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OPINION: More cautious Davos dominated by external events

In contrast to the upbeat sentiment last year, the tone at Davos seemed a little downbeat. Worries over euro area growth, the risk of deflation, the threat of conflict and terrorism and rising inequality were all themes.

Premier Li Keqiang of China emphasised his country's growth rate was on a slowing path but would avoid a crisis. Leading economists Robert Shiller and Ken Rogoff talked of a lack of 'animal spirits' or, in other words, collective optimism.

External events dominated proceedings. On Thursday, in a highly anticipated press conference, the European Central Bank (ECB) announced a large programme of quantitative easing (QE). Then on Friday came the news that King Abdullah of Saudi Arabia had passed away. Meanwhile, all eyes were on Athens ahead of a momentous election.

The ECB was widely applauded for taking action (even if too late in most eyes), but the Germans were notably less enthusiastic. Chancellor Merkel was reported to be very unhappy about the path the central bank was treading, while former President of the Bundesbank, Axel Weber, was openly critical. Nonetheless, there was a feeling that ECB action alone would not cure the euro area's ills and an emphasis that structural reforms must be carried out.

US growth better but will rising interest rates cause a shock?

The one region where there was broad agreement that prospects are healthier was the US. But even here, concerns were raised ahead of an expected interest rate rise later in the year. CEO of Deutsche Bank, Anshu Jain, listed a disruptive credit event following a Federal Reserve rate hike as his greatest concern. Similarly, Mark Carney, Governor of the Bank of England, suggested financial markets will experience rising volatility as rates start to rise.

In an echo of years gone by, US Treasury Secretary Jack Lew maintained that a strong dollar was good for the US.

Oil price uncertainty

Most speakers suggested the massive drop in the oil price would boost global GDP, although there remain concerns over deflation and risks to emerging market producers. Chief executives of European oil majors, ENI and Total, warned that low prices and production cuts sow the seeds of higher prices in the future.

Claudio Descalzi of ENI even talked of $200 per barrel of oil within the next decade. Stephen Schwarzman, CEO of Blackstone, said, "Oil is the biggest investment opportunity in the world", predicting consolidation in the sector.

Inequality: lots of talk but no solution

Inequality has become a hotter topic each year and this time Oxfam caught the headlines with the shocking statistic that the wealth of the top 1% outweighs that of the remaining 99%.

Christine Lagarde of the IMF emphasised that high inequality was bad for growth, but there is little agreement on a solution. In a panel debate dedicated to the topic, all participants made valid points. Market forces, globalisation and technology can exacerbate inequality, but then these forces have also raised global living standards in recent decades.

While lauding QE on the one hand, central bankers were accused of increasing inequality. Inequality of opportunity was stressed as the major problem. Oxfam was also keen to point out that big business creates an unfair playing field through its lobbying. Lagarde argued the drop in oil presented an opportunity to cut subsidies and invest in education and job creation.

Gender inequality was also raised for good reason - only 17% of the attendees were female. Emma Watson, actress and UN ambassador, made an impassioned speech, while Carlos Ghosn of Nissan gave an example of how his company is leading initiatives to reduce the gender gap.

Risks

Risks never seemed far away during the debate at Davos. The annual WEF risks report highlighted interstate conflict as the number one risk in terms of likelihood but also highlighted failed states, environmental disaster and cyber attacks. In terms of impact, water crises and disease were the top risks.

Summing up

A gloomy outlook seemed to dominate events at Davos this year, no doubt reflecting recent troubles - the crisis in the Ukraine, terrorist attacks in France and the depressed euro area economy. But this hasn't historically been a very good predictor of what happens in the year ahead, a point noted by Larry Fink of Blackrock. 2015 should in fact be a better year for growth supported by the stimulus of loose monetary policy and a much lower oil price.

The elite at Davos this year were good at pointing out things to worry about. Let us all hope that by this time some of the predominant fears of this year have gone away. The WEF's mission - "committed to improving the state of the world" - is a worthy one. It is in all our interests that it succeeds, even in small degree.

Tristan Hanson is head of asset allocation at Ashburton Investments. Follow him on Twitter: @AshburtonInvest

View the Eyewitness News special feature on the _ World Economic Forum 2015._

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