“The Global Economic Outlook” - Transcript of Dialogue including President Tharman Shanmugaratnam at the World Economic Forum in Davos on 24 January 2025

Sara Eisen: Good morning everybody. Welcome to the grand finale. We end Davos on a high note here, and I'm so excited and honored to be here. My name is Sarah Eisen. I'm a host at CNBC, and we are going to have the conversation. Everybody's been waiting for the global debate and the global outlook on the economy. Obviously, we have a tremendous lineup. Here we have Faisal Alibrahim. He's the Minister for Economy and Planning in Saudi Arabia. His Excellency. Thank you. Larry Fink is the CEO and founder of Blackrock. Christine Lagarde is the president of the ECB (European Central Bank). We have Kristalina Georgieva, who is the head of the IMF (International Monetary Fund). And we have the President of Singapore, President Tharman Shanmugaratnam. Thank you all for joining us.

This Davos has been very interesting. Larry, there's so much optimism around President Trump and pro-growth policies in the US outlook. I sort of wonder, as an asset manager and a risk manager, should we take the other side or are you worried that everyone's so excited right now?

Laurence D. Fink: Well, welcome everybody. Is there too much optimism the US? No, but that being said, there's a lot there's risk in every economy. I can say much more forcefully, there's too much pessimism in Europe, for somebody who's been pessimistic Europe for like 10 years. If I had my number one observation this week in Davos - the pessimism I've never felt the best have been to be larger and more profound. And I believe it's probably time to be investing back into Europe, focusing on it. I mean, I see all the problems in Europe, but I do believe the pessimism is too large. There's many things it needs to do. It needs a banking union and a capital markets union, which we could talk about later on.

But back to the United States. I think all the ingredients for the United States is it will be the continuation of its strength, the foundation of its capital markets, any entrepreneur, any small company, any large company, can find capital, and that foundation of capital raising allows much more entrepreneurialism, much more creativity. And so I believe the US has ability because of its strength of its capital markets, which is solely really under-appreciated, allows it to rebuild itself, change directions, modify faster than any economy in the world. And I do believe the economy obviously changes depending on the political party and the president. But the reality is, economy is larger than any one political party or any one president. Obviously, they could be additive to any economy, and you know, President Trump's policies, if he were able to unlock private capital and put private capital to work faster, easier with less regulation, less time per permitting, it'll allow the US to become less dependent on its own fiscal problems. And so those are some of the issues that could be worked out. So now there's not too much optimism in the US, and there's probably more to be optimistic here in Europe.

Sara Eisen: President Lagarde, I bet you didn't expect to kick off the panel with a vote of confidence for Europe, because what we've been hearing here a lot is Europe's economy is underperforming. The Trump factor is going to be bad for Europe. How have you digested all of this?

Christine Lagarde: Well, good morning to everyone, but I was going to say to Larry that if ever you look for a pro bono job, come and join us in Europe, because you advocate Europe in a beautiful way. So given where I am, the fact that I'm in my quiet period before a monetary policy week, a decision coming up soon. I would just like to underscore what Europe is good at. And if I look at the scorecard at the moment, whether you look at debt to GDP, about 80 per cent overall deficit for the Euro area, about 3 per cent inflation; latest reading, 2.4 and strong confidence that it's going down rather than up, interest rates 3 per cent huge amount of talent, huge amount of savings, and a big wakeup call that is really calling the Europeans to action. So if the European leaders can actually get the act together respond to this wakeup call and existential threat that can be identified, then I think that there is a huge potential for Europe to respond to the call. I'm also pretty optimistic. I'm realist about the points that Larry made. We need banking union. We need capital market union. We need to keep the talent at home. We need to keep the savings at home. And maybe it's also time to import a few of the talents that would be disenchanted for one reason or the other from another side of the sea.

Sara Eisen: Just quickly. Why do you call it an existential threat? Why is it existential right now?

Christine Lagarde: Why is it? Well, because as Larry was suggesting, if you talk to the CEOs, if you talk to the corporate world, at the moment, those that are making major investment decisions, they are not very upbeat right now, and when you ask them why they are not they're making reference to the price of energy. Fair enough, but energy costs are going down as the non-fossil energy is going up in Europe in a significant way. When you consider that electricity production in the euro area, at least, is now 70 per cent non fossil originated. They complain about the excessive red tape and the excessive bureaucracy. That’s the wakeup call that we Europeans, those in policy making places, have to really take to heart and respond fast too.

You know, there was this great incentive to go and invest in the United States because of the Inflation Reduction Act and the significant subsidies that were going to be given to those who invested in the US. I think the IRA has essentially been removed and that any subsidies under the IRA will not be paid out. So people are going to have to rethink with the prism of confidence, with the prism of cost, as is often the case, and the prism of opportunities. And there is no question that what is happening outside is a challenge, but it's also a big opportunity for revisiting and deciding whether or not Europe wants to be a key player. But I'm contending that it has the talent and it has the means and it has the ambition.

Sara Eisen: Well, we're going to talk about the IRA, and I know President Tharman has a lot to say about industrial policy, but first, MD Georgieva, if you could just give us a global overview right now, because you guys just put out your Big World Economic Outlook, and yes, while there's a lot of optimism and solid growth in the US, it's a little lopsided around the world.

Kristalina Georgieva: Well, great to be on this panel. We published our projections for 25 and 26 just before the forum, and what they paint is a nice picture with some undertones. Nice picture because we project growth at 3.3 per cent this year and next. This is a slight upgrade for 2025. But under the hood of this average number, we have very strong performance for the US; we actually upgraded growth projections for the US by half a percentage point from 2.2 to 2.7. And we have sort of not great European performers. And then we have the rest of the world, more or less a little bit up, a little bit down.

The most important message I have for the audience is to ask the question, why. Why growth in the United States is so strong, why growth in Europe is somewhat underwhelming? Why the emerging markets are not doing fantastically well, and the answer is primarily in the differences in productivity growth. The US is marching ahead with high productivity. Because capital markets allocate money to dynamic firms, because technology turns into business investment, and then it grows into company fast and because US has relatively speaking abundant, relatively cheap energy, when we look and then productivity in the United States, year after year after year is close to a percentage point. You look at the rest of the world, advanced economies dropped in productivity vis a vis pre pandemic times from over 1 per cent productivity growth and it pushes growth up to meager 0.2 per cent now. Even more worrisome in emerging markets, productivity dropped from 2.5 per cent to 0.7 per cent, and in low-income countries from two to zero.

So my first message is the world is changing very rapidly. We are experiencing a tremendous technological transformation. Capital has to have long legs and go where it would make the biggest difference. And you look at capital, where did capital go with its long legs? It went to the United States. And if countries want to move forward, they have to be very aggressive in opening up opportunities for entrepreneurship. And yes, Europe has to have deep capital markets. It has to have a unified market that makes it possible to compete. And I want to say I'm a European. I'm a proud European. As a European, I want to make an observation in terms of culture. United States has a culture of confidence. Europe has a culture of modesty. When I first went to the United States, if something is done really fantastically well, my parent would say, not too bad that was the highest praise. And in the US, you just move your legs and you're fantastic. You blink and you're great. So my advice to my fellow Europeans is more confidence, believe in yourself, and, most importantly, tell others that you do good message.

Sara Eisen: President Tharman, you know, everybody is wondering, how you know the Trump presidency, which is so focused on economics and has so many changes from the prior regime, is going to change the outlook for their respective regions and economies. How are you thinking about it for Southeast Asia, emerging markets, the regions that you follow?

President Tharman Shanmugaratnam: Well, first, let me say, and I don't want to be a spoiler here – if you look at all the evidence on what ordinary people think and feel: they're not feeling good - in the US, in Europe, almost everywhere in the world. Confidence is down. Optimism is down. Trust is down. So our real task is, how do we rebuild the bases for optimism in today's world.

We're not going back to the era when the Bretton Woods institutions were formed. We're not going back to the moment where Henry Morgenthau, the US Treasury Secretary, said in Bretton Woods, “prosperity is indivisible”. Just think about that. Prosperity is indivisible - meaning, I can't prosper unless you are prospering. No nation, even the largest, will prosper unless the rest of the world is prospering. We are not going back to that era. It's past us. It may have rested on a moment in time when the US had an unassailable lead and had that confidence to say: prosperity is indivisible.

But what we've got to avoid is going to the other extreme of a zero-sum world, where if you prosper, I don’t prosper. There are some tendencies in that direction, but I think we are nowhere near it. We have to drift towards fragmentation and towards a breaking up of the world into blocs. It's a real risk.

So what do we do? Using all the agency we have – in the middle powers – India, ASEAN, Europe, Japan – and with the international institutions. What do we do in between those two extremes, between the no longer attainable ideal of prosperity being indivisible and the zero-sum world we must avoid.

There's a lot we can do. Start from the reality that there are strengths in each of our nations, as was very well described. The US has a unique capital market and institutions that drive innovation in a way that no other nation or region does today. And as Christine says, Europe has human capital, and I mean it not just in terms of expertise, but in terms of values still to be admired in today's world. Asia has a desire to keep opening up, to keep breaking barriers. Asia is still striking FTA deals. And you now have the UK joining the CPTPP, and several others on the waiting list. So build on these strengths, and the desire on the part of many in the world, to stay open, to be interdependent, so that we can all grow.

So let's build a realistic basis for optimism, but recognising we start from a position where people are despondent, and today's generation of parents has very little faith in their children doing as well as them. Let's build new bases for optimism.

Sara Eisen: I don't think you'd have any disagreement on this panel, though. I wonder if you have speaking, spoken yet with President Trump or your Prime Minister, has? Have you shared this view of openness?

President Tharman Shanmugaratnam: Well, I'm saying something which comes naturally to a small country. I know of other small countries that think alike, including some small European countries. You know being small helps, because your basis for doing well in the world is to be relevant to the rest of the world. You never look inward and you never get too complacent. You're always trying to find a way in which you're complementing someone else's strength, and someone else is able to complement your strength.

But I don't think that should be the province of small countries alone. We have no choice but to have that cast of mind. I think it can also be the way in which larger players think. One real positive coming out of President Trump's speech yesterday evening here at the forum was the way he spoke about China and the US. It suggested a desire for a new understanding and a desire to avoid a continuous unraveling of a relationship that is still profoundly important for the global world economy.

Sara Eisen: Your Excellency, two important questions. So in that speech here at the forum, President Trump called on Saudi Arabia, specifically in OPEC to lower oil prices. Will you do that?

Faisal Alibrahim: So before I answer this question. I think the way we look at the world is in two lenses. One is data driven to kind of explain to us why we're here, how we got here, where exactly we are, but also another lens that is more future focused, what is the potential we need to unlock? Seriously, if you look at the first lens, like Christine said, there's tepid growth, but also at the same time, we are the same people talking about tepid growth are talking about the potential positive promise of technological advancements and including generative AI. This economic stalemate needs to be addressed or disrupted. We can't stay here.

Keeping on our eye on the second lens, the vacuum is, like we've discussed, probably throughout the few days is intrepid leadership. We need intrepid leadership that is bold but inclusive, disruptive but constructive, ingrained in the long view, like President Tharman said, but also action oriented today, to kind of get us out of where we are. And you see signs of hope or signs of signals that there are directions or momentum in the direction of more leadership that is required for us to get out of where we're from. Saudi Vision 2030 is an example of that. You talk about complacency President Tharman, I think every day, day in, day out, complacency in Saudi is punched in the face by Saudi youth. We need to make this transformation count. And every region, every economy, has its own issue to deal with, whether it's Europe and deregulation, for example, or innovation the US and the fiscal outlook. China and this new economic model, and whether a shift to consumption drive will happen. The Middle East, instability and the need for more vision, 2030s.

I think there are some pressing questions that the globe needs to address too, and one of them is energy security, or the energy transition. I don't think we can afford not getting the energy transition story right this time, we need to get it right. Energy supply and security is essential for global growth, for global prosperity. The kingdom's position, OPEC’s position, is all about long-term market stability to make sure that there's enough supply for the growing demand. And there is growing demand, whether it's the growing demand we see in the US alone, whether it's a growing demand that's coming from AI. Demand will grow, and we need to make sure we supply energy in the most efficient way, without jeopardizing energy supply, without jeopardizing our ability to use technology and collaboration to address climate change, which is serious. Saudi Arabia is in the front line. We're in one of the most heat stressed, drought stressed areas who were serious about climate action and without jeopardizing giving the opportunity for developing countries and emerging countries fair access to the value of energy.

Sara Eisen: What about your transition? Since you are the Minister of planning, how dependent at this point is the economy on oil? Because the IMF did downgrade the outlook for Saudi Arabia based on the extension of the production cuts and how are you tracking toward your goal of 2030?

Faisal Alibrahim: So Vision 2030 is a long term restructuring of the Saudi economy. It's not a short-term campaign. It's not a short-term programme. And we look at our numbers, GDP numbers, as one of the indicators that tell us where we're going. We care about the non-oil economy. Non-oil activities today represent 52 per cent of total real GDP for the first time. It's not everything. It's just a good sign to keep in mind. And non-oil growth has been steady where we expect to close. 2024, at 3.9 per cent, 2025, at 4.8 per cent non-oil growth and 2026, at 6.2 per cent and that's what we care about. The numbers that were revised down are total GDP that includes oil GDP that includes the function of oil production and our voluntary cuts. What we really care about is transitioning from one economic structure that's reliant on resources to another economic structure that's reliant on productivity, human capital. And we're leveraging all our assets and capabilities to transition from one to another.

Sara Eisen: One more, really quickly, because this was also brought up by the President yesterday, big $600 billion commitment to investment in the United States from the Crown Prince. How about rounding it up to a trillion, as Trump suggested, is that easy to do?

Faisal Alibrahim: I'll tell you that there is a longstanding strong partnership between the US and the kingdom that lasts so far eight decades. We've worked very well on important work, global work, with all administrations, no matter which administration is in office. This number represents investments, procurement, public and private sector, and it's just a mirror reflection of the strong relationship what we'll spend in the economy from the start of Vision 2030 till 2030 is 12 times that number.

Sara Eisen: That might satisfy him. You can't have a global discussion these days without talking about inflation, or that's been the case in the last few years. Managing director, have we put the inflation genie back in the bottle? Well, President Lagarde just sounded pretty optimistic.

Kristalina Georgieva: So that is a very, very good question. Here is the bottle, here is the genie. The head of the genie is in the bottle. Most of the body of the genie is in the bottle, but the legs are kind of hanging still out. We need to push it all the way down, and it is remarkable how much progress the world has made. And I want to say something that we in our worries about today and tomorrow, we do not always reflect on when we look into the past. Over the last decades, every inflation episode would require interest rates to go up, and the response would be inflation would go down, but at the price of recession, this is the first time so. Are when inflation is being brought down, interest rates are still somewhat high, and yet we have admittedly below historic average, but still quite a positive growth. We have 3.3 per cent. Historic average was around 3.8. So when we look at the next stage, if we succeed to bring inflation down and yet retain the economy functioning so people have jobs, and as Tharman said, they get more confidence. That would be a very good outcome.

And I want the audience to ask itself a question, how come this time it was different? What is different this time? What is different this time is twofold. First, after the global financial crisis, the world created mechanisms, mechanisms for Economic Policy Coordination that didn't exist before. We have the G20, we have very active role of the Bank for International Settlement, every month central bank governors get together. We have the IMF using our twice-a-year meetings for policy coordination. And what that translates into is more consistent coordination when necessary, but also divergence in policies when necessary.

And the second thing that is different, we have Madame Lagarde in ECB.

Sara Eisen: Larry, I feel like I keep reading headlines. Larry Fink warns of inflation. We're not done with inflation. Larry's very worried about inflation.

Laurence D. Fink: Why? I'm not terribly worried. I think the market is the best reflection of what's going on in the world. It is the barometer for every politician, for every central bank, it really informs us every day where the mood of the global economy, and that I believe the bond market is indicating that inflation may be higher than we think. The genie may be coming out of the bottle. And I look at this in so many different ways that if you just think about AI for a minute, and in the United States right now, data centres represent about 50 gigawatts of power. And in the United States, we're estimating alone, data centres will represent a need 300 gigawatts of power in the next five years to meet the needs. And we're talking about, you know, if you expand that throughout the world, this is my optimism about growth. But at the same time, we actually are going to have labor shortages, which is going to be driving up wages. I think we're going to see more persistent wages, you know, in some and that may be a good outcome, but we it's going to be an inflationary outcome. We're going to have material shortages with all this building out.

And so I think we are somewhat complacent that inflation can hit us again. But I would also say if you look at where in the bond market was even a year and a half ago, when we were experiencing very elevated inflation, we had a very inverted yield curve, the short rates were higher than long rates. What we are seeing now is the normalizing of the yield curve, but I also believe we're going to have a much more steeper yield curve, and that's a function of forward inflation expectations. And so one of my fears is because of this complacency, and I have not even said the most ugly word that's facing economies, that's called the deficits and the debt. The debt of so many countries, when you think about the amount of capital that we're going to need to be financing all these amazing transformations we have growing deficits worldwide. The costs of financing those deficits are going to go up. I think the yield curve is showing you that. I've said repeatedly here in Davos but I can't see a scenario where we have a five and a half percent in 10 year.

Sara Eisen: Do you think the Fed's done cutting rates this year?

Laurence D. Fink: No, they still have room to cut that will create more steepening of the yield curve. So I think you know, the next few months of data and information will identify it. I would say to you, the economy is very strong. It was that was very strong in the fourth quarter, and the evidence that we are hearing from different corporations that business is strong already in the first quarter. And so we have, and you see that in the labor statistics now. So they may pause for another period of time, and they may ease a little bit. I'm not worried about the short-term moves, but over the next year, if all this materialises, you know, could they revert and go back up, possibly.

Sara Eisen: Rate hikes.

Laurence D. Fink: A rate hike. I'm not calling for that, but all I was saying, I see probabilities of that. That's not my core prognostication.

Sara Eisen: I'm trying to get a headline here. Larry.

Laurence D. Fink: Yeah, I'm trying to avoid one.

Sara Eisen: On the inflation story. Not everybody is feeling inflation right now globally. I think we should mention in the global context that China has been seeing deflation, Mr. President, and I do wonder how you assess the Chinese economy right now and the outlook and the spillover effects globally.

President Tharman Shanmugaratnam: Well, I think the Chinese will avoid an extreme downturn. They know what to do. They are measuring the pace of the measures they are taking to strengthen consumer spending, and to get past the property market overhang. They have an extremely complex task of achieving all this in an economy that's not a fully market-based economy, but I think they'll get there. Growth might be somewhat slower than hoped, but I don't see a situation that leads us to a deflationary spiral.

More broadly, central banks and fiscal authorities have made mistakes in the last 15 years that set us on a somewhat higher plane of inflation for the medium term than we would otherwise be on. But the fundamental advantage we've had for several years now has been the entry of China and some other parts of the developing world into the global labor market and global trading system, and countries willingness to absorb their products. It's been a tremendous deflationary, or counter inflationary force. We are now past that. And we also have now an unprecedented situation of ageing in the entire developed world, the West, Japan, increasingly China. And the US is seeing stagnation in its population, even if it's not coming down.

But you've got Africa that's coming up. You've got India that still has a rapidly growing workforce. So if you just think about that fundamental advantage we had for consumers all over the world in having an international trading system that allowed for emerging countries with growing work forces and lower wages to be part of a global economy - how do we now replicate it in the next phase? When we have the added disadvantage of ageing in the Western world and severe labour shortages that already exist. In Europe, for instance, there's already a very severe labor shortage south to north.

What do we do about Africa? What do we do about South Asia and some other parts of the developing world?

How do we have, if you like, a global industrial policy so that we can benefit globally from higher productivity but also a lower cost of goods for consumers around the world. I think that has to be an important challenge.

Sara Eisen: Think when it comes to the inflationary outlook, a lot will depend on trade policy with the US and tariffs, right? I mean, is anybody on this stage a fan of tariffs? No; no one thinks it's a good idea. I wonder Your Excellency when it comes to the trade battle, the fact that President Trump has indicated he's going to use tariffs to get fairer terms on trade, or for national security reasons or for negotiations. How does a country like Saudi Arabia fit in when the US and China, for instance, have a deeper trade dispute or even a trade war, do you find yourself in the middle?

Faisal Alibrahim: I think we want to be in the middle, right? I think the Kingdom's position is to have a strong partnership with all of its partners and friends, and that's something that is a value proposition of the kingdom that we want to grow. But on tariffs, I think depending on what objectives an economy has, it's been used as a tool. So long as it is an objective driven and time bound, you can, and the economy has the right to build resilience or leverage or give space for the private sector to grow some competitive advantage, or to invest in adding new competitive advantage so that a local industry can start. So it's really about the details of tariffs, what it would look like, assessing its impact and then figuring out how to deal with it.

The important thing is to keep dialogue on the table and keep the orderly, respectful discussion going, and maintaining it, even if it's been absent for a while or not where it should be, and continue working on it. The Kingdom values its partnership with all of its economy. Since Vision 2030, we've played an even larger role in more domains than oil and gas, diplomacy and foreign aid and assistance, because we understand better through Vision 2030 what our economy needs and society needs for us to unlock its potential.

Sara Eisen: Both with US and China?

Faisal Alibrahim: US and China and others.

Sara Eisen: President Lagarde, President Trump yesterday said that the EU does not treat the US fairly on trade and that he has some big complaints. Is that true?

Christine Lagarde: There is no way I can say yes or no, ok? What I believe is that he's looking very carefully at surplus versus deficit in the current account and in the trade balance in particular, focusing on that. And I think that you have to look very carefully under the hood, as Kristalina is saying: you have to look at the good exchanges, you have to look at the services exchanges. You have to look at the capital account. It cannot just be black and white. What is true is that there has to be negotiations. There has to be trade relationships that are organized in a framework that is giving confidence to the partners. It cannot be about, you know, removing all the rules, ignoring the institutions the world has, what 190 plus countries that are members of the IMF, the World Bank, the WTO, 191 and it's about all of us operating together, as Tharman said earlier on.

So yes, you sit at the table. Yes, you negotiate. Some countries are in a stronger position than others, but we all need each other. If there is one thing that the Europeans have learned over the course of time since the end of the Second World War is that you cannot go alone. You have to work together. You have to respect each other and you have to understand each other. For that, you sit at the table and you work and you know, I would not say enough about the strength of institutions. Any literature that you have about stability, about economic equilibrium, always reminds us that institutions have a huge value, and that frameworks are here for players to know the rules of the game. And you know whether you look at trade, whether you look at financial regulations. I know that Basel III is in play, but there are values in having frameworks. There are values in all banks around the world, learning and understanding and appreciating that having safeguards, having rules vis a vis each other, actually matters, and the best can win. But within a set of rules, that's how the world has to operate.

Sara Eisen: Lot of agreement here in this room. Managing Director, you don't like tariffs. You've been warning against trade friction at the IMF. You are the institution that advocates multilateralism. So what do you do in this environment?

Kristalina Georgieva: What we do is we look at the evidence, and here is what we find. It actually confirms that Saudi Arabia has the right strategy. We have been seeing over the last years increase in protectionist measures, tariffs as well as industrial policy measures, and we have seen countries gravitating towards politically aligned countries in their trade practices, and what the evidence shows is that trade among politically aligned countries is higher than trade across politically aligned countries. But guess which category of countries is performing the best - the countries that are friends with everybody.

So there is, in my view, what we are going to see over time is a reflection in trade and economic relations of a geopolitically changing world, more regional cooperation, more cooperation based on supply chains, more engagement that allows countries to achieve their objectives. And in our institution, we look into how we can support regions. How can we work more closely with ASEAN? How can we work more closely with the Gulf Cooperation Council so we can provide the analytical and policy encouragement for that kind of practical cooperation. I mean, look, we were many, many 1000 years ago, just a handful of people on this planet today, we are 8 billion. How did we get from there to here? Well, by collaborating and competing, and I think that there is no way we can wipe out collaboration from the future of humanity.

Sara Eisen: On that note, Mr. President, you know, trade and industrial policy, as you just heard from the Managing Director, are very linked. You have some strong opinions here on industrial policy.

President Tharman Shanmugaratnam: I think whether it's tariffs or subsidies or the other forms of the new industrial policies, they're being driven largely by politics and geopolitics, rather than by any new understanding of economics, new evidence or a reappraisal of economics. And I think the jury is out as to whether this is going to succeed in lifting standards of living for ordinary people, for the middle class, and lifting economic performance for countries. It's happening by way of drift, and tit for tat action, and we're in an unstable situation now, globally.

Take a step back. There is a case for industrial policy, and it starts from recognizing that innovation is the key driver for long term growth. And innovation comes from capabilities. So the industrial policies that have succeeded in the past, and I think are still entirely relevant, are the industrial policies that involve developing your own capabilities – R&D, skills, cluster synergies amongst firms. It's about developing your own capabilities, rather than constraining another country or the rest of the world. Because the difference between the two is that the first spurs innovation, it spurs innovation through competition, and the second stifles innovation, and long-term growth.

There is a second point, which may seem old fashioned but is still entirely relevant. The bulk of the evidence still supports the proposition that global interdependence, with some specialization that each country engages in, is good for everyone. You don't have to be an economics purist (you don't have to believe all that Ricardo said), but the fact is, we all do better when we specialize at what we are good at, and develop scale in what we are good at. The whole history of import - substituting industrialization, which we saw in parts of the developing world, and which we have been seeing in parts of the advanced world, has not been a pretty history. In fact, in general, it has led to massive inefficiency, which means costs for ordinary taxpayers and big losses.

So develop our own capabilities. Do it in areas where we have some advantage, some accumulated skills, some potential to succeed and develop scale. And complement each other in an interdependent world.

There is a further, very important case today for industrial policy. We have to find ways to scale up action to address the climate and the associated crises of biodiversity and the global water cycle. It requires the public sector. It requires state intervention, incentives to frontload investments, and frontload the demand for green energy and the other technologies that are going to get us to net zero. If you leave it to the markets, it's going to take too long, it's going to be too incremental, and in the meantime, we cross the tipping points in climate change, and we get into a much more dangerous world.

From time to time, countries will feel they can put climate action on the back burner, but climate change is not on a back burner. The more we put climate action on the back burner, the more we burn in future, the more the costs are going to be when we are forced to address the situation, and the greater the inequality that we're going to face. So we've got to press ahead with addressing climate change, and it does require industrial policies involving public investment, involving subsidies and taxation policies, so that we build scale early and drive down the costs for ordinary consumers of new technologies. It's a very important contemporary reason for industrial policy.

Sara Eisen: So Larry mentioned the D word - debt and deficits, and it's a whole other subject for another panel that we don't have time to get into. But I am curious. Show of hands, since we're talking about the global economy in the near term, how many of you have put sovereign debt levels high, sovereign debt levels in your top five lists of risks for the global outlook? Everybody. What about geopolitical tensions? Top five? No, why not? Larry.

Laurence D. Fink: I mean, obviously it represents idiosyncratic risk, so we always have to put that into your forecast. Look, if we're going to really grow the economy of the world. It's not about focusing on really tariffs or all these issues. I agree with Tharman related to this industrial policy, but all of this, whether it's the deficits or transforming an economy, it's going to have to be done by hope. The more the global population is hopeful about the future, there is more consumption in that environment. I mean, when we talk about China, what is China? One of the fundamental problems of China is that it has the highest savings rates of any major economy in the world; 38 per cent today, or as high as 50 per cent - this is why they have to be more dependent on exports. I mean, so for China needs to be developing more hope within its country, and I think they're focusing on this right now, and if they could do that, they're going to have more domestic consumption. You know, we talk about tariffs, and what do we do about it? You know, I can go back and look at Europe and said, if Europe can solve its own problems, not focusing on the problems that the US may impose on it, but focusing on their own issues. And Christine talked about it. it is about opening up the capital markets union, the banking union, to make Europe really one single market. I mean, it's a myth right now. Europe is a myth. Okay, it's a beautiful myth, but it's not working. It's not working relative to the strength of the United States, the innovation of the United States, the entrepreneurialism of the United States, the ability to pivot. And then if you look at China, its entrepreneurialism, its development, Europe needs to be in the same footing. And here we are now in 2025, we're now 16 years post a financial crisis, and I don't see Europe moving forward enough. I see Europe still focusing on backward, looking too much. But I do believe all of elements are there, and that's why I started off. I'm more optimistic. But to be optimistic, you have to admit your problems.

Christine Lagarde: Fair enough, and that's exactly the good point about now, is that it's provocative, because I think Europe is not a myth. Europe is not a basket case. Europe is a fantastic case for transformation. And I'm going to quote a report that was issued by the IMF Kristalina. If, and I agree with you on that, Larry, I agree if Europe was a single market, as it claims to be, if it was, then it would remove the equivalent custom duties of 40 per cent on its goods that transacted within Europe and 110 per cent of custom tariffs on its services. So I agree with you that it is not operating and functioning as a single market. I'm not the author of the later report. He pointed it out, and Mario Draghi is pointing out what needs to be done about it. The real question for the Europeans, as I have said, corporates and policy makers alike, is, get on and do it okay.

Sara Eisen: We have one minute left. So that means a short answer like 10 seconds from everybody. We talked a lot about the risks, inflation, tariffs, industrial policy, deficits, one opportunity for growth in 2025 that you're thinking about, Mr. President.

President Tharman Shanmugaratnam: I think the most neglected dimension of national strategy in most parts of the world is social policy. You need social policy on an industrial scale, much more than industrial policy in the narrow sense. It means maximizing human potential in every segment of the population. It means finding ways to recreate social compacts so that people feel some sense of solidarity, including between different ethnic groups. And it means, very importantly, building that way the political basis, the political consensus, to keep economies open and interdependent. And those three things must go together: the economic strategy of openness, the social policy of intervening to help everyone uplift themselves, and the politics that then allows you to carry on being open. If any one of those fails, each of them falls apart.

Kristalina Georgieva: Remove these self-inflicted injuries. There is so much that is on the way of productivity and growth that comes from red tape, comes from misguided policies, comes from poor implementation of good policies that has to be taken out. And I know you say one thing, but I have to say two - make sure that artificial intelligence is not a privilege of fuel and not accessible for the rest of the world.

Christine Lagarde: I would second what Kristalina just said. I think that we have not discussed very much artificial intelligence. It's been much discussed at the World Economic Forum this week, and we are not exactly certain what the potential is. We think that it's huge. We believe that it is going to have massive impact. And I think we should make sure that it's used for good to improving the state of the world and the world for all of us.

Laurence D. Fink: We spend so much time focusing on all the problems, and when we discuss problems, we solve problems. So I believe it is a great process discussing problems because we solve problems. But because we solve problems, there should be even greater hope. The world is better today than it has been 10 years ago. And 20 years ago, we lifted more people, there's more opportunity, there's more technology transformations. Some of it is very fearful, but I just look back at the last 20 years, and I'm more hopeful today than I ever been. And it is our responsibility to provide that hope to everybody and lift more people.

Faisal Alibrahim: So the reason I didn't raise my hand earlier is because I think today we have more clarity in what we need to discuss and resolve, and there are signs of more optimism relative to where we were last year. So I'd say optimism by choice. Optimism is not just a gut feeling or a reaction to an environment it could be a strategic decision, and like any decision, you can invest and then put in the hard work to make that investment reap its returns. Number two is putting in the hard work. I think reform and transformation is not a nine to five job. It requires people working night and day. I was asked by your colleague Steve before one of the panels - he asked us what extreme sports we play. I blanked out, which is depressing, but then the first thing that came to mind was Saudi Vision 2030, not because of what we're doing, but because of the so many young Saudi male men and women who are working 24 7, 16 hour shifts every day to make this transformation count.

Sara Eisen: Thank you all. And we end where we started, with the optimism, and it's why it's been a really rich World Economic Forum, Davos this year. Thank you all for participating.