For most onlookers the World Economic Forum in Davos appears
to be nothing more than a get together for the financial elite at Europe’s most
expensive ski resort. Every year, bankers and hedge fund managers to world
leaders and economists all converge on this small Swiss outpost.
And whilst it may bring an opportunity for newspapers and
sketch writers to poke fun at the size of the bar bills or British Prime
Minister David Cameron making a speech on tax avoidance in Switzerland of all
places, it does not detract from the important debate surrounding the global
economy.
The past few years could not be described in any words other
than disastrous, both for the growth and reputation, but what was noticeable
from the commentary was the idea that we may now be beyond the worst.
This notion may be seen as intangible and outright
outrageous to families living through year-on-year pay freezes and government
cuts. Yet, even in the Euro zone, where unemployment remains high and economic
growth for powerhouse Germany is negligible, delegates now believe that the
structural reforms over the past 18 months have given greater stability to both
the markets and the Euro as a currency. Critics may continue to point to the
overhanging issues of bank recapitalisation, unsustainable level s of
government debt and competitiveness, but even so, the financial milieu gave a
cautious understanding that Europe is now showing slow signs of progress from
where it was in 2011.
Perhaps, most significantly, however, was not talk of
China’s economy slowing down but the growing optimism of the US economy.
The past few years have been one of uncertainty politically
and economically. The onset of American decline or relative decline has been
much spoken and written about. America’s retreat from certain areas of foreign
policy, the rise of the BRIC countries and President Obama’s rhetoric of
relativism towards the notion of American ‘exceptionalism’.
The exhaustive Presidential campaign and an inability in
Congress to negotiate a debt deal have seen many people foretell a bleak
future. America’s huge federal and state debts, the complicated tax system and
ability to collect revenue, plus a sliding education system have only pointed
to regression.
However; the delegates of Davos all have looked beyond that and
have pointed to the energy revolution that may well transform the American
economy. The shale gas revolution could lead America to become energy
independent by 2035 as well as creating 1.5 million jobs by 2015. Last week’s
figures of growing unemployment and a slip in the economy may have been
troubling for some analysts; however these were inevitable following the
aftermath of the fiscal cliff negotiations.
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| Could his re-election leave Obama undeterred for reform? (Guardian) |
In fact, America, despite the first economic contraction in three
and a half years, is well placed to see new growth. As well as its energy
revolution, geographically it sits between energy rich Canada and economically
dynamic and investor friendly Mexico. Consumer spending is recovering after the
past few years, house prices are rising and perhaps most significantly, a point
echoed by investor Warren Buffett, is that US banks are in good health. Since
the 2008 crisis, they have managed to rebuild their capital, payback bailouts
and reduce their risks. This is in stark contrast to many of Europe’s banks
which remain dangerously unstable.
Not forgetting the buoyant stock market and America’s cash
rich companies. If confidence can be sustained, then who’s not to say they will
start spending too and investing in more jobs and projects.
There are medium term issues that Washington will urgently
need to look at, particularly the provision of healthcare and the enormous
strain it places on both the federal and state budgets. As well as unreported
issues like student debt. Washington can no longer seriously continue to
proverbially kick the can down the road. America is well placed, but investors
and bond holders will continue to remain cautious until America finally starts
to deal with its debt.
The most encouraging aspect is that both President Obama and
crucially, members of the Republican Party are willing to thrash something out,
and not just for the short term.
A second term for Obama and the unburdening of electoral
politics may finally allow the President to place some substantive reforms on
the table and see America move the world economy. For Davos, it was the first
time in several years that the perils of the Euro zone and the fiscal cliff
could tentatively be put to one side. Tentatively being the important clause.
They’ll be hoping that next year the only bubbles are from
the champagne.
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