. But even with the signing of an interim deal, the Peterson Institute for International Economics reckons the average US tariff on imports from China is still 19.3% versus 3.1% at the start of 2018. Away from Beijing, Trump is also seeking to remodel the World Trade Organization and potentially clamp down on European auto exports. The UK still needs to strike a post-Brexit trade deal with the European Union.
Still, the continued development of the digital economy, rising tourism and mounting reliance of companies on revenues generated outside their home market provide room for confidence globalization is evolving rather than ending.
> Peak capitalism?
JPMorgan Chase & Co. CEO Jamie Dimon and BlackRock Inc Founder Laurence Fink, both of whom will be in Davos, are among those who have entered the debate over whether companies should better weigh stakeholders such as customers and employees, a departure from the decades-old shareholder-first mindset. Behind the shift: the rise of populism, concern wages aren’t keeping up with assets such as equities and fears over climate change. The maturing millennial generation are a driving force too. When making investment decisions, 87% of those born between 1981 and 1996 believe environmental, social and governance factors are important, according to Bank of America.
> Peak inequality
The pressure to reduce inequality will become more urgent this decade as the UN’s Sustainable Development Goals approach their 2030 deadline. 193 governments have signed up to 17 goals, 169 targets and 304 indicators on how to end poverty, clean up the environment and share prosperity for all.
There has already been some progress. Abhijit Banerjee and Esther Duflo, last year’s winners of the Nobel Prize for economics, estimate the average income of the world’s bottom 50% of earners also almost doubled since 1980. But William Gale of the Brookings Institution notes the 400 richest Americans owned 3.26% of wealth in 2018, up from 0.93% in 1982.
The top 1% also paid about a third of their income in tax in both 1979 and 2019, he says. Expect such numbers to be bandied about ahead of the US election in November, with some Democrat candidates promoting higher corporate and wealth taxes. — Bloomberg
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