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WSJ: Davos 2023 Mood Is Somber

The demise of the free-money era has sent chills through Switzerland’s mountain air. Business leaders and economists gathering here for the World Economic Forum’s annual Davos gathering this week said they saw a world buffeted by the higher interest rates that central banks pushed through to fight inflation. That has hurt their bottom line. According to the WSJ, the mood at Davos is not upbeat.

“The mood is somber,” said Nick Studer, CEO of the Oliver Wyman Group consultancy, who has attended meetings in Davos for years. “At the same time, you’ve got a lot of people hoping that the U.S. and the U.K. environment—if it’s recessionary—is either short or shallow.”

That has created the threat of a recession, and led some of the world’s biggest companies to hold their breath, and spending, before the uncertain year ahead. Yet there is some reason to think rising inflation, spurred in part by Russia’s incursion into Ukraine, has peaked.    

That may, some business leaders hope, foreshadow a softer economic landing. Alternatively, another interest-rate hike might bring on a longer recession.   

“I haven’t heard in 30 years being in business of people talking about the recession for so long,” said Christophe Beck, chairman and chief executive officer of Ecolab Inc., a provider of services and products used in water treatment, cleaning and infection prevention. “We will get ready for it in a way and it might not even happen.”

Several corporate leaders said that many businesses are cutting costs—and, in some cases, jobs—to exercise caution. 

But a number are also holding on hope they do not have to make deep cuts in order to benefit from what some are expecting might be a bounce this year, should the main economies skirt the edge of the recession. 

Whether America falls into recession this year remains an open question, said many business leaders. Executives have been bracing for this eventuality for months, even though consumer spending has remained quite robust and the unemployment rate was a historically low 3.5% in December.    

Indeed, the pessimism that was driven last year by rapidly rising interest rates and expectations of leading downturns may be subsiding. 

Gurnani, the chief executive of Indian IT firm Tech Mahindra Ltd., said that while traveling in Europe, he expected that people would be more pessimistic about economic prospects. He said they weren’t so negative, after all. 

“I think we are talking ourselves into recession,” he said. “I look at the data, and it’s not bad.”

The IMF’s first vice-director for managing directors, Gita Gopinath, said that since October, when the IMF released its most recent economic outlook, both the US and European economies have surprised.    

That has led to risks being “somewhat more balanced going into 2023,” she said. Despite that, she said, a couple of more reports on wages and prices—in line with recent reports of restrained increases—would be needed before “we could begin to get a lot more comfortable with the inflation trajectory.” For now, she said, the IMF believes interest rates will stay at about 5% for years to come.    

Business leaders are also watching for some risks that might upend their calculations. These include the possibility of conflict between China and the United States over Taiwan, and the potential of an impasse in the divided U.S. Congress over raising the nation’s debt ceiling, which would threaten the U.S. government’s insolvency.    

Issues that have caused headaches for corporate leaders during the pandemic, like supply-chain choke points or construction delays, are also yet to be completely resolved, said Stanley Bergman, chief executive of Henry Schein Inc., a provider of dental products. 

“If you talk to people on Wall Street who are 35 years and younger, they think it’s the end of the world,” Mr. Bergman said. “You talk to people 50 and over, we’ve been through this many times.”

Managing in today’s economy is complicated because some business leaders don’t have much experience operating during periods of rising interest rates. Wage inflation is also stabilizing, making it a smaller concern than at the beginning of the pandemic, said Annette Clayton, North American operations chief executive at Schneider Electric SE, the European-headquartered energy management and automation company. 

“You’re competing a lot less with an Amazon factory, Amazon distribution center than you were just a year ago,” Ms. Clayton said.

The slower pace of technology hiring has made it easier for other companies to attract workers, she added.

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