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

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
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

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

'Queer saint' who bankrolled artworld giants

British culture owes a huge debt to Peter Watson, says Michael Prodger
Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

Pushkin Prizes brings countries together

Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
14 best kids' hoodies

14 best kids' hoodies

Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk