 Good afternoon, everyone. Hello and welcome to an issue briefing on 2023 explain the chief economist briefing. My name is Sadia Zahiri. I'm a managing director at the World Economic Forum heading the work on the center for the new economy and society. I am joined today to my immediate left by Gilles Mouec, who is the chief economist of AXA. Next to him is Nila Richardson, senior vice president and chief economist at ADP, Automatic Data Processing. To the far end of the panel is Raghuram Rajan, who is the Katherine Dusak Miller distinguished professor, service professor of finance at the University of Chicago. Welcome to all of them and what I hope will be an exciting discussion about what the year ahead may look like in terms of the global economy, both headwinds and some emerging tailwinds. We put out yesterday the forum's chief economist outlook. It surveys about 50 chief economists who are part of a global community who connect with each other every couple of months to see where things are headed and then try to quantify their findings through a survey that tells us what they think the economic outlook looks like. It's a very global view. They come from various different sectors. They come from international organizations, from the private sector, so it gives us a good sense of what is going on globally. A few highlights from that outlook. Two-thirds of the chief economist surveyed consider that a global recession may be likely in 2023, including about 18 percent that consider a global recession to be extremely likely. However, there's about a third that do not expect that to be happening. 100 percent do believe that there will be very low, very tepid growth recession or not. In terms of inflation, there's a very mixed picture, but overall there's a sense that by the end of 2023 we will be in a better place than we were at the end of 2022. Respondents viewed it as extremely likely, so 73 percent somewhat, 27 percent extremely likely, that the patterns of economic activity will continue to be shifting along with the new geopolitical fault lines. In terms of business headwinds, 90 percent expect weak demand and high borrowing costs to exert a significant drag on business activity. And in response, many are expecting that businesses will be cutting costs and potentially also laying off workers. There were some sources of optimism that were also highlighted in the survey. The relative strength of household balance sheets in advanced economies, the relative resilience of labor markets in, again, advanced economies, the growing signs of some inflationary pressures easing, and, again, the relative resilience of some emerging markets as well as, of course, the diverse in some areas. So we'll turn it over to our panelists to tell us more. And Gilles, perhaps I can come to you first. How difficult of a year are you expecting across different sectors, including your own, including widely in financial services? And how do you think some of those cost-cutting measures may play out? Thanks a lot. And thank you for inviting me in this panel in such a distinguished environment. Actually, I'm not sure that there is going to be that much distinction across sectors in 2023. For me, we have something which is more macro, definitely macro, and the dividing line, if you want, between businesses might be more their individual leveraging position rather than the kind of sectors to which they belong. Because when I look at the current situation, I'm definitely not in this third of economists who believe we're going to be able to avoid recession. Because 2023, for me, is a kind of mere image of what we had in 2022. In 2022, we had a massive inflation shock with very little impact, actually, on aggregate demand. And what was obvious in all the surveys we're getting, until late, actually, into 2022, is the ease with which companies could pass the increase in input prices to their final customers. So who actually bore the brunt of inflation shock? In most cases, consumers, fortunately for us, in most cases, they had nice savings buffers to avoid most of the shock. And in many, many cases, at least where the fiscal space existed, it's governments which pay the price of inflation shock. Those buffers are being reduced in 2023. And cost cutting, yes, I think is going to be a must for a number of companies. And I was talking about this dividing line across the leveraging position. It's as if for the last 10, 15 years, at least from a macro point of view, we haven't had to think about it, the sort of aggregate leveraging position of the corporate sector. Not because debt was not big, but because we kind of knew that central banks would always do the right thing in a way, at least from the market's point of view. This is gone. So we are now seeing a situation where refinancing gaps are widened. And we're going to find a number of companies in 2023, which are going to be squeezed between, on the one hand, the fact that the capacity of demand to continue cushioning the shock of high-input prices is going to diminish. And the other side of the question, the fact that they're going to be asked to pay a lot more for their finding. Of course, in the last few weeks, last few months, this is my last point, things have improved a bit. We've seen actually a loosening in financial conditions. You were asking about the financial sector. Well, there's a sort of generic improvement in the last few weeks, last few months. But the question we may ask ourselves is whether this loosening in financial conditions is lasting. And I don't want to preclude what my colleagues are going to say. But if we are not, if we haven't reached the point where the endogenous engines of inflation have started to switch off, then central banks are going to deliver more tightening than what the market is pricing right now. And if central banks deliver more tightening than what the market is pricing right now, there will be more squeeze on the corporate sector. So I'm afraid that I don't have a superbly positive picture to draw for 2023, even if there are some blue elements of blue sky, but we'll probably come back to that later. Great. Thank you so much. Neela, similar question to you, perhaps a little bit of a view across various sectors and geographies, but specifically so the labor market. There was a very mixed opinion coming out of the outlook with a sort of equal 50-50 split as to whether things will remain as resilient as they currently are in labor markets. Over to you. So thank you for the question. Thank you for the invitation to be here and to share with you. You know, we said at ADPs paying about 40 million workers. And so we have a very strong perspective on wages. And what's important about these resilient labor markets in the context of higher inflation is that historically it was the labor market in which central bank policy was delivered. And there's this narrative out there that the way to get an attack in inflation is through two ways, housing or labor markets. Unfortunately, neither is playing along right now. Labor markets, and I'll stick to labor markets for your question, are incredibly resilient in many advanced economies, certainly in the United States. Labor shortages are profound. In fact, I think what's interesting in regards to our outlook for next year is not necessarily the effect of resiliency on 2023, but the effect of labor shortages that will be persistent over the next decade. For example, in the United States, employment, the workforce is likely to grow half the rate in the next decade, as it did in the previous decade. And these labor shortages are not just in the United States. They're in many advanced countries. And if you look at the developing world, they're in many sectors of the developing world, like technology and software development. So this isn't going away. And why it's interesting to inflation is inflation has morphed over the last two years. It's not just supply shocks and energy shocks. It's also inflation in wages and services. That leads some to believe that the workers are in the driver's seat. They are not. That myth unravels when you look at real wages, which have declined for the first time in a century. So we're looking at a worker who is feeling the conflation of many things in the global economy, higher in my view, more persistent inflation, though moderating, higher than our baseline going into the pandemic, slowing slower growth, economy, multiple geopolitical risks, and climate change, all affecting the worker. And then for the worker to stay in a relatively resilient position, it means robust wages. That means central banks don't get to use the labor market and the pain to the worker as a tool for inflation containment. Workers, I think wages stay relatively robust, but unfortunately may not keep up with inflation. So it's really a race. Will inflation moderate first? Or will wages moderate first? And in every country, that race will be won by a different actor. In my view, in the U.S. and in many advanced countries, I think it's a dead heat. It's a tie. But in some places around the world, workers will continue to lose ground to this cost of living crisis. And I think that's a concern not just for this year, but for several years to come. Thank you, Nila. Ragu, what are policy makers to do in this situation? That's the $64 trillion question, right? I think, as Nina just said, look, policy makers at this point are looking at labor markets and trying to see, certainly central bankers are looking for some labor market slack to give them confidence that they can pause. The problem, of course, is every time there's a hint that they may pause, financial markets take off and financial conditions become easier. And so at this point, I think many central banks are saying we can't pause until we actually see the labor market slack. And that's going to take them quite a ways into tightening. And here the problem really is that, you know, there could be cliff effects here. People aren't laying off workers because they fear it'll be very difficult to hire them back. They've just been through a period where it was very difficult to hire. And they're saying, well, maybe let me wait and see. And the problem is once you see others laying off workers, then you may say, oh, there's enough slack. Let me also lay off and you get a much bigger downfall in employment than the central bankers want. That's one. But Nila also talked about the housing sector. And there also what you see in the U.S., certainly, is there are no sales going on, but prices haven't dropped. And part of what's going on is nobody wants to sell their house because they can't buy a house at these high mortgage rates. But once people are forced to sell because they lose their job, then you might see prices dropping. And so then you see the downturn in house prices and everything else that accompanies that. So the worry is central banks will have to go further than they would ideally like to, just to make sure it's once and done. But if they do go further, there's the risk of these cliff effects, which means we go from a mile to a not so mild recession. And of course, last point to Jill's point, a lot of firms extended maturity during the pandemic. And that was partly because you didn't know how long this was going to last. Let me push out my debt. And central banks have made it easy to get really long-term debt. But a number of companies couldn't risk your companies. There have been very few bankruptcies during the pandemic. Those guys are going to start showing up. Eventually, the guys who pushed out their maturity is also, if their business is on doing well, will start showing up. So once again, things will start showing up over time, not just now. Now, is it all doom and gloom? Not necessarily. I mean, if Mr. Putin decides to end this war, fantastic. Then there could be a lot of upside. China, its recovery, could be a potential upside for the global economy. And we can talk about others. But I will say that at this point, central banks will probably go a little further than they want to, because they don't see the effects of their actions. And do you think that lag would still lead to that potential cliff happening within 2023, which is what we're focused on here today? Or do you think it's further out? No, I would say it would be surprising to me that we wouldn't see a pause sometime in 2023. I mean, of course, the labor markets are betting not just a pause, but actually a cutting of interest rates. I think that's overly optimistic at this point. But certainly a lot of the action will happen this year, because we still have 12 months to go. Okay, thank you. We're about halfway through our session. I'm going to open it up to just a couple of questions from the audience. Please state your name and move immediately to your question. And that will keep us moving along in this discussion, which is fairly brief. Any questions? Could we give a microphone to the gentleman? I thank you very much. It's a microphone on. Okay. I am Ken Jee from Nikkei. I have two actually two questions, one to split question. Mr. Rajan, you mentioned about how China could be a positive factor in this session or in our question. Would you please elaborate on that, especially after the Chinese latest GDP just came out and how much of a possibility that China's growth or China's coming back opening up would have a positive effect? And then the same part of the question, what about India? Could you just mention on the how India could play a role in this? Thank you. Okay. Well, obviously, China is working its way through the pandemic and from all signs, it's having horrific effects there. But that also means that it will be behind them and the fear of disruption through lockdowns will be again something in the past. So there will be a Chinese recovery later this year, possibly, you know, maybe even as early as March, April. Now, I think Chinese households are obviously very, very, you know, at this point, risk averse. They will not go out and spend as if there's no tomorrow, but there will be a pumping up of Chinese demand. We already seeing some sort of push out in terms of tourism demand. That will help the global economy in sustaining demand. The question, of course, is how inflationary will the Chinese recovery be? Now, you know, some of that will be certainly in services and Chinese services. And in that sense, it will not, you know, go out. There will also be the effect of Chinese production coming full scale back, which will help in the disinflationary impact in the rest of the world. As you know, goods prices have been coming down and full Chinese production will help. So it could be a mixed bag as far as the inflationary consequences. But as far as demand goes, it certainly will be very positive for the world when China comes back. As far as India goes, I think India is trying to strengthen the growth of its economy. You're seeing a fairly strong push up in India's service exports at this point, and it could do far more. You see a lot of Indian firms trying to expand their reach. I think the argument that India will substitute for China is very premature. India is a much smaller economy than China. But I think over time, especially if India undertakes the reforms that it needs to, that some of them are on the cards, I think it could be a much bigger player. It's now the fifth largest economy, and it certainly has a growth path, which hopefully will strengthen over time. Thank you. Nila, Orijil, any views on the same question around the outlook for China in India? I'll just make a couple of points here. Totally, I think the answer you just received is a very fulsome one. The only others that I'd add on is there is an indirect effect of China's recovery in that its role as a passageway to other parts of the Asian world. So it's not just about selling and buying to China. It's about selling and buying through China and how that effect spills over to the APAC region in its entirety. And I think that important trade function and facilitator function does impact and could be part of the global growth story. Secondly, I'm excited by India's resilience and a lot of domestic challenges and global challenges that the world is grappling with. And I think not perhaps in 2023, but I do agree with the comment that they provide in future years a really good platform for global growth in the future. And when I look at India, especially the skilled workforce in the tech sector is where I would point to as someone who's looking at segments of the working population around the world, there's some real big bright spots there. I'll add Brazil really quick, even though that's not part of your question in terms of tech hub bright spots that could lead to future platforms for worker growth and skill development. Jill? Yeah, just to point maybe on the timing horizon for China, because yes, the reopening obviously is going to be forced down the road and Q4 2022 might have been the bottom. But for the time being, China is experimenting with something we haven't seen in actually in a lot of other countries, which is reopening while still having quite a lot of pressure on the healthcare system. So we need to take a bit of time maybe for the next few months to see exactly how domestic demand in China is responding to this very unique situation. Thank you. Question here? My name is Thomas Seifert from Wiener Zeitung on Austrian daily newspaper published in Vienna. My question is a more general one, but of course already happening in 2023. We saw that resilience today is more important than efficiency. And maybe you can elaborate a little bit on that, what it means. For instance, what it means for the tectonic shifts, tectonic plate shifts in the world economy, meaning trade patterns, investing out of China, redirecting it to other places, because some had made not good experiences with being based in China and so on. So maybe you want to let a little bit elaborate on that issue. Resilience versus efficiency, where are we heading to? Thank you so much. Okay. Which one of you would like to start with that question? I can take a, go ahead. Okay. I'll be brief. I think it's no longer a choice between resilience and efficiency. Resilience won that argument during the pandemic. Over the 10 years that preceded the pandemic, there was a lot of easy choices for companies and central banks. Of course, extend your debt maturities. Of course, borrow for central banks. You could have really low unemployment rates with 2% target inflation. Of course, maybe even negative inflation. No harm, no foul there. And then when it came to supply and trade, you were able to have just-in-time inventory without a risk. I think those days are over. I think if you look at even climate and its impact on the supply chain, workers and people shocks and labor shortages, it wasn't just about producing goods. It was getting them off the boat and onto a truck. There weren't skilled workers or even unskilled workers to do that. So all of this added up together means that we're not in a world of nirvana efficiency. We are in a world in which the only hope is through resiliency. Raghu? Well, I entirely agree with that. I think firms are coping in maybe four ways. One, they're building buffers, more inventories rather than just-in-time, just-in-case inventories. Diversification. Everybody is looking for a China plus one, China plus two strategy. Not moving at this point, but just in case we have to move and let's start situating some production there that we can ramp up if there need be. Flexibility is a third one, which is do I need every part as is or can I innovate around some part? So for example, when there's a chip shortage, Tesla sort of reprogrammed so that it could use different chips from the ones it normally bought. So that flexibility people are trying to build into their supply chains. But I think the fourth is perhaps the most intriguing. They're trying to plan for worst-case scenarios. What happens if, right? And we all know what those worst-case scenarios are. And so my sense is certainly companies are very much more aware of what they need to do. In terms of movement on the ground, very little as of now. You don't see it. But if in terms of what next, in terms of investment, it's fully on their minds. It's not going to be the same old investment since in the past. Just a quick point on this, which is that I would not want to leave the impression that this is a free lunch. The shift from efficiency to resilience comes with a cost. And the cost might be actually structurally high inflation. We should not forget that. We managed to kill inflation in the 1980s, yes, because of Paul Volcker and the trade policy, but also because we opened up our economies massively in which the beginning of globalization. If we actually get into some form of de-globalization, which seems to be the case, even if we have to be circumspect, sorry, there's a price to pay. And I was intrigued last year to see that, at some point at least, it seems that the US administration hesitated with possibly repealing some of the custom duties which had been levied on Chinese products simply because the US was in the middle of major struggle with inflation. And these two issues are intertwined. And I'm also intrigued by how in the current message we get from central banks, this idea of de-globalization is used as an argument to go, as Ragu was saying, maybe a little bit too far in their quantum of tightening, because it's one of the sort of structural forces which may help them to say, look, inflation is not going to return to 2% easily. Okay, thank you. I'll take one final question here at the front. We'll keep the question and the responses very brief, because there's a final round of comments we'd like to fit in in the next few minutes. Okay, thanks so much. It's Fifi from C in BC Africa. Could I just get the panel to a comment on the colour of recession that you are forecasting, just in terms of how deep it is and how long it does last. And also, against that backdrop, what does the outlook for the continent look like, just given that a lot of the economies on the continent are still expected to grow? Who would like to start with that? How deep is this recession? I can start. I've been very grumpy so far, so I'm going to be a bit positive. We have a very shallow recession, actually. That's our main expectation. One of the reasons being that we have a number of catastrophes that did not materialise. If I focus on Europe, for instance, three or four months ago, the consensus you there was that we might have to deal with a sudden stop in our energy supply that did not materialise. It's early days. We still have a few more weeks of winter ahead of us, but so far we are avoiding this sort of deeply unpleasant scenario. Another thing which makes us believe that a shallow recession is on the cards is that, at least in the US, the central bank is in control of things. To some extent, what we are facing is sort of engineered recession. It's something that the Fed wants to do. Same thing, if things get out of control, if the recession gets too deep, the Fed has the power to reverse quite a lot of that power. So shallow recession only. Great. I'm going to agree with you since you're at the forefront of pessimism. I would just point out that I do think that the recession would be shallow in most parts of the world, not every, but what would be persistent is slow growth. That's really, in my mind, even worse than recession because slow growth can last for a very long time. When I think about the impact on the continent, if you look at the three drivers of what could be a recessionary. It's the war in the Ukraine. It's a higher interest rate policy that slows growth in advanced economies. And it's the COVID-zero policy, thankfully being unwound in China, but the effect on China. And then there's this fourth one that we haven't talked about, the spillover to other parts of the world, whether it means the higher cost of debt, the food and energy crisis that is really impacting a lot of the world in terms of hunger and famine and poverty, but also places of resilience as the world looks for other places and spaces to grow a workforce now remotely possibly and to invest in technology. There's a benefit there too. So near term, some of these risks are a spillover. Longer term, I think there is a positive outlook and encouragement in terms of how the world restructures itself post-pandemic. Yeah, no, just to Africa itself, I think the big issues are fuel, food and interest rates. All three impacting many African countries. And I think it's difficult at these times. Now, this is where China with its commodity intensity can help the commodity producers, but it can hurt the commodity users. And you have both in Africa. So I think this is going to be, it's going to be a tough time. And what is important is the developed world pay attention to what's going on elsewhere. I think there are huge forces under play. We've already talked about climate change. If these all developing countries have had a bad pandemic, add to that the forces of climate change, the impulse then is to migrate. And of course, there's very little sort of receptivity to migration in industrial countries. So we have a very volatile mix. And that's why it's very important to pay attention to what's going on and to help where possible, perhaps with financial through financial means. Thank you. We have a minute, and I'm going to ask each of you very, very briefly to tell this room the silver linings. Where are the bright spots in 2023? Some of you referred to those already. If you could just have a quick recap of what those are. Raghu, perhaps with you first. Well, I think technology is going to be the source of bright spots if we use it well. I think there is the scope within industrial countries of spreading activity. Not everything needs to be in New York or San Francisco, and that's happening. I think it can be also across the world. A lot of services can be provided from Nigeria or India or Philippines to the industrial world. Service exports is the next big frontier if we can break down the barriers. And it'll help both the industrial world as well as the emerging world. Thank you, Nila. Diversification is just another addition to the previous comment. Diversifying supply chains, diversifying a workforce, diversifying a skill set, and thinking of the globe as a mosaic in which to draw from. I think that is a silver lining. And it wouldn't have been possible without having this horrific event of the pandemic that caused people to rethink business as usual. And I think that's where you're going to see the excitement come in terms of the global economy. Thank you, Angel. Labor market. Obviously, the resilience of the labor market is a problem for central banks and for inflation. But if you compare with the 1990s recessions when we had actually central banks also engineering recessions, we usually did that from a starting point for the employment rate, which was already very high. So we ended up with persistent mass unemployment. This is not the starting point we have right now in the developed world at least. And that's a reason to be hopeful in particular that the recession, the looming recession, is not going to have too deep an impact on the political situation of our nations. Thank you, Gil Moek. Thank you, Nila Richardson. And thank you, Raghuram Rajan. Thank you to the audience in the room. And thank you to our live stream audience.