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People losing trust in future; rising pessimism leads to less consumption, and less investments: Klaus Schwab

Countries which are capable of creating innovative infrastructure to tap the entrepreneurial force of young people will succeed

twitter-logoJoe C Mathew and twitter-logoRajeev Dubey         Last Updated: October 4, 2019  | 20:20 IST
People losing trust in future; rising pessimism leads to less consumption, and less investments: Klaus Schwab
Klaus Schwab, chairman of World Economic Forum

Gloomy days are ahead for the global economy, but the global economic slowdown is unlikely to result in a deep recession, Klaus Schwab, chairman of World Economic Forum (WEF) told BusinessToday.In. The deceleration of the global economy is more because of interrelated reasons that reinforce each other, but technology does offer solutions, he adds.

In an exclusive interview to BusinessToday.In on the sidelines of India Economic Summit organised by the WEF in New Delhi, Schwab said that the slowdown was bound to happen as the global economy has been on a phenomenal upswing cycle caused or prolonged by the qualitative easing. "We had an artificial driver in global economic growth rates in many countries. The ammunition we had for monetary easing is coming to an end", he said, adding that even fiscal policy interventions in the current situation may not necessarily lead to an invigoration of the economy.

"Another factor (for the slowdown) is that people are losing trust in the future. You have trade wars, you have rising populism, and you have Brexit. I would also add what WEF published in the beginning of this week in our Risk Report, you have increasing environmental risks, and rising sea levels. In the past, people were always optimistic about the future, now you have a kind of tipping point where people have become much more pessimistic and rising pessimism leads to less consumption, and less investments", he explains.

According to Schwab, the global economic growth rate may come down to somewhere between 1 and 3 per cent, but will not fall below zero per cent. "I could foresee a kind of cooling period of 1 to 2 per cent of global economic growth", he said.

Schwab says that if one embraces progress in the right way, it will offer many opportunities and create jobs "If we make people, particularly the young people move on the entrepreneurial (journey), if we integrate them into a system of innovation, of creativity, I think there will be lot of self employment. Countries which are capable of creating innovative infrastructure to really force the entrepreneurial force of young people will succeed".

Commenting on the trade war between the US and China, Schwab said that the trade war, which seems likely to continue, could lead to a two circled global economy, one circling the US and the other one around China. "The question before India is whether the country should belong to one of those circles or not as China is now the manufacturing place of the world and India is aspiring to be the manufacturing place of the world. But I am not sure whether (Chinese manufacturing base will shift to India)", he says.

Schwab believes that the companies shifting base from China will rearrange the supply chain by either looking for very low-cost manufacturing countries repatriate production through complete automation to their home countries. "I am not sure if India should rely on catching such companies. I think India should rely on using its young sophisticated population, using its unique digital advantage of big data" he says.

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