It would be all too easy for Davos delegates to be swamped by the welter of bad news that reminds us of the severity of the recession. However, if we think forward 18 months, all the indications are that recovery will be well under way, and delegates are being asked to consider how best to shape the post-crisis world.

The forum is right to look beyond a world in recession and to ensure that the unprecedented impact of the global banking crisis and the simultaneous correction in most leading economies do not hinder the long-term resumption of economic growth and the spread of prosperity.

The path of the global banking crisis has been well-rehearsed — sub-prime origins, a collapse in confidence as financial instruments failed to deliver promises and then bailout after international bailout. The impact of this financial calamity is all the more severe since the long boom in the real economy had left so many countries vulnerable to a consumer-led loss of confidence through overheated property markets and overuse of credit-card debt. While government intervention globally has prevented a total breakdown of banking, it is not yet clear that attempts to persuade banks to resume lending against normal criteria are successful and in some countries the personal debt overhang is likely to inhibit reflation through resumption of consumer spending for some time.

Governments must maintain their co-ordinated approach to rebuilding confidence in the financial system, since restoration of counterparty confidence across the global banking community and providers of finance is the key to resumption of sound commercial lending. It is also necessary that governments reflate their economies as rapidly as is practicable, as a means of mitigating domestic contraction and as the basis for stimulating international recovery through trade. Countercyclical increases in government spending, funded by borrowing, is of course Keynesian economics, but true Keynesianism surely is not just about governments raising spending. It is about limited-term intervention, and channelling that spending into areas providing lasting economic benefit through improved infrastructure.

The false promise of protectionism must be resisted. It is a recipe for global impoverishment and we are surely not going to revert to economic illiteracy. The cry also goes up for more regulation, but what is needed is regulation better focused on essentials of prudential supervision in each sector and better equipped to apply sector expertise. Regulation must be streetwise and fully engaged with the market; it is not an ivory-tower activity, just as it is not about procyclical risk overkill. We do, of course, need to break new ground in developing international collaboration between regulators, but this works only if the underlying building blocks of domestic regulation are themselves sound.

Provided such remedies are persevered with, they will bear fruit and there is no reason to believe that this will be more than a very severe recession. But even with such initiatives in place, 2009 will be painful for the many casualties and there is a responsibility to show compassion in decision-taking.

Just as governments must combine a short-term response with planning for the future, so must private sector businesses combine management of the downturn with focused preparation for recovery.

This year will be challenging, but will offer opportunity for businesses with the right strategy, and are in the right markets with access to the best profit pools through the right products. Their balance sheets need to be demonstrably strong. Relative outperformance is going to be the differentiator this year. That is what businesses will be measured against.

Mark Tucker is Group CEO of Prudential

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