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FinanceOff Campus

Finance Friday 29.01.2016

world economic forum
Reading time: 3 minutes

world economic forum

By Nikola Kedhi

“The fourth industrial revolution” was this year’s theme of the annual World Economic Forum. Leaders, CEOs, economists, politicians and prominent figures from around the Globe gathered in Davos, Switzerland to tackle current world issues and discuss future development.

The 46th World Economic Forum brought together an elite group of people from politics, finance, technology and art. Over 40 Heads of State and Government and 2500 participants paid $31.473 on average for the privilege of attending the event. The focus was not simply on economics or politics. It was much larger than that. The world leaders tried to find an answer to one fundamental question: where will all these radical global shifts lead us?

According to Klaus Schwab, founder and Executive Chairman of the World Economic Forum, “we stand on the brink of a technological revolution that will fundamentally alter the way we live, work and relate to one another”. He added that this transformation will be unlike anything the humankind has ever experienced before. After reading these words of great magnitude, several questions arise. Where are we really headed? What do all these changes mean and how will our lives get easier?

This revolution has several aims. First and foremost, to improve the quality of life. It has the potential to increase the efficiency of the products and services provided, while lowering their costs. As Mr. Schwab explained, on the supply side, the introduction of new technologies will change the way services are provided. However, this will lead to a disturbance in the labor market as a great part of the work force will be substituted by the new technologies. Dissatisfaction will likely arise from economic inequality. Those who will benefit the most from such changes will be the innovators and those who will have the foresight to invest in the inventions. On the demand side, consumers will get more involved and as a result will demand greater transparency.

Related:  Editoriale di maggio 2020

An interesting assumption that emerged during the Forum states that “if robots rise, interest rates will fall”. The introduction of new machinery will cause approximately 5 million workers to lose their jobs by 2020 in 15 major developed and emerging economies, reports Bloomberg. As a consequence, wages will drop, and there will be a pressure on consumption and the labor market. As the chairman of UBS Group, Axel Weber, put it, “technological progress will put a lid on how inflation can re-emerge”.

Geopolitical issues were some of the most discussed topics during the three days of the Forum. Participants agreed that the refugee crisis will likely intensify in the coming months and can become unmanageable if not solved as soon as possible. More and more people are leaving the Middle-East, abandoning their war-stricken homes and fleeing towards the safe shores of Europe. This has led to a rise in nationalist and extremist parties, which in some countries have managed to come to power.

Unfortunately, not even the United States has been immune to this phenomenon. Donald Trump, a businessman who advocates the closing of the borders and Bernie Sanders, a socialist from Vermont, are the leading presidential contenders of their respective parties. The growing extremism is a very dangerous threat towards globalization and did not pass unnoticed at the forum. Financial experts and economists expressed their worries about the impact on the global markets and economy if radical parties and leaders continue to gain popularity.

The Chinese slowdown and its effects on the world economy were also among the main concerns for the majority of the attendees. However, most agree that this is temporary and we are not headed towards a financial crisis. Christine Lagarde stated that “a degree of volatility is OK. The market sorts things out eventually.” She added that one of the reasons for the sluggish economy is that financial stability is not yet assured. Financial sector weaknesses linger in many countries. Nevertheless, the long term outlook is very positive. Many important investors and market participants seemed highly bullish while talking about markets and economies.

Related:  Time

The new technological revolution will most likely have a major impact on the fundamentals of the financial world. One of the challenges that remain is how to create a strong and trustworthy financial system so that people regain the trust that was lost in 2008 and has not been regained yet. At least, not fully!

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