A group of participants follows one of the sessions of the Davos Forum this Wednesday. LAURENT GILLIERON (EFE)
This could be inflation, the new cycle of rising interest rates, high levels of debt, food shortages, energy or a new black swan, as these unexpected and unpredictable events are known to have major consequences. But in view of the experiences of recent years, it is certain that sooner or later there will be a new crisis. And the companies and executives in Davos want to be prepared for anything that comes their way.
“Banks have been stress tested to assess their resilience to extremely adverse situations. Now the industry is starting to think about doing something similar to test its resilience,” explains María del Mar Martínez, Global Leader of Risk & Resilience at McKinsey & Company. The financial crisis forced banks to create systems that are now more resilient than those of companies, partly because the stress tests they are regularly subjected to do not exist outside of the financial sector. In fact, due to its strategic nature, the UK regulator of the energy sector has started to prevent possible supply problems.
A lot has happened since the last face-to-face event of the World Economic Forum (WEF), and that weighs on the atmosphere in Davos. The pandemic has tested supply chains in 2020 like few times before, and now they have been stressed again by war, first on the energy side and then on food prices. This is forcing what the consulting firm Accenture defines as a paradigm shift in companies. In one of the reports presented in Davos, he points out that supply chains have evolved from cost optimization to value optimization and in turn to resilience, the ability to overcome traumatic situations or circumstances. Something similar to what United States Treasury Secretary Janet Yellen defined a month ago as the commitment to nearshoring and friendshoring, to local and reliable providers, and what Bank of France Governor François Villeroy de Galhau defines in one Roundtable at the Convention Center on changes arising from the use of supply chains as weapons of war.
Latin America hopes to find a gap in this global reorganization of value chains, as the Latin American presidents openly explained in Davos these days. According to Accenture, 86% of European executives are preparing for changes in their operations as a result of the crisis, and while there is no data, there is evidence that the uncertainty is weighing on US managers who have passed the World Economic Forum (WEF). .
“It is surprising that, given the war at the gates of the continent, pessimism is greater among American managers in this issue,” says a Spanish executive in Davos. “There is no doubt that supply chains are relocating and other changes are taking place that will bring about a new globalization,” said Telefónica President José María Álvarez-Pallete in the Forum corridors. “But that has implications for the costs and inflation to be expected.”
There is no shortage of reasons for concern. What appeared to be a recovery after the pandemic was more or less put on hold is turning into a slowdown over the weeks that risks accelerating if the monetary stimulus correction happens at the wrong pace. “Markets’ optimism shows their commitment to a soft landing and we are working towards that, but central bankers who have failed in the same attempt in the past have also worked for it,” admitted Bank of the Netherlands Governor Klaas Knot on Wednesday. . And a failure to normalize monetary policy can have dire consequences. “While experts agree that a recession will be avoided this year, the combination of Covid and the war in Ukraine has the potential to significantly impact the economy and significantly slow growth,” Accenture sources say. For Citi CEO Jane Fraser, the outlook is worse. “I hope I’m wrong, but I am convinced that Europe will enter a recession. Not in the US because consumers still have $3.4 trillion in deposits and that provides a large cushion,” he asserted in one of his interventions.
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The interest rate correction cycle is directly affecting leverage, which is at a much higher level than it was in 2013, when money last started rising. “Of course we don’t see systemic risks from debt crises, but we do see serious threats in some emerging markets,” International Monetary Fund (IMF) number two Gita Gopinath said in another debate. Another case is Russia, whose default sooner or later is almost certain. “The number of countries directly invested in Russian debt is limited and at a manageable level. Another thing is indirect exposure [a través de empresas]the scope of which is uncertain and which could create additional tensions in the markets,” concluded Gopinath.
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