Lagarde warns not to relax vigilance
International Monetary Fund chief Christine Lagarde said in the closing moments of the annual gathering in the snowy Swiss ski resort on Saturday that she recommended the "do not relax principle" for the coming year.
Where for the two previous years a sense of crisis had hung over the World Economic Forum, the mood was sunnier in 2013 as speaker after speaker said they were now cautiously optimistic.
"I feel the circumstances in which I'm addressing you today are very different than 12 months ago," said Italian Prime Minister Mario Monti in his opening speech, following a torrid year dominated by the euro crisis.
European central banker Mario Draghi, meanwhile, hailed 2012 as the year the troubled single currency was "relaunched", even as others were hailing him as the man who had saved the eurozone from catastrophe.
The Chinese economy's slowdown seemed less serious than a year ago to the participants, while the step back from the fiscal cliff in the United States also eased minds.
But as the 2500 world leaders, financial officials, tycoons and journalists departed, they may have felt a chill that was not just down to the subzero temperatures.
Ms Lagarde said the IMF's forecast of a "fragile and timid recovery for 2013" was based on "eurozone leaders, the US authorities and the Japanese authorities making the right decisions".
"And that's what I mean by 'do not relax' because some good policy decisions have been made in various parts of the world. In 2013, they have to keep the momentum," she said.
As in previous years, the Davos forum was partly hijacked by external events, particularly after British Prime Minister David Cameron vowed to hold a referendum on European Union membership by the end of 2017.
The move threatened to cause a stir, with Mr Cameron's European counterparts worried about the effect the uncertainty would have on the euro's fragile recovery, but they left any rows for another day.
The turmoil in the Arab world also took centre stage for a time as Jordan's King Abdullah II and others urged action over Syria's civil war, though none came.
Amid the cocktail parties and lavish luncheons, there was sometimes a "mood of complacency", said Axel Weber, the chairman of Swiss bank UBS and former head of Germany's Bundesbank. "My biggest fear is that 2013 could be a replay of 2012, another lost year," he said. "We haven't really fundamentally improved that much."
Frequently Asked Questions about this Article…
At Davos Christine Lagarde urged a "do not relax" approach, saying the IMF viewed 2013 as a "fragile and timid recovery" that depends on eurozone, US and Japanese leaders making the right policy decisions — so policymakers must keep the momentum.
A fragile recovery, as described by the IMF at Davos, implies ongoing uncertainty and potential market volatility. The article suggests investors should stay vigilant about policy moves and global events because continued recovery depends on decisions by major economies.
European leaders struck a cautiously optimistic tone: Mario Draghi hailed 2012 as the year the euro was "relaunched," while Italy's Mario Monti said conditions were very different from 12 months earlier — signaling improved, but still cautious, sentiment.
Several participants noted a mood of complacency could be dangerous. UBS chairman Axel Weber warned 2013 could be a replay of 2012 — "another lost year" — arguing that fundamentals hadn't been fundamentally improved despite brighter sentiment.
Delegates at Davos pointed to two developments that eased worries: China's slowdown appeared less serious than feared, and the step back from the US fiscal cliff reduced immediate uncertainty for markets.
Speakers highlighted risks such as UK Prime Minister David Cameron's pledge to hold an EU membership referendum (which could create uncertainty for the euro's recovery) and continued turmoil in the Arab world, including Syria, which remained unresolved.
Very important: the IMF's fragile-recovery forecast explicitly depends on eurozone, US and Japanese authorities making the right decisions. Davos commentary stressed that good policy choices are needed in 2013 to maintain momentum.
The key message for everyday investors from Davos was cautious optimism combined with vigilance: the recovery appears underway but remains fragile, so pay attention to policy decisions and major geopolitical developments rather than assuming stable conditions.
Call 1300 880 160
Start a chat
Schedule a call
