What will the delegates of Davos encounter next week? The global elite who gather at the World Economic Forum’s annual meeting are vilified for paying lip service to the most pressing issues of the day without coming close to solving them.
At least poverty will be high on the agenda this year after Winnie Byanyima, the executive director of Oxfam International, served as one of the co-chairs who set the tone of the discussions.
What is plain is that the gap between the top and bottom of society is stretching out mercilessly, and although “redistribution” is a buzzword of Ed Miliband’s election campaign, no one at home or abroad has any idea how to reverse the trend that has left half of the world’s wealth in the hands of the top 1 per cent.
There is another sharp divide that will be exposed, this time among those flitting between plenary sessions and the coffee lounges, not between super-rich delegates and everyone else left at home. This line of longitude bisects the Atlantic Ocean and speaks to the concerns of the International Monetary Fund chief, Christine Lagarde, about “lopsided” global growth.
That the American economy is powering away is not lost on European executives who regularly travel Stateside. One reports that touching down in New York or Seattle is like visiting another world. The confidence of US corporate leaders has strayed into arrogance. So much for a globalising economy; the slowdown in Chinese growth is seen as a battle won, not a sales opportunity lost.
You can see the buoyant mood in US capital investment figures, which are sharply up. Even better, energy prices are down and the country has a sure-footed banking system that is continuing to stave off calls that some of the biggest institutions, such as JP Morgan, should be broken up.
If you also consider that Capitol Hill is gridlocked – with very little new legislation expected to be passed as the 2016 presidential race gears up, and President Obama having lost traction with Congress – then you can see why business is booming.
North Sea looks vulnerable while oil price is becalmed
Cheap oil is here to stay. The Saudi Arabian oil minister Ali al-Naimi, who convinced Opec not to shrink output as it faces off with the American fracking fraternity, remembers events of 30 years ago all too well. Then, Saudi Arabia cut production in half to support the oil price, just as US and North Sea production took off. It learnt the hard way that it was beneficial to protect its global market share at all costs. This time around, the Saudis’ pockets are deep enough so that others, such as Russia, will be squeezed.
The oil industry can be hopeless at forecasting demand. From 93 million barrels a day this year, some experts believe the 100-million barrier will never be broken. That is more a comment on the technological advances that make engines more efficient than it is on the prospects for big economies such as China.
The key question is how elastic is supply? We are starting to see oil majors such as BP down tools and lay off staff. Ironically, they are the operators that can best cope with lower prices for longer. Smaller companies such as Tullow Oil, which this week wrote off $2.2bn (£1.4bn) as a direct result of the oil price collapse, are less insulated. The oil services group Schlumberger surprised investors yesterday with the depth of its cuts – around 9,000 jobs, amounting to 7 per cent of the workforce – as it gets a grip on costs. The legendary Standard Oil chief John D Rockefeller once described such a shift as a “good sweating” to restore balance in the industry after it had run away with itself. Riggers left twiddling their thumbs onshore would disagree.
In the long run, production will fall, as will the temperature between warring oil factions, and the price will rebound. But George Osborne knows that, in the short term, the future of the North Sea is on a knife-edge. Some operators may consider this a good a time as any to pull out of a dwindling asset for good.
Philips was making up ground. But Morrisons couldn’t wait
It was always going to be a long way back for Dalton Philips, the boss of Wm Morrison who became the latest executive casualty in the unrelenting supermarket war this week.
Morrisons has half as much market share in the affluent south-east of England as in the country as a whole and looked vulnerable as soon as the economy weakened. It got distracted by a silly foray into childrenswear and was underdeveloped in areas of convenience and online. It’s just under two years since I interviewed Mr Philips in Ealing, west London, to mark the group’s first convenience store opening in the capital. While it was trying to catch up with the rest down south, all those Aldis and Lidls opening along the M62 meant it was being rugby-tackled in its northern heartland like never before.
Mr Philips’ renewed drive for sales volumes first, value later, looked odd to begin with but appeared to have started rebuilding Morrisons’ market share. What is interesting is that Aldi-Lidl shopping has become a way of life in the North and Morrisons was learning to cope with it. That revolution hasn’t really happened yet in the South.
When it does, Morrisons’ performance might not look as bad. For my money, it makes Sainsbury’s the most vulnerable of the big four supermarkets.Reuse content