Aurelia Butler

By many criteria, Sweden is the envy of Europe. It has tremendous soft power to wield as it takes on the rotating presidency of the EU’s ministerial councils. Yet a recent visit to Stockholm left me thinking that Swedes feel as disoriented by a rapidly changing world as everyone else.One reason is domestic malaise. An epidemic of shootings — 60 gun murders across Sweden last year, against 9 in London — no doubt fuelled the rightwing nationalist Sweden Democrats’ election success last September. Formerly shunned, the party enjoys a formal deal for parliamentary support of the new centre-right coalition government.But just as momentous is the external identity crisis of a country long committed to neutrality, free trade, market liberalism and multilateralism. Instead war, political fragmentation and a renaissance of state economic activism are the cards Stockholm is dealt as it chairs its EU peers for the next six months.Some of the changes suit the three-month-old government. As foreign minister Tobias Billström pointed out to me, his Moderate party has long favoured joining Nato, which the Swedes are now doing. The main hurdle is Turkey’s ratification of their accession. “We are fulfilling to the letter” conditions agreed with Turkey last year, Billström says. The message from both Sweden and fellow candidate Finland is clearly that they have done enough, and the bulk of the alliance seems to agree. To this observer, it looks like Ankara has extracted the maximum it can.Adapting liberal economic traditions to a more hostile world is harder. Stockholm is also traditionally sceptical of more powers or money for Brussels, against current clamours for both. Billström points out it has always been for “a strong EU in certain sectors” such as trade and the rule of law. And if Sweden gets its way, it will lift what many there call the positive trade agenda, and bring the EU’s many pending trade deals closer to their conclusion.For now, though, the defensive trade agenda gets most EU airtime. It was boosted by the US Inflation Reduction Act, which belatedly aims to kick-start green US industry but discriminates against European exporters. “A giant headache” for Swedish preferences, says one insider. But after the UK left the EU, Stockholm is often forced to nuance its free-trading instincts to remain relevant in the debate.“Yes to strategic autonomy,” says Billström in reference to French president Emmanuel Macron’s phrase for a more activist economic and foreign policy, “as long as it is not something that limits the possibility of export and import.” Asked about calls for a European countermeasure to America’s IRA, Billström insists on avoiding trade disputes and subsidy races. While it is “crucial” for the US to mitigate negative effects for Europe, he says we should welcome Washington’s commitment to emissions cuts.Yet the best can become the enemy of the good. Both political and economic logic points to subsidising the technologies that facilitate the carbon transition. If that logic wins, the choice becomes not for or against subsidies, but between common EU subsidies or national ones. And a subsidy race within Europe could do much more harm than a subsidy race between the EU and US.In this turmoil, corporate and political Sweden looks to the competitiveness agenda as the place to land on their feet. A review is expected from Brussels soon. Given how divided opinions are, it will inevitably bring political battles to a boiling point before any decision by leaders. If Sweden can secure a focus on long-term productivity and not protectionism, it will safeguard Europe’s economic prospects as well as its own free-trading soul.There is one tradition Sweden is successfully doubling down on. Its commitment to a rules-based order has only been strengthened by Russia’s attack on Ukraine. As the Nato decision shows, in the choice between neutrality and a world run by rules, neutrality had to go.Accordingly, Billström countenances no other solution than “Ukraine winning the war on the battlefield” — and that means all of Ukraine. “Re-establishing Ukraine’s territorial integrity is what this war is ultimately about.” Ukraine, he says, “has to win for the rest of us to be assured that this is not 1815, the time of the Congress of Vienna”. He vows more support for Ukraine and hopes for a tenth Russian sanctions package on Stockholm’s watch.The Congress of Vienna, of course, marked the twilight of Sweden as a great European power. The country’s contributions to the standing of fellow small states in a world of rules are a prouder [email protected] More

With the conflict in Ukraine raging, the risk of escalation remains high © REUTERS/Zohra BensemraThe Magic Mountain, Thomas Mann’s classic novel set in Davos against the backdrop of a deadly disease and an impending world war, was published almost a century ago. But, as World Economic Forum delegates gather again in Davos this year, Mann’s world feels uncomfortably close to our own. The fear haunting the WEF is that a long period of peace, prosperity and global economic integration could be coming to a close — just as it did in 1914. This year’s Davos slogan is “Cooperation in a fragmented world”. That fragmentation began with Covid-19 — with its lockdowns, closed borders and disrupted supply chains. So, the 2023 WEF — the first to take place in its regular winter location since the pandemic began — could be seen as signalling a return to normalcy. However, China’s sudden abandonment of its zero-Covid policy has raised fears that a new wave of variants could emerge.And, even if a fresh pandemic phase is avoided, Covid has left its mark on the way governments and businesses think about globalisation. The assumption that goods and commodities can always be shipped easily around the world has been shattered.Businesses have moved from ‘just-in-time’ supply chain strategies to ‘just-in-case’. Further global health emergencies are possible. Other scenarios — once deemed remote eventualities — are in sharper focus. Extreme weather events are becoming more frequent, which raises questions about food security and travel. Cyber attacks, by states or criminals, threaten the infrastructure on which the modern economy relies. Often prompted by governments, businesses are having to change their ways. It is not wise to rely on complex supply chains vulnerable to disease, war or other emergencies. Companies such as Apple — which boasted of products “designed in California, assembled in China” — are having to diversify production. Apple increasingly also produces in India and Vietnam.Efforts by some western companies to lessen their dependence on China were prompted by the pandemic, but they have since accelerated because of a heightened awareness of geopolitical risk — otherwise known as war. Russia’s invasion of Ukraine last year demonstrated that the unthinkable can happen. Europe’s biggest war since 1945 is being fought less than a thousand miles from the luxurious hotels of Davos. With the conflict in Ukraine still raging, the risk of escalation remains high. Nuclear war is the most frightening potential development — and one that has concerned the White House since the outbreak of fighting last February. Even if the use of nuclear weapons is avoided, the danger of widening conflict remains as Nato sends advanced weaponry to Ukraine and Iran supplies Russia with military drones. The conflict has shown how war can sever the economic ties on which globalisation was built. The EU is drastically reducing imports of Russian energy — fuelling inflation in Europe and threatening to make some industries uncompetitive. Russia and Ukraine are also important suppliers of grain to world markets. Their war has increased food prices and threatened to push millions of people into hunger.

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Politicians and industrialists are scanning the horizon for the next big geopolitical threat. Many have focused on Taiwan, which produces 90 per cent of the world’s most advanced semiconductors. A Chinese invasion of Taiwan might shut down TSMC, the most important semiconductor producer, with devastating results for the world economy.Even geopolitical tensions that stop well short of war have disrupted international commerce. The increasingly wary US attitude to China has led the Biden administration to sharply restrict exports of sensitive technology there. This affects not just US companies, but also foreign technology giants, such as South Korea’s Samsung, that use US tech.Political leaders, particularly in the west, must worry, too, about domestic pressure from populists. Many of the latter have made the WEF a symbol of inequality and rootless international capitalism. In recent years, Davos has attracted the ire of anti-vaxxers, climate change sceptics, religious zealots, and hardline nationalists. The forum features in a range of conspiracy theories. On the wilder internet fringes, the WEF has been accused of using the pandemic to seize control of the world economy. Such theories aside, the idea that Davos is faintly toxic has gained ground. President Joe Biden, determined to present himself as fighting for ordinary working Americans, is unlikely to risk an appearance at Davos — unlike Donald Trump, who enjoyed rubbing shoulders with the assembled CEOs.Even centrist and conservative leaders in Europe may be cautious about coming. President Emmanuel Macron of France, a defender of globalisation who has spoken at Davos in the past, has a sensitive domestic pension reform to push through, so may decide that now is not the right time to attend the WEF. As a new British prime minister, and one with a finance background, Rishi Sunak would normally be expected to seize the opportunity to woo the world’s most powerful chief executives. But the UK faces a wave of strikes, so he too will probably decide that it would be wise to miss Davos this year.Those world leaders who are present might do well to take the funicular up to the Schatzalp Hotel, which served as Mann’s model for the sanatorium in The Magic Mountain. The hotel’s view is the best in Davos — it may offer a chance for quiet reflection on how to prevent war and natural disaster from once again engulfing the global economy. More

JERUSALEM (Reuters) – Israel’s Manufacturers’ Association on Sunday proposed tax cuts on food along with a host of other measures aimed at strengthening Israeli economic competitiveness and dealing with the country’s high cost of living.The Association’s economic plan, submitted to Israel’s prime minister and ministers of finance and economy, proposed cutting the value added tax (VAT) on food to 9%, the average for OECD countries, from 17%.The group, which represents some 1,500 firms and 400,000 workers, also proposed increasing state funding for research and development to 0.5% of business output and reducing excess regulation by 25%, along with vocational training to increase labour productivity.If implemented, the Association said the measures would allow the manufacturing industry to invest in innovation and workforce development, drive sustainable growth and maintain Israel’s global competitiveness.Association president Ron Tomer said the economy had begun to slow while employment levels were declining and production costs were on the rise. But he noted inflation and economic activity were better in Israel than in countries Israel competes with in foreign trade.”We must take advantage of these relative advantages in order to lead the Israeli economy to growth already this year,” he said. “The government must formulate an orderly economic and social plan that will support this.”Israel’s economy is projected to grow 2.8% in 2023 after some 6% in 2022. Inflation is forecast to ease to a rate of 3% from more than 5%. Israel’s new government is in the process of drafting a 2023 budget that must be fully approved by lawmakers by May.Incoming economy minister Nir Barkat has said he intends to ease the “unbearable load” on businesses in Israel, declaring a “war on regulation”, which he called “a cancer on the economy”.Last week, Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich said Israel will cancel or cut back recent hikes in property taxes, water and energy costs, unveiling preliminary measures to ease inflation. More

As the global elite descend upon Davos this week, they will have a smattering of optimistic titbits to enliven otherwise awkward conversations about the bleak economic outlook for 2023. For starters, inflation appears to be peaking across the world. In the US it fell to its lowest in more than a year. Across the pond, European natural gas prices have dropped to pre-Ukraine invasion levels. The latest data have made some analysts hopeful that annual global growth will not be as glum as the World Bank’s 1.7 per cent forecast released earlier last week. But uncertainty has not abated — and one wild card question that will loom large over the forum’s deliberations is what China’s surprisingly rapid reopening will mean for the global economy. After almost three years of self-isolation, China — the world’s second-largest economy — finally reopened its borders on January 8. It has now lifted the bulk of its stringent pandemic restrictions. Few expected president Xi Jinping to capitulate so rapidly on his “zero-Covid” strategy, particularly with so few preparations. Covid-19 has now ripped through the country, with an estimated tens of millions catching the disease each day at one point. While sickness has dented Chinese economic activity, there are signs that the disruption is fading fast. Some indicators suggest that peak infections in some cities will soon pass, worker shortages are easing and consumers are spending again. Curbs on property developers have also been lifted, though there is scepticism over a purported easing in tech regulation. Capital Economics, a consultancy, now expects China to report 5.5 per cent growth this year, up from 3 per cent earlier. If China can ride out its grim exit wave, its bounce back could have significant global implications. A resurgence in China’s pent-up consumer and investment activity will support global demand. Goods exporters and popular Chinese tourist destinations, particularly across south-east and east Asia, will benefit. A surge in bookings on travel websites points to a potential recovery in global spending by Chinese tourists, which in 2019 amounted to $255bn. As the world’s largest consumer of commodities, the country’s recovery will give a boost to metal and energy exporters too. And alongside stronger demand, since China supplies 15 per cent of the world’s goods exports, global supply chain pressures are likely to ease further.Higher demand could, however, prop up global price pressures. Copper, iron ore and other metal prices exposed to China’s property sector have recently rallied. Meanwhile, with China accounting for about a sixth of global oil consumption, some forecasters now project that prices could push back above $100 a barrel in 2023. In Europe, there may be implications for energy supply. Last year, the EU was able to build up gas reserves despite Vladimir Putin’s closure of major pipelines, largely by importing liquefied natural gas. As Chinese LNG demand returns prices will rise and competition for gas will intensify, which could leave Europe with shortages next winter.If China’s rebound keeps energy prices elevated, inflationary pressures may take longer to wind down, and central banks could be forced into tightening monetary policy even more. With the impact of interest rate rises last year still filtering through to households and businesses, this will be another hit to growth. As the World Bank warned, “any new adverse development” could push the world into recession, given how fragile economic conditions are. Indeed, just how the pandemic plays out in China — and what Xi does next — will be a major factor in how 2023 shapes up for the global economy. More