Caution in Davos

Regarding the perspectives for the international economy, the general feeling at the Davos summit was pessimistic.

Contrary to last year’s constructive view of projections for the international economy, the feeling at this year’s World Economic Forum was cautious and even pessimistic.

The event’s own agenda favored ominous approaches to themes such as globalization and the impacts of the digital revolution, specifically the increase of inequality, the flowering of populism and the ever more pressing risks to the environment.

As if these structural threats aren’t enough, there are short-term challenges quickly arising, as the International Monetary Fund stated in its last economy review for 2019 and 2020.

Watching as the world economy slows, the institution reduced the growth projections from 3.7 to 3.5 percent in 2019 and from 3.7 to 3.6 percent in 2020.

These are minor changes, but the risk of recessive relapse remains, a risk aggravated by commercial conflicts between the U.S. and China, even without factoring in the remaining geopolitical tensions.

In the U.S., although the economy seems healthy with low unemployment rates and good business dynamics, a combination of problems is taking shape.

It seems that the thrust initiated by lowering taxes will burn out, and the scenario of high interest rates and low credit suggests less growth ahead. It is not by chance that the Federal Reserve has already changed its policy and indicated a break from increasing rates this year.

In China, the situation is even more complex. Its gross domestic product grew by 6.6 percent in 2018, an enviable sum, but one which also represents its smallest index since 2008 at the very peak of the financial crisis. For this year, the IMF projects a 6.2 percent growth, if authorities provide any stimulus such as reducing taxes and interest rates.

Since China’s debt is already one of the highest in the world, it has been harder each time to generate an economic expansion without creating further imbalance.

In such context, Brazil looks OK. The IMF increased the 2019 projection for Brazilian growth to 2.5 percent, a 0.1 percent increase from the 2018 projection.

Naturally, everything will depend on political reforms, especially those regarding retirement policies, in order to stabilize public debt. The approval of such reforms, in turn, will depend on how contagious the political crisis created by the president’s son will be.