The closing of the World Economic Forum in Davos leaves some provisional conclusions and among them a major one: the global economy has avoided the abrupt fall that many expected a few months ago as a consequence, above all, of the serious disruptions caused by the Russian invasion of Ukraine.
The reversal of the inflation trend, along with resilient labor markets and better-than-expected GDP growth data in many countries, justify an upward revision of the darker forecasts, and a somewhat more serene attitude towards the future. future.
Other elements help to support a more optimistic outlook, including the reopening of China, which will undoubtedly give new impetus to the growth of the global economy throughout 2023.
However, once the most pessimistic reasoning has been discarded, it is convenient not to underestimate the pending challenges.
From the outset, the inflationary challenge is not over.
A trend reversal has materialized, but the path back to normality does not look like an easy one.
Part of the recent relief is due, in Europe, to the fortuitous circumstance of mild weather, but the specific segment of food prices is cause for concern.
Looking ahead, the probable rebound in China will intensify its demand for raw materials, with the consequent inflationary pressure.
The central bankers are giving clear signals that they consider it essential to continue with the restrictive monetary policies, with the inevitable depressive impact and the strong threat to the sustainability of the debt of the most fragile countries.
If the growth data is better than expected and inflation moderates, this does not mean that the damage caused to the less prosperous classes by the erosion of purchasing power in so many countries is already very substantial.
On the other hand, the geopolitical dimension adds problematic unknowns, between protectionist impulses and movements to reduce Western dependence on China, which have their logic in a strategic sense, but can hinder economic efficiency.
These actions are weighty elements in the new economic era induced by the pandemic and the invasion of Ukraine.
Some players are advancing vigorously, such as India, which benefits from cheap energy prices from Russia and from being considered a reliable country by the West.
China faces the risk of Western reluctance to trade and invest.
In this context, much remains to be done to consolidate a soft landing and ensure that a sustained revival is not too far away.
The monetary authorities have the devilish challenge of finding the exact point of rates that facilitates the cooling of inflation that is harmful to citizens, avoiding excesses that depress the economy.
Political authorities also have enormous challenges.
The main one is to guarantee protection to the most disadvantaged and in multiple ways in a fiscal environment that, in many cases, does not have much room for manoeuvre.
In the citizen vector, this protection will have to be vigorous, but it must be better outlined than has been done up to now.
On too many occasions, generalized subsidies that support already disadvantaged people with resources have been opted for equally, resulting in both regressive and inflationary.
In the international arena, developed countries must become aware that the rise in interest rates is having the effect of increasing the unsustainability of the debt in developing countries, increasing their effort to pay interest and compressing their capacity.
