Rarely, if ever, have the normally glittering environs of Lake Como in Northern Italy looked quite so forlorn for this time of year as they do now. After months of drought, water levels are literally metres below where they ought to be, exposing grey shingle beaches to the unforgiving light of day. Great swathes of the lake’s wooded hillsides have been prematurely turned an autumn brown by the lack of rain. Many of the trees are unlikely to survive.
It felt like a fitting backdrop to last weekend’s annual Ambrosetti Forum, a gathering to discuss economics. Business people are on the whole an optimistic lot, and this particular group of attendees was no exception. Most run successful enterprises with uniquely favourable growth opportunities. Yet the overarching backdrop of economic and geopolitical challenges is now so daunting as to fill even the most positive of company bosses with gloom.
With the closure of Russian gas supplies to Europe now seemingly permanent, and the Euro sinking to a twenty-year low against the dollar, predictions of a long, cold and recessionary winter in Europe are now the presiding narrative.
Even the luxurious surroundings of the forum’s venue, the eternally glamorous Villa D’Este, couldn’t disguise the sense of fin de siècle, as we move – remorselessly and apparently helplessly – from an age of relative economic and geopolitical security and stability into one of profound insecurity and instability.
The old certainties of low inflation, low interest rates, and hyper globalisation, backed by rules based multilateralism, have gone. Never has trust between the developing world and the advanced economies of the West been as low as it is now. Not since the Second World War have the forces of national identity and self interest tugged so forcibly on the political psyche, and rarely has commitment to internationalism been so much in retreat.
Rewind to the fall of the Berlin Wall in the late 1980s: it marked the start of three decades of relative peace, prosperity, democracy and international cooperation. As many of the speakers here at Ambrosetti pointed out, we are far from that benign state of affairs today. War is back, inflation is back, social tensions are rising, debt is soaring, and democracy is confronted by resurgent autocracy, whether it be Russia, China or Turkey.
The ultra-hawkish views on China of Mike Pompeo, a US Secretary of State under Donald Trump and a possible contender for the presidency in two years time, found a ready audience on the shores of Lake Como, even among European leaders and decision makers who are usually more conciliatory. All countries must pick a side between freedom and authoritarianism, he has said, pointing to a growing bifurcation into separate trading blocs and spheres of influence.
Nevermind that research by the World Trade Organisation estimates that a complete decoupling of trade between the West and China would knock 5pc of global GDP, this is increasingly the direction of travel as security concerns begin to trump the pursuit of economic growth.
Compounding this sense of disillusionment with the ancient regime, we see a fast approaching economic crisis that many pundits here at Ambrosetti think will be just as bad as the pandemic and the Global Financial Crisis, if not worse. In some quarters, there is still a tendency to see the current downturn as mainly cyclical: as energy prices stabilise, inflation and interest rates will soon abate, allowing a degree of growth to return.
But this view was not widely shared at Ambrosetti. What makes it different, according to Mohamed El-Erian, president of Queens’ College, Cambridge, is “structural uncertainty”, ranging from energy supply to globalisation and the ability of the financial system to spread and contain financial risk.
Nouriel Roubini, of Roubini Macro Associates, told me that hopes of a soft landing were fantasy, and predicted a “severe” downturn, especially in the UK, which he said had “shot itself in the foot” with Brexit. As a consequence, it will experience the worst case of stagflation of any advanced economy, he believes.