MacroScope

The programme may strike a different  note -- this year's Davos is apparently all about Shared Norms for the New Reality -- but much of the discussion at the 41st World Economic Forum annual meeting in Davos this month will have a distinctly familiar ring to it.

Last January, the five-day talkfest in the Swiss Alps was dominated by Greece's near-death experience at the hands of the bond market and recriminations over the role of bankers in the financial crisis, as well as worries about China's rapid economic ascent and a lot of calls for a new trade deal.

Fast forward 12 months and not much has changed.

Ireland has joined Greece in the euro zone's intensive care unit and Portugal and  Spain are getting round-the-clock monitoring. The annual round of bankers' bonuses is once again stirring up trouble. China looms larger than ever on the global stage, after overtaking Japan in 2010 to become the world's second-biggest economy. And trade ministers who signally failed to make headway last year say they really must get down to business when they meet on the sidelines of Davos this time round.

For a sense of the deja vu, take a look at the WEF's latest hot-off-the-press report on Global Risks -- a 50-page tome on the spider's web of interconnected threats now facing the world. Not much progress in addressing them has been made, it seems. Government debt and the danger of sovereign default remains top of the risk hit-list, alongside macroeconomic imbalances, the fragility of the economic recovery and resource limits. It is a very similar litany as a year ago.

Worryingly, while the threats remain all too visible, the report's authors conclude that the world is now uniquely vulnerable to any further shocks in the wake of the financial crisis.

Some fascinating data about the growing power of emerging markets, particularly the BRICs, was on display at the OECD's annual investment conference in Paris this week. Not the least of it came from MIGA, the World Bank's Multilateral Investment Guarantee Agency, which tries to help protect foreign direct investors from various forms of political risk.

MIGA has mainly focused on encouraging investment into developing countries, but a lot of its latest work is about investment from emerging economies.

This has been exploding over the past decade. Net outward investment from developing countries reached $198 billion in 2008 from around $20 billion in 2000. The 2008 figure was only 10.8 percent of global FDI, but it was just 1.4 percent in 2000.

Our recent post on the End of Capitalism triggered much interest and comment.  There were plenty of diverse views, as one would expect. But one thread that came out was that what we are now seeing is not true capitalism (nor, of course, is it old-style communism). Ok, but what is it?

Anthony Conforti suggested in a comment that we need a name for what is happening,:

The first step in defining a new economic paradigm is coming up with the proper terms…new words to define a new economic environment. As words, “capitalism”, “communism”, “socialism” may now be inadequate to describe the emerging economic reality. We need new nomenclature. Any thoughts?

Hard to imagine with financial markets still buoyant and newspapers full of tales of bonus greed, but there is still the possibility that captialism will end.  At least there is according to prestigious investment consultants Watson Wyatt in their latest study called “Extreme Risks“.

The firm listed the demise of the system of private ownership as one of 15 threats to investors and the global economy that probably won’t happen but which it reckons are worth worrying about anyway. The idea behind the report is that such things as climate change, the break up of the euro zone and war are always worth being included in an investment risk management process.

As for the future of capitalism:

In our view, the most likely scenario is moving along from one end of a spectrum where market is king (minimum regulation) towards the other end, where we could see more onerous regulations and government intervention in, and control of, the economy. The extreme risk, however, is the demise of the capitalist system and the end of the market as the primary means of resource allocation.

Good news and bad news for Africa from the latest take on global risks from the World Economic Forum. Not much danger for most of the continent, it says, from an asset bubble burst. That's the good. The bad, of course, is that this is because there are not many financial assets to bubble. In fact, it deems the overall exposure even to economic risks is small because African economies are not particularly tied in to global markets.

Actually, the report shows that there are two Africas. Mapped by their susceptibility for economic and asset bubble trouble, most African countries are bunched together in a low risk range. But another, smaller cluster, including Nigeria and South Africa, finds itself in much more peril and shares space on the WEF risk map with Western and Eastern Europe.

Good news, in a contradictory sort of way.

Thanks are due to the World Economic Forum for clearly  explaining the interlinked web of misery currently facing the world.  Make what you will of the details in the graphic below -- and if you can, please do let us know! -- but the overall impact really does spell it all out.

This Vonnegutesque cat's cradle, incidently, comes from the forum's new report, Global Risks 2009, released ahead of its annual meeting in Davos between January 28 and February 1. It shows an interlinked world facing a monumental series of interlinked risk, some of which  investors are having to confront for the first time.  Sheana Tambourgi, head of WEF's global risk network, explains the report in this video:

Josef Ackermann, Chairman of the Institute of International Finance and the head of Deutsche Bank, says he’s confident leaders from around the world will take needed steps to bringing normality to the world’s struggling financial system.

“I am pretty sure that the governments will guarantee parts of the whole sale funding and that should actually tell people that there is no risk and you don’t lose money while investing in other banks and I think that is important,” the head of Germany’s largest bank said Sunday.

(more…)