Trump cancels planned Davos trip as shutdown drags on

FILE PHOTO: U.S. President Donald Trump delivers a televised address to the nation from his desk in the Oval Office about immigration and the southern U.S. border on the 18th day of a partial government shutdown at the White House in Washington, U.S., January 8, 2019. REUTERS/Carlos Barria

WASHINGTON (Reuters) – U.S. President Donald Trump on Thursday canceled a planned visit later this month to the World Economic Forum in Davos, Switzerland, signaling he was prepared for the political showdown over the partial federal government shutdown to stretch into late January.

It was unclear whether the shutdown, now in its 20th day, would end before the start of the global economic meeting, which is scheduled for Jan. 22 to 25. Trump and congressional Democrats are in a battle over funding for the government and Trump’s long-promised wall along the U.S.-Mexico border.

“Because of the Democrats intransigence on Border Security and the great importance of Safety for our Nation, I am respectfully cancelling my very important trip to Davos, Switzerland for the World Economic Forum,” Trump wrote on Twitter.

The president had told reporters at the White House earlier on Thursday that he intended to speak at the forum but would not attend if the shutdown continued.

The cancellation quashes any opportunity for Trump to meet with other world leaders about economic issues, including trade.

Treasury Secretary Steven Mnuchin told reporters after a briefing with lawmakers on Capitol Hill that he was talking with the White House about whether he would still make the trip to Switzerland.

“My guess is if we do continue it, it will be in a scaled-back version,” Mnuchin said.

The Trump administration is engaged in trade talks with the European Union and China, among others.

China and the United States have agreed to a 90-day pause in implementing tariffs in order to hammer out a trade deal.

China’s vice president, Wang Qishan, was expected to attend the Swiss meeting, but it was unclear whether any talks had been planned between him and Trump.

(Reporting by Steve Holland; Additional reporting by Makini Brice; Writing by Lisa Lambert and Susan Heavey; Editing by Bernadette Baum and Peter Cooney)

As leaders meet in Davos, emerging economies going downhill fast

DAVOS, Switzerland (Reuters) – More than a trillion dollars of investment flows has fled emerging markets over the past 18 months but the exodus may not even be halfway done, as once-booming economies appear trapped in a slow-bleeding cycle of weak growth and investment.

While developing economies are no stranger to financial crises, with several currency and debt cataclysms infecting all emerging markets in waves over recent decades, leaders gathering for this year’s World Economic Forum in Davos in the Swiss Alps are fearful that this episode is much harder to shake off.

Seeded by fears of tighter U.S. credit and a rising U.S. dollar, and coming alongside a secular slowdown of China’s economy and an implosion of the related commodity ‘supercycle’, there’s growing anxiety that there will be no sharp rebound at the end of this downturn to reward investors who braved out the worst moments.

“The global backdrop and the drivers for emerging markets are very different from 2001,” David Spegel, head of emerging markets at ICBC Standard Bank said, referring to the time Asia, Russia and Brazil were recovering from the crisis waves of the late-1990s.

“Back then all the stars were aligned for globalization and emerging markets benefited the most. This time around, we just don’t have those multiple catalysts.”

The chief catalyst in 2001 was of course China. Its entry to the World Trade Organisation unleashed a decade-long export and investment miracle that propelled its economy from sixth place globally, to the world’s second biggest.

Its ascent hauled up much of the developing world, from Latin American exporters of soy and steel to the Asian workshops which became part of its gigantic factory supply chain. But its slowdown is whacking these countries equally hard.

Exports from emerging markets – from Korean cars to Chilean copper – are declining year-on-year at the sharpest rate since the 2008-09 crisis, according to UBS.

Global trade in fact likely grew slower than the world economy for the fourth straight year in 2015, according to the WTO, a United Nations body. That contrasts with previous decades when commerce expanded at least twice as fast as world growth.

The gloomy conclusion some are reaching is that the China effect was possibly a once-in-a-lifetime shift, whose effects are now dissipating forever.

“Rather than expecting emerging markets to mean-revert toward the golden years of 2002-2007, there is a risk that in terms of trade, what we are reverting to is the environment of 1980s,” UBS strategist Manik Narain said.

FLIGHT

One feature of the “golden years” was the extraordinary amount of capital that poured into the developing world; according to the Washington DC-based Institute of International Finance net inflows in 2001-2011 totaled nearly $3 trillion.

Some of this is starting to reverse as last year saw the first net capital outflow since 1988, a $540 billion loss, says the IIF which predicts more flight in 2016.

Other forecasters such as JPMorgan reckon nearly a trillion dollars have fled China alone since mid-2014; its central bank reserves alone declined more than $500 billion last year.

Redemptions from emerging stock and bond funds hit a record $60 billion last year, according to fund tracker EPFR Global.

IIF executive director Hung Tran says emerging markets’ problems are not just external. They must overcome a key homegrown issue – falling productivity.

Tran estimates productivity, which provides clues on future economic growth, is growing at just 0.9 percent a year across much of the developing world, a quarter the rate seen before 2007 and not far from richer countries’ 0.4 percent.

“Productivity advantage of EM countries, which is key for attracting capital flows and investment, has collapsed,” Tran said. “There is a cycle of diminishing returns on investment.”

SLOW-BURN CRISIS

There are some bright spots such as India and Mexico. But with China fears on the rise and Brazil and Russia in recession for the second straight year, investment returns across the sector are unlikely to recover soon, many fear.

Emerging stock market performance has lagged developed peers for five years now, and corporate earnings have shrunk for more than four years, Morgan Stanley has calculated.

This is the longest decline in the MSCI equity index’s history, MS says, noting the longest prior earnings recession in the asset class was after the 1997 crisis and lasted two years.

Richard House, head of EM debt at Standard Life Investments, notes the strengthening dollar is spooking investors in emerging currency bonds too.

“Fund performance hasn’t been good across the industry…Local market funds have been an outflow asset class for a while and that experience is going to impact people’s mindset going forward,” House said.

The fear of large-scale outflows is clearly on policymakers’ minds. To combat such an exodus, emerging economies may have to resort to radical measures such as coordinated securities market interventions, of the kind done in the West after 2008, Mexican central bank head Agustin Carstens has suggested

Ultimately though he said that to boost long-term growth, there was only one solution – tough economic reform.

(Reporting by Sujata Rao; Editing by Peter Graff)

Migration, climate top World Economic Forum’s report on global risks

LONDON (Reuters) – We live in an increasingly dangerous world, with political, economic and environmental threats piling up, according to experts polled by the World Economic Forum.

Ahead of its annual meeting in Davos next week, the group’s 2016 Global Risks report on Thursday ranked the migrant crisis as the biggest single risk in terms of likelihood, while climate change was seen as having the greatest potential impact.

Around 60 million people have been displaced by conflicts from Syria to South Sudan, pushing refugee flows to record levels that are some 50 percent higher than during World War II.

Coupled with attacks such as those on Paris last year and geopolitical fault lines stretching from the Middle East to the South China Sea, the world is today arguably less politically stable than at any time since the end of the Cold War.

Economic fears, particularly for Chinese growth, and increasingly frequent extreme weather events are further red flags, resulting in a greater breadth of risks than at any time in the survey’s 11-year history.

“Almost every risk is now up over the last couple of years and it paints an overall environment of unrest,” said John Drzik, head of global risk at insurance broker Marsh, who helped compile the report.

“Economic risks have come back reasonably strongly, with China, energy prices and asset bubbles all seen as significant problems in many countries.”

Last year, the threat of conflict between states topped the list of risks for the first time, after previous editions mostly highlighted economic threats.

British finance minister George Osborne, one of those heading to the Alpine ski resort set the mood last week, warning that 2016 opened “with a dangerous cocktail of new threats”.

The Jan. 20-23 Davos meeting will bring together players from geopolitical hot spots such as the foreign ministers of arch-rivals Iran and Saudi Arabia, as well as the biggest ever U.S. delegation, including Vice President Joe Biden.

North Korea’s invitation, however, has been revoked, after it conducted a nuclear test, defying a United Nations ban.

CYBER RISK A WILD CARD

The immediate problems of Middle East tensions, China’s turbulent markets and a tumbling oil price are likely to dominate corridor conversations at Davos.

But long-term concerns identified in the report center more on physical and societal trends, especially the impact of climate change and the danger of attendant water and food shortages.

While last month’s climate deal in Paris may act as a signal to investors to spend trillions of dollars to replace coal-fired power with solar panels and windmills, it is only a first step.

For businesses, the transition from fossil fuels remains uncertain, especially as political instability increases the risk of disrupted and canceled projects.

One wild card is cyber attack, which business leaders in several developed countries, including the United States, Japan and Germany, rank as a major risk to operations, although it does not make the top threat list overall.

The report analyzed 29 global risks for both likelihood and impact over a 10-year horizon by surveying nearly 750 experts and decision makers.

(Editing by Alexander Smith)