🏔 Davos conundrum

Plus: China diplomacy | Tuesday, January 17, 2023

Open in app View in browser   Presented By Deloitte   Axios Macro By Neil Irwin and Courtenay Brown · Jan 17, 2023 Today, Courtenay brings you the latest from high in the Swiss Alps at the World Economic Forum. Neil, meanwhile, is minding the store at Axios World Headquarters in Clarendon, Virginia. Today, we look at the tension between the doom-and-gloom talk of global "polycrisis" and what business leaders are actually saying in Davos. Situational awareness: Manufacturing activity in New York plunged in December, according to the New York Fed's Empire State survey, to the lowest level since spring 2020 and the fifth-lowest ever. The business conditions index fell 22 points to -32.9. Gulp. Today's newsletter, edited by Javier E. David, is 601 words, a 2.5 -minute read.     1 big thing: The maybe not-so-turbulent twenties Illustration: Sarah Grillo/Axios   Much of the high-level discussion at the World Economic Forum in Davos this year centers on the sense that this is a uniquely ominous moment in global economics and geopolitics. Yes, but: That doesn't quite jibe with the tone we've heard from many of the business executives on the ground in Davos. Why it matters: Many key indicators have come in better than forecasters anticipate in recent months. Inflation is showing real signs of slowing, and workers continue to benefit from a still-tight labor market. Meanwhile, the Ukraine war remains bloody and disruptive, but has not spiraled out into a global conflict. Energy supplies have held up in Western Europe, contrary to fears of a cold, dark winter. And the United States and China are, if anything, starting to have more diplomatic engagement rather than less (more on that below). What they're saying: Meanwhile, among political and business leaders, the tone is less bleak than the polycrisis talk might imply. "It does seem to be it's a bit of a conundrum," Tim Ryan, the U.S. chair of PwC, told Axios. "Inflation and the new global order, whether in Russia, Ukraine, and Europe — they're worried about those things. But individually, companies are doing well." In an interview with Axios, U.S. Secretary of Labor Marty Walsh (attending Davos for the first time) said a slowdown will appear "in sectors of the economy. I don't think it'll be the entire economy." Meanwhile, CEOs cite a number of factors — including closer-to-home supply chain investments, still-healthy demand, flush corporations and consumers, and a rock-solid labor market — that could blunt the impact (or head off) of a slowdown, at least in the U.S. Perhaps most striking is the extent to which corporations plan to hold onto their staff, even as they brace for some kind of slowdown. That was one of the most notable findings of an annual chief executive survey by PwC presented to reporters last night (with a side of champagne). The bottom line: Plenty of risks lie ahead — some known (like the possible ongoing shortages of labor and other supplies) and some unknown. Go deeper.     A message from Deloitte Don't just dream it — build it     Unlock technology as powerful as your vision and push the boundaries of the possible with Deloitte. Our practiced human experience combined with innovative technology can help you build tomorrow — today. Let's build the future together. Learn how Deloitte can help you Engineer Advantage.     2. Yellen's China diplomacy Chinese vice-premier Liu He. Photo: Stefan Wermuth/Bloomberg via Getty Images   Treasury Secretary Janet Yellen is planning high-level economic diplomacy with China tomorrow, suggesting a potential thaw in geopolitical strains. Driving the news: Yellen plans to meet with Vice Premier Liu He in Zurich Wednesday. She will be en route to Senegal, Zambia, and South Africa; Liu is attending Davos nearby. It is the first meeting between Yellen and a Chinese counterpart since her stint at Treasury began, It's part of a broader effort by the Biden administration to open more lines of communication with Chinese leadership. State of play: U.S.-China relations broke down during the Trump administration, and remained chilly during the first two years of the Biden era. But Biden and newly reelected Chinese leader Xi Jinping met on the sidelines of the G-20 summit in Bali in November, and pledged to cooperate more on areas of common interest. Between the lines: There are deep divides between the world's two largest economies that aren't going away anytime soon. But the White House is seeking to ensure open lines of communication to prevent disputes from boiling over unnecessarily. China holds $910 billion worth of U.S. Treasury debt, and will likely be attuned to how things play out in anticipated debt ceiling brinksmanship by House Republicans later this year. The Biden administration is also weighing whether to narrow its executive order clamping down on investment by U.S. companies in China, Axios' Hans Nichols reports, and is considering loosening some Trump-era tariffs on Chinese imports. Go deeper.     A message from Deloitte Let's build the future together     In the business world, you can either build your own future or bet on someone else's. Stay a step ahead with the latest innovations in technology and the thinking to help you transform what's next into what's now. Don't just bet on the future, build it. Learn how Deloitte can help you Engineer Advantage.   Are you a fan of this email format? Your essential communications — to staff, clients and other stakeholders — can have the same style. 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