Axios AM Deep Dive: New global shocks

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Global economists are warning that once-rare economic shocks may become more frequent.

That was the worrisome undercurrent of conversations among attendees at this week's World Economic Forum in Davos, Switzerland — where some of the world's richest and most powerful people returned in droves for the first full-fledged Davos since 2020. 

Conference organizers dubbed this era the “turbulent twenties.”

Why it matters: As the world continues to grapple with fallout from the pandemic shock and Russia’s invasion of Ukraine, the global economy suddenly is facing massive new disruptions.

Here are some of the top risks discussed this week:

1. The cheap money that defined the last decade could remain permanently in the rearview. 

Central banks plan to raise interest rates to steep levels — and hold them there for an unknown period — to contain still-high inflation, which has created a crushing cost-of-living crisis around the world.

Economists warned this week that once-rare economic shocks may become more frequent. That could keep price pressures persistent, forcing policymakers and lawmakers to respond. But how they will do so is unknown. 

2. How nations should approach the green energy transition — and whether some policies are a pathway to protectionism — is the subject of new, heated debates. 

President Biden's Inflation Reduction Act — praised by many CEOs in Davos for its incentives to speed the U.S. energy transition — is prompting concern among European allies who fear it'll drain investment that would otherwise have gone to them.

"At the edges, the Inflation Reduction Act ... is dangerous because it could slip into [protectionism]," Grant Shapps, the U.K. business secretary, said during a panel.

Hinting at the U.S. law, Ursula von der Leyen, president of the European Commission, said during a speech this week: “There is a need to be competitive with offers and incentives that are currently available outside the European Union."

3. Huge demographic shifts are among the reasons pandemic-era worker shortages are expected to be the new normal. 

That's why some CEOs at Davos say (for now) they plan to hang on to workers — even as they expect to slash costs elsewhere to adjust to a slowing global economy. That sets up what could be vastly different labor market outcomes around the world.

One outlier is the battered tech sector. Microsoft this week announced it would lay off 10,000 employees — the same day CEO Satya Nadella took the stage in Davos.

4.  Artificial intelligence is evolving much more quickly than many — including some in the Davos crowd — anticipated. 

Conversations at cocktail parties and nightcaps were peppered with speculation about how AI will shake up our lives.

Reality check: Given all these risks, the mood among executives — inside the main conference hall and along the icy pathways — was more upbeat and optimistic than you might expect.

Officials from the International Monetary Fund and the European Central Bank said the economic outlook was still bleak — though far less so than a few months ago.

What they're saying: "Davos is a contra-indicator for the world. When it's doom and gloomy, things actually turned out to be pretty good. When everybody's feeling optimistic and galavanting around the Alps, it's time to be concerned," says John Tuttle, vice chair of the New York Stock Exchange (and a 15-year attendee).

1. New global shocks

The globe's political and business leaders are facing a tangled web of risks.

Illustration of a globe with business hands pointing downward, surronded by abstract shapes. 

Deep Dive - Davos 2023

Artificial Intelligence

Global economists are warning that once-rare economic shocks may become more frequent.<ul><li>That was the worrisome undercurrent of conversations among attendees at this week&#x27;s World Economic Forum in Davos, Switzerland — where some of the world&#x27;s richest and most powerful people returned in droves for the first full-fledged Davos since 2020. </li></ul>

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Technology

Europeans lamenting the Inflation Reduction Act

COVID, what? There was little talk of the pandemic. 

2. What was in at Davos — and what was out

Talk of ChatGPT was in. Emphasis on bitcoin was out.

Illustration of two speech bubbles, one with a thumb pointing up, and one with a thumb pointing down, surrounded by abstract shapes.

In:<ul><li>Europeans lamenting the Inflation Reduction Act</li><li>ChatGPT</li><li>Climate tech innovation</li><li>Sidewalk hot chocolate</li></ul>Out:<ul><li>COVID, what? There was little talk of the pandemic. </li><li>Bitcoin</li><li>Government climate policy</li><li>Changing shoes between schleps </li><li>Men’s neckties</li></ul>

Axios AI+

The latest artificial intelligence systems dominated the tech conversation in Davos with a mix of excitement and worries over how they will reshape the future of work.

Why it matters: Past waves of automation have targeted entry-level jobs. But generative AI systems like ChatGPT and Dall-E 2 raise fears for knowledge workers, including those in the C-suite.

Be smart: There are good reasons they call AI a disruptive technology. 

Many jobs will see big changes, with employees likely to share their workflows with an array of AI-driven software bots.

What they're saying: Ad industry icon Sir Martin Sorrell said during a World Economic Forum panel that — although a lot of attention is being paid to how generative tools could reshape creative work — he sees even greater disruption in the lucrative but labor-intensive tasks of buying and placing ads. 

Mihir Shukla, CEO of Automation Anywhere, said his firm's AI software is already automating a host of tasks, such as processing mortgage applications.

Shukla said the technology has found its way into areas he never expected — such as helping overworked nurses in the U.K. monitor patients' oxygen levels during the COVID pandemic, freeing up two hours of work per nurse. "I like to think it made a difference between life and death," he said during a panel on AI and white-collar jobs Friday.

Yes, but: Experts see AI taking over specific tasks rather than replacing entire jobs.

Stanford professor Erik Brynjolfsson said he and his colleagues broke out the tasks required in 950 occupations. AI could handle many of the functions, but not all: "We did not find a single one where machine learning ran the table and could do all of them."  

More importantly, he said, the arrival of AI assistance could help people move into better and more fulfilling jobs.

"Think of how many people are not in the right job and they're living lives of quiet desperation,"  Brynjolfsson said. "They probably have some capabilities that could fulfill them much better, but they're not being matched to it because there's just not the infrastructure to put them in place. And I think that's the real value is getting people to live up to their potential."

Of note: In a sign of just how pressing this topic is, the panel — early in the morning on the last day at a conference where even prime-time sessions had empty chairs — was packed, with a couple of people turned away and forced to watch a live stream from their phones.

3. Davos frets over AI and white collar jobs

The latest artificial intelligence systems dominated the tech conversation in Davos with a mix of excitement and concern.

Illustration of an old computer with a mouth on the screen. 

The latest artificial intelligence systems <a class="gtmContentClick" data-vars-link-text="dominated the tech conversation in Davos" data-vars-click-url="https://www.axios.com/2023/01/19/chatgpt-davos-2023-talk-ai-chatbot" data-vars-content-id="4bffb405-48e7-4b4c-aa55-9425c95d5213" data-vars-headline="Davos frets over AI and white collar jobs" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2023/01/19/chatgpt-davos-2023-talk-ai-chatbot" target="_self">dominated the tech conversation in Davos</a> with a mix of excitement and worries over how they will reshape the future of work.Why it matters: Past waves of automation have targeted entry-level jobs. But generative AI systems like ChatGPT and Dall-E 2 raise fears for knowledge workers, including those in the C-suite.

For much of Davos, Ukraine was one crisis among many — discussed as much for its secondary effects on energy, food supplies and inflation as for the war itself.

Flashback: The war in Ukraine dominated the previous forum, which was held just three months after Russia began its invasion. Even then, Ukrainian President Volodymyr Zelensky told Axios that he worried "Ukraine fatigue" would set in and his country's plight would slip from the top of the global agenda.

The big picture: Although Ukrainian first lady Olena Zelenska had a prime speaking spot and the war featured in several speeches and panel discussions, the Davos crowd seemed more captivated by recession fears, AI and the energy transition.

Chef José Andrés, whose nonprofit World Central Kitchen has been working in Ukraine, warned global leaders at the meeting about the risk of waning attention to the war, as has happened with other crises. Andrés specifically pointed to Haiti, which has long been ravaged by political turmoil, gang violence and hunger, and now a new cholera outbreak.

 "We still see [Ukraine] as an emergency," Andrés told Axios.

Yes, but: Many of the biggest names attending the forum piled into a breakfast Thursday morning that turned into an emphatic call for global attention, action and investment.

In a live interview from Kyiv, Zelensky called on his Western partners to deliver Ukraine "the vaccine against Russian tyranny" — more sophisticated weapons, particularly longer-range missiles. He confirmed that Ukraine would seek to use those weapons to retake Crimea, not just the territories occupied since February.

Speaking at the breakfast, former U.K. Prime Minister Boris Johnson stated definitively that Russian President Vladimir Putin won't use nuclear weapons and lamented that some allies still feared "provoking" him. In an apparent appeal to Germany, Johnson urged, "Give them the tanks."

When Canadian Deputy Prime Minister Chrystia Freeland used an ice hockey metaphor to describe military aid, Johnson quipped, "And tell Putin to get the puck out of Ukraine."

John Kerry, U.S. special presidential envoy for climate, contrasted the clarity and righteousness of Ukraine's fight with his own service in Vietnam, while finance heavyweights including Goldman Sachs CEO David Solomon and BlackRock CEO Larry Fink laid out plans for rebuilding.

4. Davos rallies around Ukraine — but war not sole focus this year

At Davos, the Russian invasion was discussed as much for its secondary effects as for the war itself.

Photo illustration of various Ukrainian people set against background shapes and colors similar to the Ukrainian flag

Photo illustration: Sarah Grillo/Axios. Photos: Spencer Platt, Mustafa Ciftci/Anadolu Agency via Getty Images

Russia

Ukraine

For much of Davos, Ukraine was one crisis among many — discussed as much for its secondary effects on energy, food supplies and inflation as for the war itself.Flashback: The war in Ukraine <a class="gtmContentClick" data-vars-link-text="dominated" data-vars-click-url="https://www.axios.com/2022/05/26/ukraine-dominates-davos" data-vars-content-id="2faeb169-d495-48e5-a6b1-a48c0e76ada1" data-vars-headline="Davos rallies around Ukraine — but war not sole focus this year" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2022/05/26/ukraine-dominates-davos" target="_self">dominated</a> the previous forum, which was held just three months after Russia began its invasion. Even then, Ukrainian President <a class="gtmContentClick" data-vars-link-text="Volodymyr Zelensky told Axios" data-vars-click-url="https://www.axios.com/2022/05/23/zelensky-ukraine-russia-interview-us-support" data-vars-content-id="2faeb169-d495-48e5-a6b1-a48c0e76ada1" data-vars-headline="Davos rallies around Ukraine — but war not sole focus this year" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2022/05/23/zelensky-ukraine-russia-interview-us-support" target="_self">Volodymyr Zelensky told Axios</a> that he worried &quot;Ukraine fatigue&quot; would set in and his country&#x27;s plight would slip from the top of the global agenda.

Aviation accounts for about 3% of global carbon emissions. But its share will likely grow as more people climb aboard unless the fuel source changes. 

Speaking to Axios in Davos, Val Miftakhov, CEO of ZeroAvia, predicted that will happen sooner than you think. His firm held its first successful test of a retrofitted 19-seat aircraft Thursday, making it the largest hydrogen-electric powered aircraft ever to take flight. 

Miftakhov hopes to start delivering planes with up to 20 seats by in 2025 and jets by 2029. He said American Airlines, United Airlines, British Airways and Alaska Airlines have already placed orders. 

It's an ambitious timeline that will require arduous regulatory approvals and new infrastructure at airports. "If we have all these beautiful engines with no fuel at the airports, nobody's gonna fly them," he told Axios.

According to Miftakhov, subsidies under the Inflation Reduction Act will make ZeroAvia's hydrogen fuel-cell system cheaper for operators than traditional fuels on day one. 

Other firms are racing to design and test electric and ammonia-powered planes.

The other side: In a separate interview in Davos, Saudi Aramco CTO Ahmad Al-Khowaiter told Axios the world's largest oil company expects demand for jet fuel and/or synthetic fuels far into the future, though he believes battery power will be useful for short-range flights and hydrogen power for regional flights of up to 1,000 miles. 

Other experts share that skepticism because hydrogen fuel cells are less energy dense than jet fuel.

What to watch: Air travel isn’t the only sector on the verge of a transition. 

A billionaire with big investments in shipping told Axios the industry faces a crisis if the leading firms can’t come to a consensus on how to fuel the next generation of ships, because port infrastructure won’t be able to keep up.

5. Hydrogen plane startup looks to reshape aviation industry

ZeroAvia flew the largest ever hydrogen-electric aircraft this week.

Photo illustration of an airplane flanked by hydrogen atoms against a background of geometric shapes.

Aviation accounts for about 3% of global carbon emissions. But its share will likely grow as more people climb aboard unless the fuel source changes. Speaking to Axios in Davos, Val Miftakhov, CEO of <a class="gtmContentClick" data-vars-link-text="ZeroAvia" data-vars-click-url="https://www.axios.com/2020/12/16/bill-gates-amazon-clean-aviation" data-vars-content-id="37cfbb01-63e7-4aac-843a-299de15cb635" data-vars-headline="Hydrogen plane startup looks to reshape aviation industry" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2020/12/16/bill-gates-amazon-clean-aviation" target="_self">ZeroAvia</a>, predicted that will happen sooner than you think. His firm held its first successful test of a retrofitted 19-seat aircraft Thursday, making it the largest hydrogen-electric powered aircraft ever to take flight.

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Energy & Climate

Want to start a passionate discussion in Davos? Don't bring up supply chains, AI or crypto. Talk about the weather!

Driving the news: The WEF returned to January this year after the pandemic moved last year's event to May. The ice, wind and early sunsets had attendees wistfully remembering verdant alpine flower meadows and casual sidewalk strolls.

❄️ Watch out for the ice! Davos sidewalks aren't salted. The lack of shoveling discipline would get you fined in the U.S.

That's created what IBM vice chairman Gary Cohn calls "the anatomy of shoes." Wear snow boots and switch into street shoes at events? Wear boots all the time? Buy crampons to strap onto regular shoes? Throw caution to the wind and wear heels?

Most executives we hosted at Axios House events preferred summer Davos because of the pleasant weather and lighter packing loads (fewer shoes and no coats). 

⛷️ The winter partisans raved about the skiing and pointed out ... It's the Alps! It's supposed to be snowy and cold!

🏔️ And of course don't forget the scenery: "Before this week I was going to say summer Davos," said Qualcomm chief sustainability officer Angela Baker. 

"But we just walked down from where we're staying — it's probably a 30-minute walk, and it was so beautiful. Like a little Christmas village."  

6. 1 fun thing: summer vs. winter Davos

Left: People walk from the congress center ahead of the WEF annual meeting in Davos on May 21, 2022. 

Left: People at the Davos forum in May 2022. Right: People at Davos this week. Photos:  Fabrice Coffrini/AFP/Stefan Wermuth/Bloomberg via Getty Images

Want to start a passionate discussion in Davos? Don&#x27;t bring up supply chains, AI or crypto. Talk about the weather!Driving the news: The WEF returned to January this year after the pandemic moved last year&#x27;s event to May. The ice, wind and early sunsets had attendees wistfully remembering verdant alpine flower meadows and casual sidewalk strolls.

Good afternoon, and welcome to our Deep Dive from the World Economic Forum annual meeting in Davos, Switzerland. 