IMF Cuts Global Growth Forecast; Global Growth; European Shares Up; Volatile Day for the Dow
RICHARD QUEST, HOST: A topsy-turvy day. The Dow was heavily down, then it rallied back up again. And when the gavel is hit by "The New York Times," we're essentially flat --</s>QUEST: -- on Tuesday, it's the 20th of January. Tonight, we're in the snow, and the growth is slow. The IMF revises down economic growth. Also, income inequality, it is staggering. We'll be talking about that this evening. Live from the World Economic Forum, I'm Richard Quest, and of course, I mean business. Good evening tonight from Davos. The stage is set. The World Economic Forum has begun, and it started with all the grandeur and gravitas that only Davos and WEF knows how to produce.</s>QUEST: Ah! That's one of the best openings of the forum I've ever seen, Andrea Bocelli, the singer there. With that, the WEF is open for business. "Nessun Dorma," None Shall Sleep. And on this program tonight, we will not rest until we've brought you the leaders that you need to hear from. We've got them on every key theme of this year's forum. For instance, concern over growth as the IMF downgrades its forecasts. In a moment, you're going to hear from the deputy managing director of the IMF. Fears over falling prices of oil. We'll be live with the head of the UAE's Crescent Petroleum. The question of leadership, with the heads of PWC and IHG -- that's Intercontinental Hotels. And underpinning all this growth, grotesque income inequality. We'll be live with the head of Oxfam and the head if UNI, U-N-I, the global trade union. Now, if that doesn't give you the full Davos agenda, you're watching the wrong program. First, the new warnings about the health of the global economy. The IMF has cut its growth forecast to 3.5 percent for the year. There's a sharp divide. The US is pulling ahead, the vast majority of countries falling behind. The IMF says to boost the economy for falling oil prices, there's a host of risks. These are the risks. Volatility in the financial markets. Just look at what you've seen today, the Dow sharply down, then back up. The Swiss central bank decision to set the franc free sent investors running for safety. Emerging economies relying on oil exporting and hurting. In Nigeria, the naira hit a new low. And in Europe, weak investment is keeping the economy in a slump. The IMF says the ECB needs to go big on stimulus to meet investors' expectations. The IMF's warning came as China's growth slowed down. Min Zhu is the IMF's deputy managing director and former deputy governor of the Bank of China. I asked him why this oil price, down 50 percent, wasn't enough to spur growth.</s>MIN ZHU, DEPUTY MANAGING DIRECTOR, INTERNATIONAL MONETARY FUND: I think oil called down growth, because of both from the supply side and the demand side. From the supply side, it's really -- you don't have macro policy side, you don't have a fiscal space, you don't have monetary policy space to further -- to support the growth. On the supply side, really the key issue is investment is so low. I'll give you one number. You compare today with 2017 -- 2007, in Europe, the investments are 5 percent of GDP lower. Even in the US, investments are roughly 2 percentage points lower.</s>QUEST: Is this downgrade worrying?</s>MIN: It is a worry. We're worrying, in particular, corporate sectors, and people set a lower expectation for future growth, which were transformed into the even lower growth.</s>QUEST: Has a cycle begun that's going to be very difficult to stop?</s>MIN: It's very unclear. We don't have very much demand-side space. We don't have a demand policy. So we need to move into the supply side to break the cycle. I think this is absolutely important.</s>QUEST: The supply side, of course, governments are -- central banks are printing as much money as they possibly can. You've got higher interest rates coming along. You've got the ECB, perhaps this week. So, the supply side's doing quite as much as can be done.</s>MIN: No, the demand side has tried in the past. As you say, the central banks printing the money.</s>QUEST: Right.</s>MIN: And the fiscal policy is very much in neutral now.</s>QUEST: Yes.</s>MIN: Instead of cutting a few years ago, they tried to maintain space. But the growth today is really from the productivity from the supply side, from the investment side. From structural reform to make, for example, the labor market more flexible. From the productivity increase in service, in product market. I think those are the key areas.</s>QUEST: China's numbers. China's numbers today. They were better than expected, they were worse than they should be.</s>MIN: Well, several points. First, it's not too bad. I think it is lower growth for good reason. We forecast China's growth this year to be even lower to 6.8. And it's for good reason, because China needs an internal rebalancing, which means reducing investments and do the structural change, push up the service sector. In the process, growth will slow.</s>QUEST: So, the IMF is not concerned at this slowdown in China, and believes its manageable?</s>MIN: We think it's for good reason. We think a slowdown is good news if China pushes the growth into the high-level, whereas the big stimulus policies were a concern.</s>QUEST: The deputy managing director of the IMF. And later this week, putting it crudely, you're going to hear from his boss. Christine Lagarde, the MD of the IMF, will be on this program on Friday to wrap up our week- long coverage from the World Economic Forum. Joining me now is Gillian Tett, who we're always delighted to have, the US managing editor at the "Financial Times." Lovely to see you.</s>GILLIAN TETT, US MANAGING EDITOR, "FINANCIAL TIMES": Great to be on the show. And hey, you're surviving the cold weather.</s>QUEST: Well -- you haven't got a coat. I should have taken my coat off.</s>TETT: I've run to be here with you, Richard, so there you go.</s>QUEST: I'm blushing.</s>QUEST: Gillian, look. The IMF's downgraded growth today.</s>TETT: Yes.</s>QUEST: Just a tad, and it's expected. But it says that oil prices cannot -- the falling oil is outweighed by these adverse reasons. What's going wrong?</s>TETT: Well, what's going wrong is not so much the fact there's growth or not. It's the composition of growth. And that's what's really worrying here in Davos, which is ironic, because we're here at the play central of the elite, if you like. But they're increasingly reason there's growing fracture across the landscape. In Europe, you'll see increasing political polarization. In America, you're seeing increasing complaints about the way that growth is distributed. The rich are taking more of the gains than the poor. And that's really weighing on sentiment here.</s>QUEST: So, in that environment, do people expect things to go really, seriously wrong? I know we had the SNB last week with the Swiss franc, and we've had Denmark, and of course, Norway and Sweden will follow on. We've got to -- are people really thinking people could turn -- overturn again?</s>TETT: Well, you have to look on the bright side. This is not 2009, where people were panicking about a global meltdown and financial crisis. There is a sense that actually things are growing. And remember, although the IMF downgraded the growth outlook, it's still projecting growth of 3.5 percent or so, which really isn't that bad. The problem, though, is that people don't really see where the growth is going to come from in the future. And of course, you do have a moment of tremendous geopolitical tension. And yes, oil is providing some boost. But it's also hurting the oil producers.</s>QUEST: Net-net, it's better for us.</s>TETT: Net-net, it's definitely better. We spend -- what? -- $7 trillion a year globally on energy. If that becomes cheaper, net-net, it's better.</s>QUEST: We need to talk about the State of the Union tonight. You've going to be up late --</s>TETT: Absolutely.</s>QUEST: -- I suspect, listening.</s>TETT: Unfortunately so, yes.</s>QUEST: As the US managing editor of the FT. Look, this tax cut that President Obama is planning to pay for by tax increases, let's be honest, he stands no earthly chance of getting it through a Republican Congress.</s>TETT: This is political shadowboxing. It's laying down a marker. But it plays absolutely to the themes that they're talking about in Davos, which is the question of how growth is distributed. And I've just come from a dinner -- I've run to be here -- but I've come from dinner where there were a number of CEOs who are really angry about the kind of language that President Obama is using, saying this is just stoking up more class warfare.</s>QUEST: But they're top 1 Percent. They're part of the 1 Percent.</s>TETT: Well, that is part of the tension, it's part of the dialogue right now.</s>QUEST: Right.</s>TETT: And that's a concern.</s>QUEST: Come and join me over at the QUEST MEANS BUSINESS Risk Map.</s>TETT: And guess what? I'm much shorter than you, Richard.</s>QUEST: Right. Don't worry about that. Put your dot -- what's the one -- Karl Schwab went for three yesterday. What's your one area that you think is the biggest risk? Where are you most concerned in 2015? You can have one.</s>TETT: I can only have one?</s>QUEST: Yes.</s>TETT: OK. I would say --</s>QUEST: Make it two because you're Gillian Tett.</s>TETT: All right. OK, thank you. France. What happens in next in terms of whether or not France can actually get its act together growth- wise --</s>QUEST: Right.</s>TETT: -- is going to have crucial implications for the wider eurozone.</s>QUEST: All right.</s>TETT: And secondly -- it's not original, but I think China has to be watched very carefully.</s>QUEST: Add it on.</s>TETT: We have data today which came out a lot slower than expected, and there are people wondering about whether China can actually carry on providing the engine of growth.</s>QUEST: All right, thank you very much, indeed. China. You get two. Now, see, this is going to be a theme of the week --</s>TETT: And I realize, I put a circle, not a dot. That's me being freethinking.</s>QUEST: Don't worry -- you can be freethinking. Many thanks, indeed. Lovely to see you.</s>TETT: Thank you. Good to see you.</s>QUEST: You can go back to dessert and coffee now.</s>TETT: I gladly will.</s>QUEST: Thank you very much, indeed. Now, European shares climbed on Tuesday on expectations that the ECB may move further and harder than had particularly been thought. As the share prices, as you can see on the Xetra DAX was up just a tenth of a percent, the CAC was up as well by 1.1 percent. Zurich SMI up a third of a percent. US stocks ended almost completely flat following a volatile session. Our digital money correspondent from CNN Money, Paul La Monica, joins me now. Paul, what we've seen is down 140, up some 20, back to just about flat, up 3.6 percent. What drove the market?</s>PAUL LA MONICA, CNN MONEY DIGITAL CORRESPONDENT: Yes, it was a crazy day. I think a lot of it had to do with earnings, as you point out. We were in the red most of the day, eked out some gains there. Johnson & Johnson, big Dow component, the strong dollar is hurting their revenue, and I think that's going to be a theme that we're going to see with a lot of companies this earning season. But then you have things like cheaper oil, that's helping a lot of companies, too. Delta surging on really strong results, and their CEO said they can save more than $2 billion this year because of lower fuel costs. So, you have that kind of war going on right now, where some multinational companies are hurting. Others loving the cheaper oil prices.</s>QUEST: All right, Paul. I'm going to let you have one place on the map. Where is your big risk premium for 2015? Where are you most worried? I will put it on the map for you.</s>LA MONICA: Thank you --</s>QUEST: What country or what --</s>LA MONICA: -- that's very gracious of you.</s>QUEST: Go on.</s>LA MONICA: Again, it's not being original, but I think it has to be China. A prolonged slowdown in China is bad news for Europe, and by extension, the US. I hope --</s>QUEST: All right.</s>LA MONICA: -- people are talking about decoupling being a myth in Davos.</s>QUEST: Paul, we'll -- you're on the map, now. Many thanks, indeed. Paul La Monica joining us for that. When we come back in just a moment, the executive director of Oxfam, who is with me -- you are with me. Thank goodness. Anyway, Winnie is here. She's going to talk about inequality, bad for global growth. What she plans to use her influence at the forum to force change. We'll be talking to you after the break.