Why Davos was so gloomy: 2019 is impossible to predict

Davos, Switzerland (CNN Business)A year ago, the mood in Davos was upbeat. The global economy was humming, President Donald Trump’s tax cuts were kicking in and a trade war between the United States and China was still just a threat.

Fast forward to this week’s World Economic Forum and the atmosphere could hardly have been more different.
“There’s not much optimism,” said Nelson Cunningham, lawyer and a former adviser to the Clinton administration who has been coming to Davos for 21 years. “But are we too pessimistic? I don’t know, I think the pessimism this year is warranted.”
The week started with the International Monetary Fund cutting its outlook for global economic growth in 2019, the second downgrade to this year’s forecast. The IMF warned of worse to come if the trade war remains unresolved and Britain crashes out of the European Union without a deal that protects business.
“After two years of solid expansion, the world economy is growing more slowly than expected, and risks are rising,” IMF Managing Director Christine Lagarde said at a press conference in Davos on Monday.
She set the tone for the week.
“It’s the lack of certainty that is hurting,” said Cunningham. “If you are a CEO today, looking ahead to the next year — what are tax rates going to be like in a year? What is the US budget deficit going to be like? Will there be tariffs?”

Plenty to worry about

Deutsche Bank (DB) CEO Christian Sewing said China’s slowing economy and the trade war were already hurting Germany’s biggest companies. Chinese executives are worried, too.
“We’ve seen the damaging effect on many of the companies, including Huawei, from the trade war,” said Ken Hu, Huawei’s deputy chairman.
Ning Gaoning, chairman of Chinese state-owned oil and gas company Sinopec, said that Chinese companies are likely to reduce investment in the United States. “They thought they are welcome to invest in another country, and now they realize they are not … welcome all the time,” he said.
Meanwhile, companies doing business in the United Kingdom still have no idea how they’ll be able to trade with Europe after March 29. Warnings of the dire consequences of a disorderly Brexit from Airbus (EADSF) and Ford (F) added to the sense of gloom hanging over Davos.
The fact that the world is running out of time to act on climate change and avert a catastrophic rise in global temperatures also featured prominently.

Has the needle swung too far?

But some executives thought that there was too much pessimism in the corridors of the Davos congress center.
“Last year at this time, people were almost too bullish in 2018. Now when I talk to people, they are almost too cautious about 2019,” said Sewing.
American CEOs in particular should still be pretty optimistic.
“The underlining fundamentals, they are positive, they are strong, there are not many factors to point to that indicate that we are close to a recession in any way,” said Lynne Doughtie, CEO of KPMG in the United States.
And she worries about the danger of being too gloomy.
“We have to be careful that we don’t making this a self-fulfilling prophecy by the negativism when a lot of the underlining data would suggest that the elements of the US economy are strong,” she added.
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