Eurozone and Iran to top Davos agenda as recession looms

It is that time of year again when all the leaders of the business world assemble in Davos in Switzerland to discuss the future with invited guests from governments and academia.

Nothing is actually decided at the World Economic Forum, rather like summits of European leaders. But Davos is always a good gauge of global opinion and business confidence about the future. Last year there was some optimism about the economic recovery.

Gloomy prognosis

2012 is a more gloomy prospect. The eurozone crisis is close to a denouement on the Greek debt mountain with unknown consequences. World Bank economists have warned this could be worse than Lehman in late 2008 in its contagion impact on the global banking system.

Then there is the mounting geopolitical issue of Iran and the new EU embargos on oil and other business activity. Lehman was not the only issue in 2008. Remember it was $147-a-barrel oil in July that year that pushed events over the edge.

US business executives we are told are feeling more upbeat about 2012 than their European counterparts or the Japanese for that matter whose economy is also close to a major implosion.

Where will the economic growth come from in 2012? Certainly not from the UK, Europe or Japan. China is also slowing down, although a hard landing is not widely forecast at present.

From the Gulf States? Not very likely with the military might of the world flexing its muscles for a possible conflict with Iran over the Strait of Hormuz.
Higher oil prices will help but not fully compensate.

Splendid isolation?

Indeed with large parts of the global economy either in recession or close to it the Americans are going to have to organize their own pre-election party. Can the USA grow in splendid isolation?

The danger of contagion is surely obvious. The USA is financier to the world and will suffer immediately from a blow-up in the eurozone banking system through loan guarantees, quite apart from the impact on earnings from its largest export market.

Besides the US national debt and deficits are still overpowering and growing, higher in fact than the eurozone. The temporary US mood of subdued optimism rests on very shaky foundations that are about to be shaken very hard.