January 26, 2011 / 8:11 PM / 7 years ago

DAVOS-UPDATE 4-Cautious CEOs count on BRICs for growth

* Amid uncertainty, CEOs looking to emerging world

* Inflation and political risks could spoil party

* Concerns about unemployment, rising inequality (Adds Swiss president, Schwab, Moussa, Medvedev)

By Paul Taylor and Catherine Bosley

DAVOS, Switzerland, Jan 26 (Reuters) - Global business leaders pinned their hopes on roaring growth in emerging markets at the start of the annual Davos forum on Wednesday but rising inflation and political risks cast a long shadow.

Executives and political leaders at the World Economic Forum (WEF) said surging food prices could spark fresh social unrest and pointed to geopolitical tensions on the Korean peninsula and over Iran’s nuclear programme, as well as unrest in Egypt.

“The gap between rich and poor is growing ceaselessly,” Swiss President Micheline Calmy-Rey said in an opening address, lamenting that poor countries were not benefiting enough from globalisation.

The captains of industry and money mostly sounded upbeat after two years in which global financial and economic turmoil curbed their swagger and made the annual talkfest of the rich and powerful almost contrite in tone.

“This meeting shall be a meeting of constructive optimism,” WEF founder and president Klaus Schwab told the inaugural session of the 41st forum, urging global leaders to shift from fire-fighting to innovation.

But several CEOs were more cautious, pointing to numerous risks which could yet derail the fragile global revival.

“Interest rates are zero today but they can only go up and higher interest rates will drive financing costs up as well,” John Krenicki, chairman and chief executive of GE Energy and vice chairman of GE told Reuters.

“It’s not just inflation in energy but steel, cooper and general commodities.”

The four-day Forum in the Swiss Alps brings together at least 35 national leaders, including the presidents of Russia and France, and over 1,400 business chiefs. The number of participants from India and China is bigger than ever.


Nobel prize-winning economist Joseph Stiglitz said Western economies were more likely entering a period of malaise than recovery and voiced concern about some of the hubris at Davos.

“The euphoria that you hear from some quarters is because part of the world is doing very well and most of the multinationals are involved in that part of the world that’s doing very well,” Stiglitz told reporters.

“But Europe and the United States are not out of the woods. Unemployment remains intolerably high,” he said.

Resurgent inflation is stalking many developing economies.

Reports in China suggested new bank lending has surged in January, prompting fresh government measures to contain property price rises. India raised interest rates on Tuesday, warning that higher food prices could become entrenched if steps to boost output are not taken..

Nor is the threat confined to the emerging world. Euro zone inflation exceeded the European Central Bank’s two percent target for the first time in two years last month and Bank of England Governor Mervyn King warned on Tuesday that UK inflation could hit five percent soon.

Martin Sorrell, head of the world’s biggest advertising group WPP, put global economies into four divisions in terms of growth prospects: The BRICs -- Brazil, Russia, India and China -- in the top category, followed by the United States and Germany, then the rest of Western Europe, with Japan last.

“Net-net I think corporates are still uncertain,” he said. “Boards are terrified of making mistakes.”

Unprecedented protests in Egypt against President Hosni Mubarak’s 30-year rule in the wake of this month’s “Jasmine Revolution” that ousted Tunisian president Zine al-Abidine Ben Ali were a hot topic in the corridors of Davos.

Arab League Secretary-General Amre Moussa, a former Egyptian foreign minister, said reform was the only way to meet Arabs’ aspirations to a better life.

“The Arab citizen is angry and we feel broken as citizens. Reform is the name of the game, and reform has to happen now all over the Arab world,” he told Reuters.

In the coffee area, a group of Gulf Arabs jabbed their fingers excitedly at a stream of news pictures of the unrest on an iPad tablet computer -- the Davos gadget of the year.


Before delivering his keynote speech to the Forum, a sombre-looking Russian President Dmitry Medvedev held a minute’s silence in memory of the 35 people killed and 100 injured in Monday’s suicide bombing at Moscow’s busiest airport.

“Those who committed this atrocity...were hoping to bring Russia to its knees, to force us into a defensive position,” Medvedev said. “They just hoped that the President of Russia would not come to this forum.”

“They miscalculated. Russia knows its place in the world.”

Flaunting his iPad on the platform, Medvedev said he was often tempted to respond immediately to misperceptions about Russia that he read on the Internet.

He also called for the inclusion of the BRIC currencies in the International Monetary Fund’s special drawing rights, a global unit based on a basket of developed nation currencies.

With emerging economies accounting for almost 40 percent of global consumption, a slowdown in these economies “would deal a serious blow to the global recovery,” the IMF said in an updated World Economic Outlook released on Tuesday.

Europe’s festering debt crisis was another nagging worry for policymakers but also for otherwise chipper CEOs in Davos.

“It’s an uncertainty that is out there and it could potentially stifle the recovery efforts,” said PwC Chairman Dennis Nally.

But European Central Bank President Jean-Claude Trichet told Reuters Insider television that a resolution of the debt crisis was “a work in progress” and suggested the euro zone’s rescue fund be made more flexible and able to buy sovereign bonds.

Trade unionists and some executives cited high youth unemployment, worsening labour conditions and growing inequality as threats to social stability in the developed world.

For full coverage, blogs and TV from Davos go to www.reuters.com/davos (Additional reporting by Ben Hirschler, Natsuko Waki, Amena Bakr, Dmitry Zhdannikov and Paul Carrel; Editing by Michael Stott)

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