'We're looking at a second Cold War here': Mood in Davos is downbeat as World Economic Forum begins

The end of the peace dividend is coming with nations increasing the amount they spend on defence, ITV News Business Editor Joel Hills reports

War can have devastating and global economic consequences, as Russia's invasion of Ukraine has shown us.

There is an obvious risk that the attacks on shipping in the Red Sea by Houthi rebels and the British and American military reprisals could cause inflation to rise again.

Container ships and tankers are avoiding a vital trade route.

According to Reuters, QatarEnergy, the world's second-largest exporter of liquefied natural gas (LNG), is now diverting vessels. 

The Houthis previously said they would only target Israeli ships or those en route to Israel. 

Now, American ships are deemed "legitimate targets". 

Business and Economics Editor Joel Hills explains what delegates in Davos fear disruption in the Red Sea could do for the finances of British residents

Bravado? Absolutely, but a US-owned ship, carrying steel, was struck by a missile on Monday, causing a fire in the hold, but no injuries. 

Thus far, though, fears of another energy shock have proved misplaced. The international market price of oil has risen, but only a little.

Economic forecasting is a mug's game at the best of times, but the current situation is completely unpredictable, as well as potentially dangerous.

As it stands, there's conflict in the Middle East, the war in Ukraine continues, relations between China and Taiwan are tense and, during 2024 half of the world’s population is due to vote in national elections - including citizens in the UK, the US, India and Brazil.

Meanwhile, interest rates across advanced economies are high, growth is weak and many countries are carrying around large amounts of debt, post-Covid.

There's a lot to be concerned about.

Attacks by Houthis in the Red Sea have disrupted international trade. Credit: AP

The World Economic Forum exists to promote peace and prosperity. The mood here this year is downbeat.

"The geopolitical situation is like something I haven't seen in the last 35 years," Ken Rogoff, the former chief economist of the International Monetary Fund (IMF), told ITV News on Monday.

"Who knows what's going to go on? We're looking at a second Cold War here. [For years] we had all these peace dividends - countries could cut spending on defense they could concentrate on other things. I mean, it's not a good situation for anyone."

The UK is suffering from weak economic growth, but today is a reminder that we are not alone.

Economic output in Germany contracted by 0.3% during 2023 due to a mix of high inflation, rising interest rates and elevated energy costs.

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