This world should sink: D&G in DC
Nope, Dolce & Gabbana did not have a fashion show in Washington, D.C. I wish they had, though: Fashion models could have mitigated the doom and gloom I felt after attending conferences all day Saturday.
Investment banks use the Annual Meetings of the International Monetary Fund and the World Bank Group as an opportunity to make an impression with their clients by holding their own events on the side – usually on the weekend. They invite well-known academics as well as IMF economists, policymakers and government officials to discuss different countries and topics.
I attended nearly a dozen different sessions of three banks from dawn until dusk on Saturday. The impression I got was so sour that I began to mumble Turkish arabesque singer Orhan Gencebay’s famous song “this world should sink” at the Banks Association of Turkey’s reception that night.
Not that the conferences I attended earlier in the week were especially optimistic. But the banks and their guest speakers took pessimism to a whole new level. They were extremely negative on European growth. They felt that the European Central Bank was not doing enough. They also believed that the ECB needed to be supported by fiscal policy – which, they felt, would not happen.
As Financial Times columnist John Authers recently noted, commodities “are a truth-teller for the global economy, as they are the first place where shifts in supply and demand show up in prices.” There was a lot of discussion on exactly what that truth was. Although oil prices have been “weighed down by abundant supplies and further indications of slow global economic and oil demand growth,” according to the International Energy Agency, the emphasis was on the latter.
With regards to supply, some mentioned shale’s impact on U.S. production. Others highlighted how the shale gas revolution was bringing down energy costs of companies there. In fact, the U.S. emerged as the only island of hope. But some argued that it would not be able to achieve a sizable recovery on its own, and that even if it did, that would not feed into Europe and the rest of the world.
The mood was equally sober for emerging markets, with the weakness in metals used as proof of the weakening Chinese economy. The fragilities I had written about during my recent visit to the country were mentioned by many, but the mood was equally poignant for other EMs. The tiny batch of optimism, if any, was geared toward EMs like Mexico that were implementing structural reforms, or at least showed the political will to do so.
But I should remind you that optimism had ruled at the annual meetings last year. In fact, as the conferences were winding down on Saturday, German Finance Minister Wolfgang Schaeuble told journalists that Germany would respond to its slowdown by shifting government spending from public consumption to investment – not exactly what the IMF has been recommending, but still a good sign. The ECB could get the fiscal help it needs, as Harvard University Professor Larry Summers argued, after all.
So maybe, this world should not, and will not, sink, after all. I should perhaps be looking at economic models instead of wishing for fashion ones.