Market uncertainty casts chill over forum's opening sessions

The gloom and uncertainty pervading the world's financial markets was fully reflected in the sombre, nervous mood during the opening sessions of the World Economic Forum in Davos. For the first time since its post-9/11 meeting in 2002, the bears are in the ascendant.

The mood inside the Congress Centre is as chilly as, and rather less sunny than, it is on the ski slopes surrounding this Alpine resort. Even the upbeat US Secretary of State, Condoleezza Rice, telling her audience that "the US economy is resilient, its structure is sound, and its long-term fundamentals are healthy", was not enough to lighten the mood.

Some of the world's leading economists are predicting a recession in the US and – at the least – an extremely sharp global downturn. Many are starting to question the recent conventional wisdom that the "decoupling" of the emerging economies from the US will be sufficient to protect them and the wider world against the "contagion" of a full-blown American recession.

Joseph Stiglitz, a past Nobel economics prize winner and professor of economics at Columbia University, said: "What we have now are the foreseeable consequences of bad economic management". He traced the current crisis back to the White House's tax cuts in 2001, with the predictable problem of Americans being asked to take out mortgages they could not afford being compounded by the Iraq war, soaring oil prices and over-consumption to the extent that the US savings rate fell to zero for the first time since the Great Depression. Mr Stiglitz said "the American economy was sustained on borrowed money and borrowed time", and called for a programme of Federal spending to reduce the risk of a slump.

Stephen Roach, chairman of Morgan Stanley Asia, dismissed the Fed move as a "dangerous, reckless and irresponsible way to run the world's largest economy", and pointed out that the world was still dependent on American consumer spending, which at $9.5 trillion a year far outstrips India ($650bn) and China ($1trillion). Should the US stumble, the world faced "the mother of all recessions".

However, some participants, such as the US economist Fred Bergsten, pointed out that the emerging markets, on a purchasing power parity basis, were now responsible for half of the world's GDP. Even if they slowed by a percentage point or two and Western growth slowed to 1-2 per cent, world economic growth would still be about 3 per cent.

Even so, Davos remained stubbornly focused on the US and signs that the credit crisis is spreading to equity markets and the "real" economy. Few around the Davos Congress Centre would disagree violently with the conclusion from Nouriel Roubini, a New York university professor and prominent "bear": "It's not about a soft landing or a hard landing, but rather how hard a landing it will be."

Click here for Sean O'Grady's Econoblog

News
Ian Thorpe had Rio 2016 in his sights
people
Sport
Thiago Silva pulls Arjen Robben back to concede a penalty
world cup 2014Brazil 0 Netherlands 3: More misery for hosts as Dutch take third place
News
Tommy Ramone performing at The Old Waldorf Nightclub in 1978 in San Francisco, California.
peopleDrummer Tommy was last surviving member of seminal band
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

PROMOTED VIDEO
Life and Style
Several male celebrities have confessed to being on a diet, including, from left to right, Hugh Grant, Benedict Cumberbatch and Ryan Reynolds
life...and the weight loss industry is rubbing its hands in glee
Voices
Spectators photograph the Tour de France riders as they make their way through the Yorkshire countryside
voicesHoward Jacobson: Line the streets for a cycling race? You might just as well watch a swarm of wasps
Life and Style
lifeHere's one answer to an inquisitive Reddit user's question
Arts and Entertainment
'Eminem's recovery from substance abuse has made him a more potent performer, with physical charisma and energy he never had before'
arts + entsReview: Wembley Stadium ***
Sport
Joe Root and James Anderson celebrate their record-beaking partnership
cricketEngland's last-wicket stand against India rewrites the history books
News
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

Day In a Page

Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

How Saudi Arabia helped Isis take over the northern Iraq

A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

The evolution of Andy Serkis

First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

You thought 'Benefits Street' was controversial...

Follow-up documentary 'Immigrant Street' has got locals worried
Refugee children from Central America let down by Washington's high ideals

Refugee children let down by Washington's high ideals

Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
Children's books are too white, says Laureate

Children's books are too white, says Laureate

Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Blackest is the new black: Scientists have developed a material so dark that you can't see it...

Blackest is the new black

Scientists have developed a material so dark that you can't see it...
Matthew Barzun: America's diplomatic dude

Matthew Barzun: America's diplomatic dude

The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

Meet the 'Quantified Selfers'

From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

Five-star reviews are just the opening act for British theatre's first non-white artistic director

Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
Mrs Brown and her boys: are they having a laugh?

Mrs Brown and her boys: are they having a laugh?

When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor
Gavin Maxwell's bitter legacy: Was the otter man the wildlife champion he appeared to be?

Otter man Gavin Maxwell's bitter legacy

The aristocrat's eccentric devotion to his pets inspired a generation. But our greatest living nature writer believes his legacy has been quite toxic
Joanna Rowsell: The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia

Joanna Rowsell: 'I wear my wig to look normal'

The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia
Bill Granger recipes: Our chef gives raw ingredients a lift with his quick marinades

Bill Granger's quick and delicious marinades

Our chef's marinades are great for weekend barbecuing, but are also a delicious way of injecting flavour into, and breaking the monotony of, weekday meals
A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport