Newscasts - Georgieva, Lagarde speak at Economic Outlook session, WEF President makes closing remarks

GP Industries

24/01/2025 11:36

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Source: 'Reuters - Business videos'

Description: IMF Managing Director Kristalina Georgieva and President of the
European Central Bank, Christine Lagarde, speak at the World Economic Forum
session “The Global Economic Outlook”.
Short Link: https://refini.tv/3WsxpXh

Video Transcript:

>> Names. Good morning, everybody. Welcome to the grand finale. We end Davos
on a high note here, and I'm so excited and honored to be here. My name is
Sarah Eisen. I'm a host at CNBC. And we are going to have the conversation
everybody's been waiting for, the global debate, and the global outlook on the
economy. Obviously, we have a tremendous lineup here. We have a Faisal Al
Ibrahim. He's the Minister for Economy and Planning in Saudi Arabia. His
Excellency, thank you. Larry Fink is the CEO and founder of Black Rock.
Christine Lagarde is the president of the ECB. We have Kristalina Georgieva,
who is the head of the IMF, and we have the President of Singapore, President
Tharman Shanmugaratnam. Thank you all for joining us. You know, This Davos has
been very interesting. Larry, there's so much optimism around President Trump
and pro-growth policies, and the US outlook. I wonder, as an asset manager and
a risk manager, should we take the other side? Are you worried that everyone's
too excited right now? Larry, got me? >> It's hard to hear. >> Oh, it's hard
to hear. >> This is why we are putting those things. >> Oh, okay. I was just
asking you if there's too much optimism around the US outlook right now and
whether that was worrisome. >> Well, welcome, everybody. Thank you, Sarah.
Now, I can hear you. Is there too much optimism in the US? No. But that being
said, there's a lot there's risk in every economy. I can say much more
forcibly there's too much pessimism in Europe for somebody who's been
pessimistic with Europe for 10 years. My number 1 observation this week in
Davos, the pessimism, I've never felt the pessimism to be larger and more
profound. And I believe it's probably time to be investing back into Europe,
focusing on it. I see all the problems in Europe, but I do believe the
pessimism is too large. There's many things it needs to do. It needs a banking
union and a capital markets union, which I could talk about later on. But back
to the United States. I think all the ingredients for the United States will
be the continuation of its strength, the foundation of its capital markets.
Any entrepreneur, any small company, any large company can find capital. And
that foundation of capital-raising allows much more entrepreneurialism, much
more creativity. And so I believe the US has ability because of its strength
of its capital markets, which is solely really underappreciated, allows it to
rebuild itself, change directions, modify faster than any economy in the
world. And I do believe the economy obviously changes depending on the
political party and the president. But the reality is economy is larger than
any one political party or any one president. Obviously, they could be
additive to any economy, and President Trump's policies, if we were able to
unlock private capital and put private capital to work faster, easier with
less regulation, less time per permitting, it'll allow the US to become less
dependent on his own fiscal problems. And so those are some of the issues that
could be worked out. So now, there's not too much optimism in the US, and
there's probably more to be optimistic here in Europe. >> President Lagarde, I
bet you didn't expect to kick off the panel with a vote of confidence for
Europe because what we've been hearing here a lot is Europe's economy is
underperforming, the Trump factor is going to be bad for Europe. How have you
digested all of this? >> Well, good morning to everyone. But I was going to
say to Larry that if ever you look for a pro bono job, come and join us in
Europe because you advocate Europe in a beautiful way. So given where I am,
the fact that I'm in my quiet period before a monetary policy week decision
coming up soon, I would just like to underscore what Europe is good at. And if
I look at the scorecard at the moment, whether you look at that two GDP, about
80%, overall deficit for the Euro area, about 3%. Inflation, latest reading
2.4, and strong confidence that it's going down rather than up, interest
rates, 3%. Huge amount of talent, huge amount of savings, and a big wake-up
call that is really calling the Europeans to action. So if the European
leaders can actually get their act together, respond to this wake-up call and
existential threat that can be identified, then I think that there is a huge
potential for Europe to respond to the call. I'm also pretty optimistic. I'm
realist about the points that Larry made. We need banking Union, we need
capital market union, we need to keep the talent at home, we need to keep the
savings at home. And maybe it's also time to import a few of the talents that
would be disenchanted for one reason or the other, from another side of the
sea. >> Just quickly, why do you call it an existential threat? Why is it
existential right now? >> Why is it? Well, because as Larry was suggesting, if
you talk to the CEOs, if you talk to the corporate world at the moment, those
that are making major investment decisions, they are not very upbeat right
now. And when you ask them why they are not, they're making reference to the
price of energy, fair enough, but energy costs are going down. Non-fossil
energy is going up in Europe in a significant way. When you consider that
electricity production in the Euro area at least is now 70% non-fossil
originated. They complain about the excessive red tape and the excessive
bureaucracy. That's the wake-up call that we, Europeans, those in
policy-making places have to really take to heart and respond fast to. There
was this great incentive to go and invest in the United States because of the
Inflation Reduction Act and the significant subsidies that were going to be
given to those who invested in the US. I think the IRA has essentially been
removed and that any subsidies under the IRA will not be paid out. So people
are going to have to rethink with the prism of confidence, with the prism of
cost, as is often the case, and the prism of opportunities. And there is no
question that what is happening outside is a challenge, but it's also a big
opportunity for revisiting and deciding whether or not Europe wants to be a
key player. But I'm contending that it has the talent and it has the means,
and it has the ambition. >> Well, we're going to talk about the IRA. And I
know President Tharman has a lot to say about industrial policy. But first, MD
Georgieva, if you could just give us a global overview right now because you
guys just put out your big world economic outlook? And yes, while there's a
lot of optimism and solid growth in the US, it's a little lopsided around the
world. >> Well, great to be on this panel. We published our projections for
'25 and '26 just before the forum. And what they paint is a nice picture with
some undertones. Nice picture because we project growth at 3.3% this year, and
next, this is a slight upgrade for 2025. But under the hood of this average
number, we have very strong performance for US. We actually upgraded growth
projections for US by half a percentage point, from 2.2 to 2.7, and we have
not great European performance, and then we have the rest of the world more or
less a little bit up, a little bit down. The most important message I have for
the audience is to ask the question, why? Why growth in the United States is
so strong? Why growth in Europe is somewhat underwhelming? Why the emerging
markets are not doing fantastically well? And the answer is primarily in the
differences in productivity growth. The US is marching ahead with high
productivity because capital markets allocate money to dynamic firms, because
technology turns into business investment and then it grows into company fast,
and because US has, relatively-speaking, abundant, relatively cheap energy.
And then productivity in the United States, year after year after year is
close to a percentage point. You look at the rest of the world, advanced
economies dropped in productivity vis a vis pre-pandemic times from over 1%
productivity growth, and it pushes growth up, to meagre 0.2% now. Even more
worrisome, in emerging markets, productivity dropped from 2.5% to 0.7%, and in
low-income countries, from two to zero. So my first message is the world is
changing very rapidly. We are experiencing a tremendous technological
transformation. Capital has to have long legs and go where it would make the
biggest difference. And you look at capital, where did capital go with its
long legs? It went to the United States. And if countries want to move
forward, they have to be very aggressive in opening up opportunities for
entrepreneurship. And yes, Europe has to have deep capital markets, it has to
have a unified market that makes it possible to compete. And I want to say I'm
a European, I'm a proud European. As a European, I want to make an observation
in terms of culture. The United States has a culture of confidence, Europe has
a culture of modesty. When I first went to the United States, I went there, if
something is done really fantastically well, my parent would say, not too bad.
That was the highest praise. And in the US, you just move your legs, and
you're fantastic. You blink, and you're great. So my advice to my fellow
Europeans is more confidence, believe in yourself, and most importantly, tell
others that you do. >> Good message. President Tharman, everybody's wondering
how the Trump presidency, which is so focused on economics and has so many
changes from the prior regime is going to change the outlook for their
respective regions and economies. How are you thinking about it for Southeast
Asia, emerging markets, the regions that you follow? >> Well, first, let me
say, and I don't want to be a spoiler here, if we look at all the evidence on
what ordinary people think and feel, they're not feeling good in the US, in
Europe, everywhere in the world. Confidence is down, optimism is down, trust
is down. So our real task is, how do we rebuild the basis for optimism in
today's world? We're not going back to the era when the Bretton Woods
Institutions were formed, we're not going back to an era where Henry
Morgenthau, the US Treasury Secretary said in Bretton Woods, prosperity is
indivisible. Just think about that. Prosperity is indivisible, meaning I can't
prosper unless you are prospering. No nation, even the largest will prosper
unless the rest of the world is prospering. We're not going back to that era.
It's past us. It may have rested on a moment in time when the US had an
unassailable lead and had that confidence to say prosperity is indivisible.
But what we've got to avoid is going to the other extreme of a real zero-sum
world. And there are some tendencies in that direction, but I think we're
nowhere near it. We have to avoid moving in a gradual grinding way towards
fragmentation and towards some breaking up of the world into blocks. It's a
real risk. So what do we do using all the agency we have, the middle powers,
India, ASEAN, Europe, Japan, the international institutions, what do we do in
between those two extremes? Between the unattainable ideal of prosperity being
undivisible and avoiding at all cost a zero-sum world? There's a lot that we
can do, but start from the reality that there are strengths in each of our
nations. Very well described. The US has a unique set of markets and
institutions that drives innovation in a way that no other nation or region
does. And as Christine says, Europe has human capital, and I mean it not just
in terms of expertise, but in terms of values. It's a font of the values that
we admire in today's world. Asia has a desire to keep opening up, to keep
breaking barriers. Asia is still striking FTA deals. And we now have the UK
joining the CPTPP, and there are several others on the waiting list. So build
on these strengths, the desire on the part of most of the world to stay open,
to be interdependent, so that we can all grow. So let's build a realistic
basis for optimism, but starting from a position where people are despondent.
And today's generation of parents has very little faith in their children
doing as well as them. Let's build a new basis for optimism. >> I don't think
you'd have any disagreement on this panel, although I wonder if you have
spoken yet with President Trump or your prime minister has. Have you shared
this view of openness? >> Well, I'm saying something which comes naturally to
a small country. I know of other small countries that think alike, including
small European countries. Being small helps because your basis for doing well
in the world is to be relevant to the rest of the world. You never look inward
and you never get too complacent. You're always trying to find a way in which
you're complementing someone else's strength and someone else is able to
complement your strength. But I don't think that should be the province of
small countries alone. We have no choice but to have that. Cast our mind. I
think it also has to be the way in which the major powers think. If there was
one real positive coming out of President Trump's speech yesterday evening
here at the forum, it was the way he spoke about China and the US. It
suggested a desire for a new understanding and a desire to avoid a continuous
unraveling of a relationship that is still profoundly important for the global
world economy. >> I agree. Your Excellency, two important questions. So in
that speech here at the forum, President Trump called on Saudi Arabia,
specifically in OPEC to lower oil prices. Will you do that? >> So before I
answer this question, I'm just going to comment on what was discussed. I will
get to your question. >> I was going to move on to that as well. >> But I'll
get your question. I think the way we look at the world is in two lenses. One
is data driven to explain to us why we're here, how we got here, where exactly
we are, but also another lens that is more future focused, what is the
potential we need to unlock seriously? If you look at the first lens, like
[inaudible 00:55:04] said, there's tepid growth, but also at the same time, we
the same people talking about tepid growth, are talking about the potential
positive promise of technological advancements and including generative AI.
This economic stalemate needs to be addressed or disrupted. We can't stay
here. Keeping our eye on the second lens, the vacuum is, like we've discussed
probably throughout the past few days, is intrepid leadership. We need
intrepid leadership that is bold, but inclusive, disruptive, but constructive,
ingrained in the long view, like President Tharman said, but also action
oriented today to get us out of where we are. And you see signs of hope or
signs of signals that there are directions or momentum in the direction of
more leadership that is required for us to get out of where we're from. Saudi
Vision 2030 is an example of that. You talk about complacency, President
Tharman, I think every day, day in day out, complacency in Saudi is punched in
the face by Saudi youth. We need to make this transformation count. And every
region, every economy has its own issue to deal with, whether it's Europe and
deregulation, for example, or innovation, the US and the fiscal outlook, China
and this new economic model and whether a shift to consumption drive will
happen, the Middle East instability and the need for more vision 2030s. I
think there are some pressing questions that the globe needs to address, too,
and one of them is energy security or the energy transition. I don't think we
can afford not getting the energy transition story right this time. We need to
get it right. Energy supply, energy security is essential for global growth,
for global prosperity. The OPEC's position is all about long-term market
stability to make sure that there's enough supply for the growing demand and
there is growing demand, whether it's the growing demand we see in the US
alone, whether it's a growing demand that's coming from AI, demand will grow
and we need to make sure we supply energy in the most efficient without
jeopardizing energy supply, without jeopardizing our ability to use technology
and collaboration to address climate change, which is serious. Saudi Arabia is
in the front line. We're in one of the most drought-stressed areas, so we're
serious about climate action and without jeopardizing giving the opportunity
for developing countries and emerging countries fair access to the value of
energy. >> What about your transition? Since you are the minister of planning,
how dependent at this point is the economy on oil? Because the IMF did
downgrade the outlook for Saudi Arabia based on the extension of the
production cuts, and how are you tracking toward your goal of 2030? >> So
Vision 2030 is a long-term restructuring of the Saudi economy. It's not a
short-term campaign. It's not a short-term program. And we look at our GDP
numbers as one of the indicators that tell us where we're going, we care about
the non-oil economy. Non-oil activities today represent 52% of total real GDP
for the first time. It's not everything, it's just a good sign to keep in
mind, and non-oil growth has been steady. We expect to close 2024 at 3.9%,
2025 at 4.8% non-oil growth, and 2026 at 6.2%. And that's what we care about.
The numbers that were revised down are total GDP that includes the function of
oil production and our voluntary cuts. What we really care about is
transitioning from one economic structure that's reliant on resources to
another economic structure that's reliant on productivity, human capital, and
we're leveraging all our assets and capabilities to transition from one to
another. >> One more really quickie because this was also brought up by the
president yesterday. Big $600 billion commitment to investment in the United
States from the Crown Prince. How about rounding it up to a trillion, as Trump
suggested? Is that easy to do? >> I'll tell you that there is a long standing,
strong partnership between the US and the kingdom that lasts so far eight
decades. We've worked very well on important work, global work with all
administrations, no matter which administrations in office. This number
represents investments, procurement, public and private sector, and it's just
a mirror reflection of the strong relationship. What we'll spend in the
economy from the start of Vision 2030 till 2030 is 12 times that number. >>
Well, that might satisfy him. You can't have a global discussion these days
without talking about inflation, or that's been the case in the last few
years, certainly. A managing director, have we put the inflation, genie, back
in the bottle? President Lagarde just sounded pretty optimistic. >> So that is
a very, very good question. Here is the bottle, here is the genie. The head of
the genie is in the bottle. Most of the body of the genie is in the bottle,
but the legs are hanging still out. We need to push it all the way down. And
it is remarkable how much progress the world has made. And I want to say
something that in our worries about today and tomorrow, we not always reflect
on. When we look into the past, over the last decades, every inflation episode
would require interest rates to go up and the response would be inflation
would go down, but at the price of recession. This is the first time so far
when inflation is being brought down, interest rates are still somewhat high,
and yet we have admittedly below historic average, but still quite a positive
growth. We have 3.3%. Historic average was around 3.8. So when we look at the
next stage, if we succeed, to bring inflation down and yet retain the economy
functioning so people have jobs and, as Tharman said, they get more
confidence, that would be a very good outcome. And I want the audience to ask
itself a question, how come this time it was different? What is different this
time? What is different this time is twofold. First, after the global
financial crisis, the world created mechanisms for economic policy
coordination that didn't exist before. We have the G20, we have very active
role of the Bank for International Settlement. Every month central bank
governors get together. We have the IMF using our twice-a-year meetings for
policy coordination. And what that translates into is more consistent
coordination when necessary, but also divergence in policies when necessary.
And the second thing that is different, we have Madame Lagarde in ECB. >>
Larry, I feel like I keep reading headlines. Larry Fink warns of inflation.
We're not done with inflation. Larry's very worried about inflation. Why? >>
I'm not terribly worried. >> Do you think the market's being too complacent
about the inflation story? >> I think the bond market is the best reflection
of what's going on in the world. It is the barometer for every politician, for
every central bank. It really informs us every day the mood of the global
economy. And I believe the bond market is indicating that inflation may be
higher than we think. The genie may be coming out of the bottle. And I look at
this in so many different ways that if you just think about AI for a minute,
in the United States right now, data centers represent about 50 gigawatts of
power. And in the United States, we're estimating alone, data centers will
represent a need 300 gigawatts of power in the next five years to meet the
needs. If you expand that throughout the world, this is my optimism about
growth, but at the same time, we actually are going to have labor shortages
which is going to be driving up wages. I think we're going to see more
persistent wages, and that may be a good outcome, but it's going to be an
inflationary outcome. We're going to have material shortages with all this
building out. And so I think we are somewhat complacent that inflation can hit
us again, but I would also say, if you look at where the bond market was even
a year and a half ago and when we were experiencing very elevated inflation,
we had a very inverted yield curve. The short rates were higher than the long
rates. What we are seeing now is the normalizing of the yield curve, but I
also believe we're going to have a much more steeper yield curve. And that's a
function of forward inflation expectations. And so one of my fears is because
of this complacency and I have not even said the most ugly word that's facing
economies, that's called the deficits and the debt of so many countries. When
you think about the amount of capital that we're going to need to be financing
all these amazing transformations, we have growing deficits worldwide. The
cost of financing those deficits are going to go up. I think the yield curve
is showing you that. And so, I've said repeatedly here in Davos, I could see a
scenario. I'm not calling for it, but I can't see a scenario where we have a
5.5% tenure. >> And really quickly, do you think the Fed's done cutting rates
this year? >> No, they still have room to cut that will create more steepening
of the yield curve. So I think the next few months of data and information
will identify it. I would say to you the economy is very strong. It was very
strong on the fourth quarter. And the evidence that we are hearing from
different corporations that business is strong already in the first quarter,
and you see that in the labor statistics now. So they may pause for another
period of time, and they may ease a little bit. I'm not worried about the
short-term moves, but over the next year if all this materializes, could they
revert and go back up? Possibly. >> Rate hikes. >> A rate hike. I'm not
calling for that, but all I'm saying I see probabilities of that. That's not
my core prognostication. >> I'm trying to get a headline here, Larry. >> I'm
trying to avoid one. >> Very good. Just on the inflation story, not everybody
is feeling inflation right now globally. I think we should mention in the
global context that China has been seeing deflation , Mr. President. And I do
wonder how you assess the Chinese economy right now and the outlook and the
spillover effects globally. >> Well, I think the Chinese will avoid an extreme
downturn. They know what to do. They're measuring the pace of the measures
they're taking to strengthen consumer spending to get past the property market
overhang. They have an extremely complex task of achieving all this in an
economy that's not a fully market-based economy, but I think they'll get
there. Growth might be somewhat slower than hoped, but I don't see a situation
that leads us to a deflationary spiral. More broadly, central banks and fiscal
authorities have made mistakes in the last 15 years that set us on a somewhat
higher plane of inflation for the medium term than we otherwise would be, but
the fundamental advantage we've had for several years now has been two things:
the entry of China and some other parts of the developing world into the
global labor market and global trading system, and countries' willingness to
be able to absorb their products. It's been a tremendous counter-inflationary
force, but we are now past that and we also have now an unprecedented
situation of aging in the entire developed world, the West, Japan,
increasingly China. The US is seeing stagnation in its population even if it's
not coming down, but you've got Africa that's coming out. You've got India
that's still a rapidly growing population. So if you just think about that
fundamental advantage we had for consumers all over the world in having an
international trading system that allowed for emerging countries with growing
populations and growing workforces, and lower wages to be part of a global
economy, how do we now replicate it in the next phase? When we have the added
disadvantage of aging in the Western world and severe labor shortages that
already exist in Europe, for instance, there's already a very severe labor
shortage, South to North. What do we do about Africa? What do we do about
South Asia and some other parts of the developing world? How do we have, if
you like, a global industrial policy so that we can benefit globally from
higher productivity, but also a lower cost of goods for consumers around the
world. I think that has to be an important challenge. >> I think when it comes
to the inflationary outlook, a lot will depend on trade policy with the US and
tariffs. Is anybody on this stage a fan of tariffs? No, no one thinks it's a
good idea. I wonder, Your Excellency, when it comes to the trade battle, the
fact that President Trump has indicated he's going to use tariffs to get
fairer terms on trade or for national security reasons or for negotiations,
how does a country like Saudi Arabia fit in when the US and China, for
instance, have a deeper trade dispute or even a trade war? Do you find
yourself in the middle? >> I think we want to be in the middle. I think the
Kingdom position is to have a strong partnership with all of its partners and
friends, and that's something that is a value proposition of the kingdom that
we want to grow. But on tariffs, I think depending on what objectives an
economy has, it's been used as a tool, so long as it is a objective driven and
time bound. You can and any economy has the right to build resilience or
leverage or give space for the private sector to grow some competitive
advantage or to invest in adding new competitive advantages so that a local
industry can start. So it's really about the details of tariffs, what it would
look like, assessing its impact and then figuring out how to deal with it. The
important thing is to keep dialogue on the table and keep the orderly
respectful discussion going and maintaining it, even if it's been absent for a
while or not where it should be and continue working on it. Kingdom values its
partnership with all of its economy. Since Vision 2030, we've played an even
larger role in more domains than oil and gas, diplomacy and foreign aid
assistance because we understand better through vision 2030 what our economy
needs and society needs for us to unlock its potential. >> Both with US and
China. >> US and China and others. >> President Lagarde or President Trump
yesterday said that the EU does not treat the US fairly on trade and that he
has some big complaints. Is that true? >> This is a true or false question. >>
Is it true that the EU has not affair with the US? >> There is no way I can
say yes or no. What I believe is that he's looking very carefully at surplus
versus deficit in the current account and in the trade balance in particular,
focusing on that. I think that you have to look very carefully under the
Hodders, Kristalina was saying, you have to look at the good exchanges, you
have to look at the services exchanges, you have to look at the capital
account. It cannot just be black and white. What is true is that there has to
be negotiations. There has to be trade relationships that are organized in a
framework that is giving confidence to the partners. It cannot be about
removing all the rules, ignoring the institutions, the world has 190 plus
countries that are members of the IMF, the World Bank, the WTO, 191, and it's
about all of us operating together as Tharman said earlier on. So yes, you sit
at the table, yes, you negotiate. Yes, some countries are in a stronger
position than others, but we all need each other. If there is one thing that
the Europeans have learned over the course of time since the end of the Second
World War, is that you cannot go alone, you have to work together. You have to
respect each other's and you have to understand each other. For that, you sit
at the table and you work and I would not say enough about the strength of
institutions. Any literature that you have about stability, about economic
equilibrium always reminds us that institutions have a huge value and that
frameworks are here for players to know the rules of the game, and whether you
look at trade, whether you look at financial regulations. I know that Basel 3
is in play, but there are values in having frameworks. There are values in all
banks around the world, learning and understanding and appreciating that
having safeguards, having rules visa v each other actually matters and the
best can win. But within a set of rules, that's how the world has to operate.
>> A lot of agreement here in this room. Managing Director Georgieva you don't
like tariffs. You've been warning against trade friction at the IMF. You are
the institution that advocates multilateralism. So what do you do in this
environment? >> What we do is we look at the evidence, and here is what we
find. It actually confirms that Saudi Arabia has the right strategy. We have
been seeing over the last years increase in protectionist measures, tariffs,
as well as industrial policy measures. And we have seen countries gravitating
towards politically aligned countries in their trade practices. And what the
evidence shows is that trade among politically aligned countries is higher
than trade across politically aligned countries. But guess which category of
countries is performing the best, the countries that are friends with
everybody. So there is, in my view, what we are going to see over time is a
reflection in trade and economic relations of a geopolitically changing world.
More regional cooperation, more cooperation based on supply chains, more
engagement that allows countries to achieve their objectives. And in our
institution, we look into how we can support regions. How can we work more
closely with Eisen? How can we work more closely with the Gulf Corporation
Council? So we can provide the analytical and policy encouragement for that
practical cooperation. Look, we were many thousand years ago, just a handful
of people on this planet. Today we are eight billion. How did we get from
there to here? Well, by collaborating and competing, and I think that there is
no way we can wipe out collaboration from the future of humanity. >> On that
note, Mr. President, I thought there would be an applause for that. On that
note, Mr. President trade and industrial policy, as you just heard from the
managing director are very linked. You have some strong opinions here on
industrial policy, I know, please. >> Whether it's tariffs or subsidies or the
other forms of the new industrial policies that are now in the vogue. The fact
is they're being driven largely by politics and geopolitics, rather than by
any powerful new understanding of economics or any new evidence or any
reappraisal of economics. And I think the jury is out as to whether this is
going to succeed in lifting standards of living for ordinary people, for the
middle class, and lifting economic performance for countries. It's happening
by way of drift and tit for tat action. And we're in a very unstable situation
now, quite frankly. So I think we have to take a step back. There is a case
for industrial policy, and it starts from recognizing that innovation is the
key driver for long term growth. And innovation comes from capabilities. So
the industrial policies that have succeeded in the past and I think are still
entirely relevant are industrial policies that involve developing your own
capabilities, R&D, skills, developing cluster synergies amongst firms,
developing your own capabilities rather than constraining someone else's
efforts to develop capabilities. It's about developing your own capabilities
rather than constraining another country or the rest of the world. Because the
difference between the two is that the first spurs innovation and it spurs
innovation through competition and the second stifles innovation and it
stifles long term growth. The second point, which may seem old fashioned, but
it's still entirely relevant and all the evidence still supports the
proposition that global interdependence and some specialization that each
country engages in is good for everyone. You don't have to be a purist, you
don't have to know what Ricardo said, but the fact is, we all do better when
we specialize in what we are good at and develop scale in what we're good at.
And it's very hard to depart from that. The whole history of import
substituting industrialization, which we saw in Latin America, we saw in parts
of the developing world and which we're now seeing in parts of the advanced
world has not been a pretty history. In fact, in general, it has led to
massive inefficiency, which means costs for ordinary taxpayers and big losses,
big losses. So develop our own capabilities, do it in areas where we have some
advantage, some accumulated skills, some potential to succeed and develop
scale and complement each other in an interdependent world. There is a further
very important case today for industrial policy, and that is, we need to find
ways of scaling up action on climate and the associated crises of biodiversity
and a global water cycle that's out of sync, out of kilter. It requires the
public sector. It requires state intervention, to front load investment, to be
able to front load even the demand for new innovations in green energy and all
the other technologies that are going to get us to net zero. If you leave it
to the markets, it's going to take too long, it's going to be too incremental.
And in the meantime, the turning points kick in in climate change and we get
into a much more dangerous world. From time to time, countries will feel they
can put climate action on the back burner. But climate change is not on a back
burner for you or for anyone else. The more we put climate action on the back
burner, the more we burn in future, the more the costs are going to be to
address the situation and the greater the inequality that we're going to face.
So we've got to press ahead with addressing climate change and it does require
industrial policies, involving public investment, involving subsidies,
involving taxation policies so that we build scale early and drive down the
costs for ordinary consumers of new technologies. It's a very important
contemporary reason why we need industrial policy. >> So Larry mentioned the D
word. Debt and deficits. And it's a whole other subject for another panel that
we don't have time to get into. But I am curious show of hands. Since we're
talking about the global economy in the near term, how many of you put high
sovereign debt levels in your top 5 lists of risks for the global outlook?
Everybody. What about geopolitical tensions? Top 5? >> Yeah. >> No, why not
Larry? >> Obviously, it represents idiosyncratic risk, we always have to put
that into your forecast. Look at, if we're going to really grow the economy of
the world, it's not about focusing on really tariffs or all these issues. I
agree with Tharman related to this industrial policy. But all of this, whether
it's the deficits or transforming an economy, it's going to have to be done by
hope. More the global population is hopeful about the future. There's more
consumption in that environment. When we talk about China, what is China. One
of the fundamental problems that China is, it has the highest savings rates of
any major economy in the world, 38% today, as high as 50%. This is why they
have to be more dependent on exports. So for China needs to be developing more
hope within its country and I think they're focusing on this right now. And if
they can do that, they're going to have more domestic consumption. We talk
about Teri, and what do we do about it? I can go back and look at Europe and
say if Europe can solve its own problems, not focusing on the problems that
the US may impose on it, but focusing on their own issues, and Christine
talked about it. It is about opening up the Capital Markets Union, the Banking
Union to make Europe really one single market. It's a myth right now. Europe
is a myth. It's a beautiful myth, but it's not working. It is not working to
compete. >> President Lagarde is going to take back [inaudible 01:26:03]. >> I
know but it's not working relative to the strength of the United States, the
innovation of the United States, the entrepreneurialism of the United States,
the ability to pivot and then if you look at China, it's entrepreneurialism,
it's development. Europe needs to be in the same footing. And here we are now
in 2025 or now 16 years post to financial crisis, and I don't see Europe
moving forward enough. I see Europe still focusing on backward looking too
much. But I do believe all elements are there and that's why I started off.
I'm more optimistic in that to be optimistic, you have to admit your problems.
>> Can I respond to that? >> Final minute. Yes, I know you must respond. >> It
has always been provocative. >> Fair enough, and that's exactly the good point
about now is that it's provocative because I think Europe is not a myth.
Europe is not a basket case. Europe is a fantastic case for transformation.
And I'm going to quote a report that was issued by the IMF, Kristalina. I
agree with you on that, Larry. I agree. If Europe was a single market as it
claims to be, if it was, then it would remove the equivalent custom duties of
40% on its goods transacted within Europe and 110% of custom tariffs on its
services. So I agree with you that it is not operating and functioning as a
single market. I'm not the author of the Letta report. He pointed it out and
Mario Draghi is pointing out what needs to be done about it. The real question
for the Europeans, as I have said, corporates and policymakers alike is, get
on and do it. >> We have we have one minute left, so that means a short
answer, really short, like 10 seconds from everybody. We talked a lot about
the risks, inflation, tariffs, industrial policy, deficits. One opportunity
for growth in 2025 that you're thinking about, Mr. President. >> I think the
most neglected dimension of strategy nationally in most parts of the world is
social policy. You need social policy on an industrial scale, much more than
industrial policy in the narrow sense. And that means maximizing human
potential in every segment of the population. It means finding ways of
recreating social compacts so that people feel some sense of solidarity even
between different ethnic groups, different nationalities. And it means very
importantly thereby building the basis for political consensus to keep
economies open and interdependent. And those three things must go together,
the economic strategy of openness, the social policy of not leaving things to
a social market, but intervening to help everyone uplift themselves, and the
politics that then allows you to carry on being open. If any one of those
fails, each of them falls apart. >> Managing Director. >> Remove the
self-inflicted injuries. There is so much that is on the way of productivity
and growth that comes from red tape, comes from misguided policies, comes from
poor implementation of good policies that has to be taken out. And I know you
say one thing, but I have to say two and make sure that artificial
intelligence is not a privilege of few and not accessible for the rest of the
world. >> President Lagarde. >> I would second what Kristalina just said. I
think that we have not discussed very much artificial intelligence. It's been
much discussed at the World Economic Forum this week, and we are not exactly
certain what the potential is. We think that it's huge. We believe that it is
going to have massive impact, and I think we should make sure that it's used
for good to improving the state of the world and the world for all of us. >>
Larry. >> We spend so much time focusing on all the problems. And when we
discuss problems, we solve problems. So I believe it's a great process
discussing problems we solve problem. But because we solve problems, there
should be even greater hope. The world is better today than it has been 10
years ago and 20 years ago. We lifted more people. There's more opportunity,
there's more technology transformations. Some of it is very fearful, but I
just look back at the last 20 years, and I'm more hopeful today than I ever
been. And it is our responsibility to provide that hope to everybody and lift
more people. >> Your Excellency. >> The reason I didn't raise my hand earlier
is because I think today we have more clarity in what we need to discuss and
resolve, and there is signs of more optimism relative to where we were last
year. So I'd say optimism by choice. Optimism is not just a gut feeling or a
reaction to an environment. It could be a strategic decision. And like any
decision, you can invest and then put in the hard work to make that investment
reap its returns. Number two is putting in the hard work. I think reform and
transformation is not a 9:00-5:00 job. It requires people working night and
day. I was asked by your colleague, Steve, before one of the panels. I don't
know why he asked, but he asked us what extreme sports we play. I blanked out,
which is depressing. But then the first thing that came to mind was Saudi
Vision 2030, not because of what we're doing, but because of the so many young
Saudi men and women who are working 12, 14, 16 hour shifts every day to make
this transformation count. >> Thank you all. And we end where we started with
the optimism, and it's why it's been a really rich World Economic Forum Davos
this year. Thank you all for participating. >> Thank you. >> Thank you. >> And
please stay seated, everybody, because we have two more things. Before we
close everything out, we have a very special, exciting, newsworthy
announcement from His Excellency, from the Kingdom. And then if you would stay
seated right after that, we are going to hear from the World Economic Forum
president. Please. >> I'd like to start by first thanking Professor Schwab,
Borge, and the entire World Economic Forum community for putting on another
hugely successful annual meeting. Last year in April, the Kingdom of Saudi
Arabia and the World Economic Forum hosted a very successful special meeting
in Riyadh under the patronage of His Royal Highness Crown Prince and Prime
Minister of the Kingdom of Saudi Arabia, Prince Mohammed bin Salman. And now,
building on the success of this meeting, Saudi Arabia and the World Economic
Forum are happy to announce that we will host a regular World Economic Forum
global meeting in the kingdom. This is a testament to the global platform for
dialogue, collaboration and innovation that Saudi Arabia has become and that
the World Economic Forum continues to be. This meeting represents a
significant opportunity to further unite the world in capturing the immense
potential that lies ahead. In this critical juncture for the global economy
we're not only inspired by the opportunities before us, but also deeply
confident that our collective efforts will forge a brighter, more inclusive
and more prosperous future for all. We look forward to welcoming the global
community again in Saudi Arabia in the spring of 2026. Thank you very much. >>
Thank you. And now, I'd like to welcome to the stage, the Forum CEO and
President Borge Brende. >> First and foremost, thank you to a great panel.
We're privileged to have thought leaders like you joining us on our last day
and special thank you to my dear friend Minister Faisal. We had also amazing
meeting in the Kingdom and we're looking forward to coming back in the spring
of 2026. I think we all realize during this week that we came together in
Davos at a time of immense consequence and uncertainty. Political,
geopolitical, and macroeconomic landscape, all are shifting under our feet. At
the very moment, the clock is quickly ticking down to meet critical political
priorities. Driving economic growth, reducing carbon emissions, finding ways
to end conflict, all cannot wait. And the only way to progress on these issues
is by working together. But our cooperative approaches may need to adapt to a
new more uncertain era. There is a new political reality that we are faced
with. We will need to be innovative and creative and work with each other even
if we don't see eye to eye on everything. Our week in Davos showed that this
is possible. Leaders from around the world, from the public and private
sectors with different views gathered to show how we can collaborate. Even if
nations do compete and fiercely compete, there will be areas where there is
overlapping in the interest and those areas we really need to strike and find
deals to make the world a better place. I got a list from my colleagues on all
the achievements during this week that I was planning to read because it's
very impressive. But I know that everyone also now are eager to get on with
their business. But I can tell you that there were 50-60 concrete outcomes of
this meeting. Like skills accelerator, upskilling, reskilling. There were
diplomatic sessions about the West Balkans, Myanmar, how US and China can
collaborate better. It was also about how we can strengthen and have more
resilient, also trade and investment moving forward. I'm just sharing some of
this, but we will share on our website all the concrete outcomes. So to close
the week, I think is putting us on a strong course for the year ahead, a year
that will have immense consequences, because the progress we make over the
coming months will not only deliver results in the nearer term, but will shape
our course for years to come. So again, thank you to all our participants.
Thank you for being with us here in Davos and thank you for making our
platform at the World Economic Forum even more relevant in a more fractured
and polarized world. We will try to continue and we will continue to work for
more collaboration and cooperation. Thank you and safe travels back home