The Archbishop of Canterbury has given a stern warning to the world's elite gathered in Davos, saying materialism will not help in the fight against extremist ideologies.

Justin Welby spoke during a panel discussion on "a common stance against extremism" at the World Economic Forum in the Swiss Alps today, and challenged world leaders to recover "theological language".

"What we have lost the capacity to do – and here Muslims and Christians are at one on this – we have the lost the capacity in Europe to use theological values to discuss our difference in society generally," he said.

"It has become isolated to the religious world. This means we no longer have any way of answering the challenge of extremists."

Welby was on a panel alongside the Grand Mufti of Egypt and the president of the Centre for the Study of Islam and Middle East. He urged some of the wealthiest individuals and businesses in the world to move beyond the "vocabulary of materialism".

"We no longer have the vocabulary," he told those gathered. "We say better materialism will help us."

"Nobody goes to Syria because they think they will get a better car next year," he added, in a direct challenge to Western consumerist culture.

"It just isn't the way they're thinking. It is a theological and ideological problem. Until we in Europe regain the capacity to use theological and ideological vocabulary we will not be able to counter extremism effectively.

"We have lost our roots."

Welby's comments will be seen as an undisguised challenge to the wealthiest people in the world that materialism will not solve global security concerns.

However, he did say progress has been made in the inter-faith discussion on countering extremism.

"There is a great deal more honesty coming into the conversation than in the past when the debate was quite often at the rather banal level of 'wouldn't it be nice if we were all nice'," the Archbishop said.

"I think we're making progress into addressing the issues that affect us."