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 Fortune Europe editor
January 23 2008: 11:57 AM EST
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Davos's gloomy Americans

Most of the world's emerging markets are forecasting continued growth. So why are the Yanks at the World Economic Forum so glum?

By Peter Gumbel, European editor

DAVOS, SWITZERLAND (Fortune) -- There's a lot of snow in Davos for this year's World Economic Forum, but a noticeable lack of the usual sunny American optimism about economic prospects.

George Soros, for example, describes the current market turmoil as the worst in 60 years and says, "I think the current crisis is the end of an era based on the dollar." Nouriel Roubini, of New York University, expects a "severe" recession in the U.S. that will last for much of the year and bring down economies from China to India with it. Stephen Roach, Morgan Stanley's eternal pessimist who has predicted dire problems for years, is finally feeling vindicated and warns that the Federal Reserve's big 75 basis point cut this week could amount to the beginning of another bubble.

"I think it's dangerous and reckless" for the Fed to simply clean up after asset bubbles have burst rather than take action to prevent them from forming in the first place, Roach said in a panel discussion on the first day of the Davos confab, which gathers 2,500 business executives, policy makers and economists for five days of talking and partying.

What's striking about all this doomsday talk is how different it is from the usual upbeat tone of the past few years - and how little this sense of impending catastrophe is shared by anyone other than the Americans. China's Yu Yongding, director of the Institute of World Economics and Politics, says he's being conservative when he estimates Chinese growth at 9% this year and shrugs about downside risks in this Olympic year. Kamal Nath, India's trade minister, points out that emerging markets such as India have been gaining in economic resilience during the boom of the past five years. "It will take a great recession to stop this momentum," he said.

As for CEOs, sure, many of them around the world are feeling a little nervous about the prospects for a U.S. recession. But according to a PriceWaterhouseCoopers survey of 1,150 CEOs from around the world, there's only been a slight drop in the number who remain "very confident" about revenue growth over the next 12 months. Overall, it fell from 52% last year to 50%. For U.S. CEOs, however, it dropped from 54% to 36%.

So what's going on? "It's a tale of two worlds," says Samuel A. DiPiazza, PWC's global chief executive. America and some European CEOs may be feeling pinched, but in places like Brazil, Russia, China and India, it's the optimism which is striking.

Yet in one way, Soros is undoubtedly right. Behind this difference in mood is a big shift in the world economy. The U.S. is no longer the all-dominant player, and its current weakness is merely hastening the rebalancing of international economic activity. The sliding dollar, tumbling asset values, seized-up credit markets and the worries about overextended consumers in the U.S. serve to accelerate the decline. In the U.S., a lot of attention is now being focused on sovereign wealth funds from places like Abu Dhabi, who are using some of their windfall revenues from $100 per barrel oil to ride to the rescue of troubled U.S. banks.

But that's just a small part of the picture. Far less noticed is a big increase in business between emerging markets; South Korean companies such as Daewoo and Hyundai, for example, are investing heavily in India. And a new breed of emerging market multinational companies are rising to the fore, firms like India's Tata, which is bidding to buy Jaguar.

"We're seeing an acceleration in the transfer of economic power," says Mark Spelman of consultants Accenture. The PWC survey shows that CEOs in both Europe and Asia are strongly interested in the U.S. as a place to buy assets. And given how much prices have dropped in the past few days, why not?

The American pessimists are warning that it may not be as simple as that. Both Roubini and Roach predict that world economic growth will ratchet down sharply if, as they predict, a U.S. recession not only takes place but is also particularly severe. "When the U.S. sneezes, the world catches a cold, but the U.S. is going to have a case of pneumonia," quipped Roach.

It's too early to tell whether he's right. But even if he is, the rest of the world - like the snow in Davos - is not about to melt away. To top of page