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The Stephanomics Global Preview for 2021 · Stephanomics

0:08
Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the
0:11
Speaker 1: global economy to you. This time last year, Stephanomics celebrated
0:15
Speaker 1: the new year by asking some of Bloomberg's best and
0:17
Speaker 1: brightest what we could expect the next twelve months to bring,
0:21
Speaker 1: and we all completely failed to see what was coming.
0:24
Speaker 1: I'm not going to let that put me off another attempt,
0:26
Speaker 1: but I have taken the precaution of broadening the net
0:29
Speaker 1: a bit. Hopefully this lot will be even better and
0:32
Speaker 1: even brighter. We really do have a lot of firepower
0:36
Speaker 1: gathered on this zoom call today here in London, Bloomberg
0:40
Speaker 1: TVs pre eminent interviewer and correspondent at large, Francine Lacroix.
0:45
Speaker 1: We also have Business Week's senior economic correspondent and columnist
0:49
Speaker 1: Peter Ky, sitting in New York and dining in from Washington,
0:53
Speaker 1: tom Orlick, well known to this podcast as Bloomberg's chief economist. Finally,
0:58
Speaker 1: we have Sharon Chen. She's now in London, having just
1:01
Speaker 1: joined Bloomberg Green, but until recently she was sitting in
1:04
Speaker 1: the hot seat in China as Bloomberg's Beijing bureau chief.
1:09
Speaker 1: Welcome to everyone, and thank you so much. For being here,
1:13
Speaker 1: And I've already said we spent most of talking about
1:17
Speaker 1: something that was barely on anyone's radar at the end
1:20
Speaker 1: of the coronavirus. This is about looking ahead, not looking back.
1:26
Speaker 1: But very briefly, I wanted to start by asking each
1:29
Speaker 1: of you what the most memorable moment of was. I
1:34
Speaker 1: guess in a year that professional and personal got far
1:37
Speaker 1: too close together at times, it's hard to tell the difference,
1:41
Speaker 1: but I was I guess I'm talking professionally here, Peter
1:44
Speaker 1: Coy your most memorable moment, Well, Stephanie, you already said
1:48
Speaker 1: that the coronavirus was the shark that took us all
1:50
Speaker 1: by surprise. But my my biggest shark really was what
1:55
Speaker 1: came after that, which was in the United States when
1:58
Speaker 1: mask wearing, which scientists and doctors agree can help prevent
2:03
Speaker 1: the spread of the coronavirus, became a political statement, and
2:08
Speaker 1: not wearing a mask became a political statement where people
2:11
Speaker 1: who sided with Donald Trump felt that wearing a mask
2:15
Speaker 1: would somehow a slap in the President's face, and this
2:19
Speaker 1: had incalculable consequences for the health of the American people
2:24
Speaker 1: as well as the health of the US economy. So
2:28
Speaker 1: many lives could have been saved, and so many dollars
2:30
Speaker 1: of GDP could have been saved if only people had
2:33
Speaker 1: socially distanced and worn masks religiously, I should say. On
2:37
Speaker 1: on the positive, I think probably my surprise was just
2:40
Speaker 1: how quickly governments stepped in with fiscal support for economies,
2:47
Speaker 1: at least around the industrial countries, and the extent to
2:50
Speaker 1: which it did cushion the blow for so many households.
2:53
Speaker 1: We had a much smaller for hit on incomes by
2:56
Speaker 1: and large, with some important exceptions, than the hit the
3:00
Speaker 1: straightforward hit to the economy. So I guess that's the
3:02
Speaker 1: slightly more positive side of the government response, which we
3:05
Speaker 1: did actually see in the U S too, So that's
3:07
Speaker 1: a glass half fall. Sharon said, the credit virus was
3:12
Speaker 1: the obvious, It was made a lot of twenty memorable.
3:15
Speaker 1: But what was the most distinctive moment for you? Yeah,
3:18
Speaker 1: I mean for me, the moment that really stands out
3:21
Speaker 1: was the day they locked down Wuhan. I mean it
3:25
Speaker 1: was just incredible, like we had never experienced anything like that.
3:29
Speaker 1: We couldn't really understand what was happening, that they would
3:32
Speaker 1: just lockdown an entire city of millions of people, and
3:36
Speaker 1: then they they extended that to the whole of Hubei,
3:39
Speaker 1: which was more than fifty million people, and it was
3:42
Speaker 1: just so difficult to comprehend what was happening. And that
3:44
Speaker 1: was the moment it really hit home that you know,
3:47
Speaker 1: this was serious and it was going to be the
3:50
Speaker 1: major news story UM for the entire year. But other
3:54
Speaker 1: than that, I mean, I think the most surprising thing
3:57
Speaker 1: that happened was just recently in September, China coming out
4:00
Speaker 1: and saying that, you know, they want to achieve net
4:03
Speaker 1: zero carbon emissions by six it's the world's biggest carbon emitter.
4:07
Speaker 1: And leading up to President Jijumping's announcement at the u
4:11
Speaker 1: N you know, we had been getting a lot of
4:14
Speaker 1: signals that China was prioritizing economic growth over its climate
4:17
Speaker 1: commitments UM and since then we've seen UM eight out
4:22
Speaker 1: of the ten major economies, biggest economies in the world
4:25
Speaker 1: say they want to go to net zero as well.
4:28
Speaker 1: You're right, that was a big, a big positive shot
4:30
Speaker 1: we had in in in the autumn. Francine Loquax, I
4:34
Speaker 1: think the you know it surprised me is actually after
4:37
Speaker 1: ups and downs, is the fact that we believe Europe
4:40
Speaker 1: is now forced for good. You know, if you think
4:42
Speaker 1: back to late there was really possible political populism in Europe,
4:47
Speaker 1: and if you take it to the which is really
4:49
Speaker 1: hard hit by the COVID, you know, crisis, and you know,
4:52
Speaker 1: you could also say really botch the pandemic response. It
4:55
Speaker 1: now has more destined coronavirus of coronavirus in the UK.
4:58
Speaker 1: It just feels a lot closer to Europe. But then
5:00
Speaker 1: it did a your go back in twenty nineteen. I
5:02
Speaker 1: don't know if you remember, but you know we had
5:04
Speaker 1: then Mr Selvini saying that he felt closer to Moscow
5:07
Speaker 1: than Brussels. And the majority of Italians now believe that
5:10
Speaker 1: Europe will saved them because of the funds from the
5:12
Speaker 1: recovery fund. Of course they still have to allocate the
5:14
Speaker 1: money and to see whether it uses them wisely. But overall,
5:18
Speaker 1: it was this European union unity in the face of Brexit,
5:21
Speaker 1: in the face of COVID that I think I'll remember
5:24
Speaker 1: for and despite these ups and downs, it showed that
5:27
Speaker 1: actually Europe really does come together usually in times of crisis.
5:32
Speaker 1: Just recently I had a headline jump out of me
5:34
Speaker 1: a column by Ferdinando Giuliano and of Bloomberg that Italians
5:39
Speaker 1: are starting to like the Germans UM, and that's probably
5:42
Speaker 1: not also not a headline we would have expected to
5:44
Speaker 1: see twelve months ago. Tom Wallick, so I wanted to
5:49
Speaker 1: pick up on Peter's pessimism. UM, the failure of mask
5:54
Speaker 1: wearing in the United States was really striking. I think
5:57
Speaker 1: the failure of global coordination around the response to the
6:01
Speaker 1: coronavirus crisis was also really striking. If there was ever
6:05
Speaker 1: a moment for the global community to come together around
6:09
Speaker 1: a medical response and an economic response, surely this was it, UM,
6:14
Speaker 1: and that coordination has just really been notable by its absence. UM. Indeed,
6:20
Speaker 1: if we think about the world's most important relationship, the
6:24
Speaker 1: relationship between China and the United States, actually, over the
6:28
Speaker 1: course of the COVID crisis, it's got markedly worse. One
6:33
Speaker 1: thing that stuck out to me there was a moment
6:35
Speaker 1: over the summer where there was a coordinated series of
6:39
Speaker 1: speeches by senior US officials. We had Pompeo, the Secretary
6:43
Speaker 1: of State, um Bar, the Attorney General, O'Brien, the National
6:48
Speaker 1: Security Advisor, all coming out and in a coordinated way
6:53
Speaker 1: taking a really aggressive swing at China and framing the
6:59
Speaker 1: U S. China relations and ship not just as a
7:01
Speaker 1: relationship of economic competition, but almost as a kind of
7:05
Speaker 1: an existential struggle between democracy and a single party state,
7:10
Speaker 1: between capitalism and a state dominated economy. Um And. I
7:15
Speaker 1: find that really striking because until now, UM, those two
7:20
Speaker 1: things have been kind of compartmentalized. Right. There's been a
7:23
Speaker 1: view that even though there are some very important differences
7:27
Speaker 1: between the US and the West and the and China
7:30
Speaker 1: in terms of how society is organized, we can still
7:33
Speaker 1: cooperate in terms of trade. Perhaps we can cooperate on
7:37
Speaker 1: things like climate change. Um. And over the course of
7:40
Speaker 1: the COVID year that seemed to change. And I think
7:43
Speaker 1: it's going to be really interesting to see with the
7:45
Speaker 1: Biden administration coming in how they manage tensions across that
7:50
Speaker 1: broader range of subjects. Sharon turn you you mentioned that
7:54
Speaker 1: the lockdown and Whan. I remember we've spoken to a
7:56
Speaker 1: couple of times when you were engaging this year, once
8:00
Speaker 1: when you had just returned from Wuhan and you were
8:02
Speaker 1: going through quarantine having started at the center of this pandemic.
8:09
Speaker 1: We look at China now, the rest of the world
8:12
Speaker 1: looks at it and sees it coming out of this
8:14
Speaker 1: pandemic apparently almost unscathed. It's the only large economy that
8:19
Speaker 1: will grow this year, and the government, if anything, seems strengthened.
8:24
Speaker 1: When you were in China, is that what it felt
8:27
Speaker 1: like on the inside too, or has the system perhaps
8:29
Speaker 1: been shaken in ways that we can't see. Yeah, I
8:33
Speaker 1: mean I think that's generally right. When I left in October,
8:36
Speaker 1: I mean, everything was back to normal, like hot pot
8:39
Speaker 1: restaurants will packed, people eating, you know, sharing communal food, travel,
8:44
Speaker 1: domestic travel was back in full swing. You know, it
8:47
Speaker 1: really felt like life had returned to normal. And it
8:49
Speaker 1: was even more stark when I landed in London and
8:52
Speaker 1: it was like going back in time to the worst
8:54
Speaker 1: of the pandemic in China. So I think in that sense,
8:58
Speaker 1: you know, the economy really had has kind of gotten
9:01
Speaker 1: back to where it was just in the day to
9:03
Speaker 1: day kind of experience. And also, I think you're right
9:06
Speaker 1: that the way the government handled the pandemic and then
9:09
Speaker 1: how other governments outside China handled the pandemic really validated
9:13
Speaker 1: the Chinese model for a lot of people inside China.
9:17
Speaker 1: But I think that there are a lot of things
9:18
Speaker 1: below the surface that have shaken the system. You know,
9:22
Speaker 1: just like in every other country, the pandemic exacerbated in equality.
9:25
Speaker 1: Millions of microworkers lost their jobs, those in the service
9:28
Speaker 1: sector were hit extremely badly. I mean, that's the main
9:30
Speaker 1: problem the government faces now is supporting those groups of people,
9:33
Speaker 1: and in China that's on a massive scale. Um And
9:36
Speaker 1: we also see how it's become more internationally isolated because
9:41
Speaker 1: of the fallout from the pandemic, and all of that
9:43
Speaker 1: is also going to affect the economy and people who
9:45
Speaker 1: are dependent on exports and outside markets. Tom We've we've
9:49
Speaker 1: got a lot of China expertise on this program. Rightly,
9:51
Speaker 1: so because you lived many years in Beijing. Two looking ahead,
9:57
Speaker 1: do you think one is the year when China could
10:00
Speaker 1: solidate the games it's made in the last twelve months
10:03
Speaker 1: from handling the virus so effectively. So so, China is
10:08
Speaker 1: the only big economy which is going to grow this year.
10:11
Speaker 1: We think they'll expand around two percent. Next year, we
10:15
Speaker 1: think they'll grow around eight percent. So it's a kind
10:20
Speaker 1: of it's an irony of the COVID crisis that a
10:23
Speaker 1: problem which started in China in Wuhan as as Sharon
10:28
Speaker 1: mentions is actually going to end with China closing the
10:33
Speaker 1: gap in terms of g d P, in terms of
10:36
Speaker 1: economic capacity with the United States. I was actually just
10:41
Speaker 1: reading a big book about Putin and Putin's rule in Russia,
10:47
Speaker 1: and one of the points the author makes was that
10:50
Speaker 1: Putin was emboldened by the what he saw is the
10:55
Speaker 1: failure of the United States in response to Hurricane Katrie
11:00
Speaker 1: and how they didn't get ahead of that problem, and
11:03
Speaker 1: that this really shook Putin's view of America. He thought,
11:06
Speaker 1: God goodness, these guys, they're not any better than we
11:09
Speaker 1: are dealing with problems. And so maybe I can play
11:13
Speaker 1: a bit of a bigger role on the global stage.
11:16
Speaker 1: And I wonder if we're going to see some of
11:18
Speaker 1: that following the COVID crisis as well. China is going
11:22
Speaker 1: to come out of this economically stronger, but they're also
11:25
Speaker 1: going to come out of it emboldened with a sort
11:29
Speaker 1: of stronger belief in the relative strength of their own model.
11:33
Speaker 1: And how do you think China is viewing the Biden administration?
11:36
Speaker 1: I mean, is this is it? Is it the end
11:37
Speaker 1: of trade wars? I don't think so. Um, if we
11:42
Speaker 1: go back to two thousand and one. That moment when
11:46
Speaker 1: China joined the World Trade Organization. Part of the reason
11:51
Speaker 1: why there was scope for kind of win win cooperation.
11:55
Speaker 1: We give you a little bit, you give us a
11:57
Speaker 1: little bit, and everyone's better off is big because China
12:00
Speaker 1: was just so far behind in terms of the size
12:03
Speaker 1: of its economy and the capacity of its economy. And
12:08
Speaker 1: what we've seen in the last twenty years is that,
12:11
Speaker 1: partly as a result of that w t O entry,
12:13
Speaker 1: China has just accelerated up the global GDP rankings and
12:17
Speaker 1: they're now you know, the US can feel their sort
12:20
Speaker 1: of hot breath on their back. The kind of the
12:22
Speaker 1: competition is real, it's visceral, and we've seen US public
12:26
Speaker 1: opinion and global public opinion move very decisively against China.
12:32
Speaker 1: And I think what that means is that the room
12:34
Speaker 1: for maneuver for the Biden administration as they think about
12:38
Speaker 1: ways to reset the relationship with China is just pretty limited.
12:52
Speaker 1: Piece of coal. It's it's terrifying how long you've been
12:55
Speaker 1: reporting on the global economy in the U s. Economy
12:58
Speaker 1: for Business Week, more than thirty years. But if you
13:02
Speaker 1: think of all the administrations you've seen come and go
13:05
Speaker 1: looking at who's been announced for the Biden cabinet. Another
13:10
Speaker 1: key positions we know he's inherited and incredibly difficult terrain.
13:16
Speaker 1: How do you think the incoming president elect Biden is
13:21
Speaker 1: hoping to spend his first hundred days and what do
13:23
Speaker 1: you think could upset those plans? Of course, the tradition
13:27
Speaker 1: of the first one hundred days is that at a
13:29
Speaker 1: time when a new administration wants to hit the ground
13:31
Speaker 1: running notch some early winds, establish its ability to get
13:37
Speaker 1: things done, impressed people, and then maybe build on that.
13:41
Speaker 1: And that's exactly what Biden has in mind. So he's
13:44
Speaker 1: gonna first tackle the course the pandemic job number one.
13:49
Speaker 1: He wants to encourage people to wear masks for the
13:53
Speaker 1: first one days. He wants to have one hundred million
13:56
Speaker 1: vaccines distributed in the first one hundred days. He wants
14:00
Speaker 1: to rejoin the World Health Organization, which he can do unilaterally.
14:04
Speaker 1: Beyond that, he's looking to rejoin the Paris Climate Accord,
14:07
Speaker 1: which again he can do without anybody's permission. Re send
14:11
Speaker 1: some of the rules blocking traveler immigration from Muslim majority nations,
14:15
Speaker 1: again something within his power. Deal with some of the
14:18
Speaker 1: asylum rules on the Mexican border. Uh. These are all
14:22
Speaker 1: things that he can and will do early on and
14:25
Speaker 1: maybe establish a new tone for the administration. Other things
14:28
Speaker 1: are going to be much harder for him to do.
14:30
Speaker 1: For example, we're barely struggling now to accomplish a new
14:35
Speaker 1: coronavirus relief program. It's unlikely that a new Congress is
14:40
Speaker 1: going to want to immediately give him another one. And
14:44
Speaker 1: then we get into some of the real, uh, difficult issues,
14:48
Speaker 1: like well, he wants to raise taxes on the rich,
14:51
Speaker 1: he wants to raise the corporate income tax, he wants
14:54
Speaker 1: a gigantic green investment program two trillion dollars. So he's
14:58
Speaker 1: got his work cut out for him. So when we
15:02
Speaker 1: think about foreign policy, you know, we've tended to say
15:06
Speaker 1: it's a return to normalcy when it comes to the
15:09
Speaker 1: US and the rest of the world. And Tony Lincoln,
15:12
Speaker 1: the incoming Secretary of State, is very well known to
15:16
Speaker 1: people and the rest of the world. But what surprises
15:20
Speaker 1: do you think the rest of the world should look
15:21
Speaker 1: out for. I mean, is this really going to be
15:23
Speaker 1: back to the Obama Clinton type foreign policy or something different.
15:29
Speaker 1: I think some of the personnel does go back to
15:32
Speaker 1: Clinton in Obama, but the world has changed, and the
15:35
Speaker 1: biggest changes the U S relationship with China, which other
15:38
Speaker 1: people here on this call no more than I do.
15:41
Speaker 1: But what I can say is that anybody who thinks
15:44
Speaker 1: that relations with China going to clear right up now
15:48
Speaker 1: that there's a new president are in for a big disappointment.
15:51
Speaker 1: I mean, Tony Blincoln, the Secretary of State, Jake Sullivan
15:55
Speaker 1: as National Security Advisor, have been fairly hawkish on China,
15:59
Speaker 1: for up on the South China Sea, freedom of navigation operations,
16:03
Speaker 1: of anything, the US will be prosecuting more of those
16:07
Speaker 1: human rights as another example where Trump has pretty much
16:10
Speaker 1: given the Chinese a pass on human rights, and yet
16:13
Speaker 1: the US will under Blincoln, Sullivan and Biden of course,
16:17
Speaker 1: will be pushing on Hong Kong as well as the
16:21
Speaker 1: weakers in Western China. I think that there's there's going
16:24
Speaker 1: to be a lot of stress in that relationship. We
16:27
Speaker 1: spend a lot of time on China. We should, we
16:29
Speaker 1: should get back to Europe. With Francine Loquix. Overall, you
16:34
Speaker 1: spend a big chunk of most of your days talking
16:37
Speaker 1: to senior business leaders and policymakers. What do you think
16:41
Speaker 1: that the European elite if we can say that is
16:44
Speaker 1: focused on For one, I mean there's a lot of
16:47
Speaker 1: obviously a lot of countries that are still in renewed lockdown.
16:52
Speaker 1: Do you think they are managing to lift their eyes
16:54
Speaker 1: up from that or they just too caught up with
16:57
Speaker 1: the COVID crisis still well stuff, And I feel like
17:00
Speaker 1: they try and look up, and then every time they
17:02
Speaker 1: try and look up, there's either you know, another lockdown
17:04
Speaker 1: or some kind of stuff and start scenario. So they're
17:07
Speaker 1: very focused on the recovery. There are probably two main
17:10
Speaker 1: risks to Europe, you know, and to the outlaw forced
17:13
Speaker 1: there's this path in the second wave of the pandemic
17:15
Speaker 1: unclear to be honest for me where it goes, because
17:18
Speaker 1: if you look at the effect of the rollout of
17:20
Speaker 1: the vaccine, you know, I wouldn't underestimate the challenges of
17:23
Speaker 1: delivering this to large waves of the population. And I
17:26
Speaker 1: also would point to the fact that we still don't
17:28
Speaker 1: know whether you can still pass it on. Even if
17:30
Speaker 1: you get the vaccine on, then the recovery fund, I
17:33
Speaker 1: think there's a real questions amongst newsmakers and chief executive
17:37
Speaker 1: about where the money goes. So we have big words,
17:39
Speaker 1: big ideas in Europe, the Deal and climate change. Marcal
17:42
Speaker 1: also lately calling for this health union. But actually leaders
17:46
Speaker 1: know that they need to be more aggressive in cutting
17:49
Speaker 1: greenhouse gas emissions over the next decade. That's sure been stamped,
17:52
Speaker 1: but for chief executives, they want to know where where
17:55
Speaker 1: are these projects, where the money goes, and so what
17:57
Speaker 1: they're worried about is that you have project but actually
18:00
Speaker 1: the money gets squandered like it has in the past.
18:02
Speaker 1: So I think the next six months is really make
18:05
Speaker 1: or break. And the other thing very quickly solvency. And
18:07
Speaker 1: Mario Druggi was talking about that is that if if
18:11
Speaker 1: you know government programs run out one who do you
18:15
Speaker 1: say for companies? And are you saving the wrong companies
18:17
Speaker 1: that actually shouldn't be saved because of this huge transformation
18:20
Speaker 1: of the economy. Well, and something that Mario Drugging when
18:24
Speaker 1: he was ahead of the European Central Bank you ushould
18:26
Speaker 1: talk about a lot was needing to have fiscal support
18:28
Speaker 1: along with the monetary fiscal action. We did, as you
18:31
Speaker 1: said at the start, we did see that this year
18:34
Speaker 1: maybe with this Biggieu Recovery fund, we start to see
18:39
Speaker 1: deeper collaboration risk sharing on the fiscal front among European economies.
18:46
Speaker 1: What's going to determine whether that really happens over the
18:50
Speaker 1: next year or so, that whether that grows or whether
18:52
Speaker 1: it ends up being just a one off. So I
18:55
Speaker 1: think the first six months of the Europe would probably
18:58
Speaker 1: be a reckoning for Europe. A lot will the and
19:00
Speaker 1: on how economy is fare next year, whether the solvency
19:03
Speaker 1: crisis takes hold and then gives way to populous leaders
19:06
Speaker 1: in Europe. If you look at the political dimension in Europe,
19:08
Speaker 1: it should never be underestimated, especially when you're talking about Europe,
19:11
Speaker 1: you know, coming more together. It's unclear where we land
19:14
Speaker 1: post pandemic, so we have to really, you know, think
19:17
Speaker 1: about that and not be too optimistic. Will probably have
19:20
Speaker 1: an adjustment, We may have some unwinding of some of
19:23
Speaker 1: the policies. But if you're you're optimist and you look
19:26
Speaker 1: at the past and actually Europe does not really have
19:28
Speaker 1: any undoing progress on the integration front apart from Brexit,
19:32
Speaker 1: so you could be optimistic that you know, they're not
19:34
Speaker 1: going to undo what they've done so far. Tom if
19:38
Speaker 1: we step back from this and think about where the
19:40
Speaker 1: where the world has headed economically in one I know
19:44
Speaker 1: that your team has been pulling together. It's it's forecasts.
19:47
Speaker 1: Briefly tell us what you're expecting, and I guess also
19:51
Speaker 1: highlight what you think could go go right or wrong.
19:54
Speaker 1: We're expecting growth for the global economy around five percent
19:59
Speaker 1: next year, so pretty impressive rebound. It's not quite a
20:03
Speaker 1: v UM, but it's substantial. It's a substantial portion of
20:07
Speaker 1: the upswing of the v Within that, of course, drilling
20:11
Speaker 1: into the country detail, people talk about comorbidity is making
20:15
Speaker 1: the COVID virus more serious for individuals. There are also
20:21
Speaker 1: some co morbidity ease that make the economic impact more
20:25
Speaker 1: serious for different countries. UM Peter sort of already suggested it.
20:30
Speaker 1: But there's the trust deficit in the United States, which
20:33
Speaker 1: stymied the public health response and is going to deepen
20:37
Speaker 1: the crisis and slow the recovery. UM In the UK
20:41
Speaker 1: Brexit now approaching its end game. That combination of the
20:45
Speaker 1: Brexit hit and the virus hit is going to be
20:48
Speaker 1: a problem for the United Kingdom, and then in countries
20:51
Speaker 1: like Italy with very high debt levels. Again some additional
20:56
Speaker 1: burdens which are going to mean the recovery from the
20:58
Speaker 1: COVID hit is lower than it otherwise would be. But
21:02
Speaker 1: I wonder whether will be surprised by the speed of
21:04
Speaker 1: the bounce back. In many economies, there is such a
21:08
Speaker 1: maybe I'm just speaking personally, but this is such a
21:10
Speaker 1: great desire to go back to normal and maybe even
21:14
Speaker 1: double up on holidays and other things that one has
21:16
Speaker 1: not been able to do. Um. There is a view
21:20
Speaker 1: that says that that kind of bounce back could produce inflation.
21:25
Speaker 1: What do you think? So, we see wide output gaps
21:30
Speaker 1: as far as the I can see. And when you've
21:33
Speaker 1: got a wide output gap, you've got resources which are
21:36
Speaker 1: not being used, You've got people who wants lots of
21:39
Speaker 1: spare capacity and um, and so you don't have inflation. UM.
21:45
Speaker 1: So inflation is not in our view, It's not in
21:49
Speaker 1: our two view, but that doesn't mean it isn't a risk.
21:54
Speaker 1: We've got some powerful forces at work. We've got deglobalization,
21:59
Speaker 1: which means that those cheap Chinese or Vietnamese imports which
22:03
Speaker 1: have been dragging on prices and denting workers capacity to
22:07
Speaker 1: negotiate for more money in the West. Um, that sort
22:11
Speaker 1: of drag on inflation is going to be reduced. UM.
22:14
Speaker 1: We've got more progressive politicians running for office and being
22:18
Speaker 1: elected to office, potentially with policies like pushing up the
22:22
Speaker 1: minimum wage, and perhaps, as you suggest, Stephanie, the economy
22:26
Speaker 1: could just come roaring back more quickly than anyone imagines. Um,
22:31
Speaker 1: So inflation is not in our forecast for two as
22:36
Speaker 1: a substantial risk, Um, we might be wrong. If it
22:40
Speaker 1: does come back, that's going to put central banks in
22:43
Speaker 1: a very very difficult position there in this extraordinary spot
22:47
Speaker 1: where they're essentially printing money to finance fiscal stimulus, and
22:52
Speaker 1: they can do that because inflation is entirely subdued. As
22:56
Speaker 1: soon as inflation starts to come back, they're going to
22:59
Speaker 1: be in a very difficult position trying to balance and
23:03
Speaker 1: find an impossible balance between their inflation fighting mandate and
23:07
Speaker 1: their financial stability mandate. Well, Francine, I can exclusively revealed
23:12
Speaker 1: that the head of the European Central Bank has a
23:13
Speaker 1: serious soft spot for you. When Christine Legarde was head
23:17
Speaker 1: of the IMF, still I was I saw her for
23:20
Speaker 1: something else and I mentioned I was going to Bloomberg,
23:22
Speaker 1: and she pulled. She sort of paused with this this
23:26
Speaker 1: sort of look in her eye of joy, saying ah,
23:29
Speaker 1: we're Francine loquise um. So you there's probably around the
23:35
Speaker 1: globe before I think the best part of you know,
23:38
Speaker 1: like two decades. It's definitely definitely gets a certain look
23:42
Speaker 1: in her eyes when she thinks of you. But it
23:44
Speaker 1: also results thankfully for Bloomberg and lots of great interviews,
23:47
Speaker 1: and you had several with her this year. She's got
23:50
Speaker 1: a big review of monetary policy coming, which got delayed
23:53
Speaker 1: from it's going to be in the summer of twenty one.
23:56
Speaker 1: We did have in the autumn of the Federal Reserves
24:01
Speaker 1: review of monetary policy, which did make a difference, did
24:04
Speaker 1: say that policy was going to be different over the
24:06
Speaker 1: next few years in an effort to get inflation higher.
24:09
Speaker 1: Do you think the European Central banks new framework could
24:13
Speaker 1: make that kind of difference. I think I think it
24:16
Speaker 1: could actually, And we've heard that from her, although it's
24:19
Speaker 1: too seems to say, and we've heard it also from
24:21
Speaker 1: Ali Rend. I love what Ali Ren said. He gave
24:24
Speaker 1: a speech I think two or three weeks ago which
24:26
Speaker 1: was very simple and powerful. He said why is the
24:29
Speaker 1: strategy review so important? And he basically answered it by saying, well,
24:32
Speaker 1: the simple answer is changed, especially the change in the
24:35
Speaker 1: operating environment of monetary policy, and we sometimes forget when
24:39
Speaker 1: we do this day and day out thinking about inflation,
24:41
Speaker 1: how the world has changed right in the current environment
24:44
Speaker 1: of low rates, negative demand sharks. The problem is, you know,
24:48
Speaker 1: it could be but it could be quite rare that
24:50
Speaker 1: it's too high inflation. It's at least more remote, and
24:52
Speaker 1: so the problem is low inflation that's more relevant. And
24:55
Speaker 1: so how do you ensure that inflation expectations will not
24:58
Speaker 1: forever stay anchored at you know, too lower level. So
25:01
Speaker 1: if you ask it through that prism, which is quite
25:04
Speaker 1: quite simple but powerful, you can see something change at
25:07
Speaker 1: the ECB next year. We should say, those are the
25:10
Speaker 1: America listening who don't necessarily know who Ali Went is.
25:13
Speaker 1: He's the governor of the Bank of Finland but was
25:15
Speaker 1: also a senior official European Commission for a while. And
25:19
Speaker 1: we journalss like him because he gives very engaging interviews
25:22
Speaker 1: and a great football player, and he's of course he's
25:25
Speaker 1: a great football paper where why wouldn't you be, um,
25:28
Speaker 1: Sharon Chen, you your new job is working with this
25:31
Speaker 1: new group Green and new publication within Bloomberg. How do
25:36
Speaker 1: you think all the talk that we've had about climate
25:41
Speaker 1: change and people some now really truly realizing the seriousness
25:46
Speaker 1: of this challenge. How do you think that will play
25:48
Speaker 1: out in one Yeah, I mean this year really, you know,
25:52
Speaker 1: we have seen a lot of global momentum um to
25:56
Speaker 1: where it's setting net zero targets and carbon neutrality goals.
25:59
Speaker 1: But like you say, I mean it's very hard to
26:01
Speaker 1: tell because these are such long term targets, these kind
26:04
Speaker 1: of lofty ambitions. The UN just held the Climate Ambition
26:08
Speaker 1: Summit last weekend and the idea was that everyone had
26:11
Speaker 1: to come and make new pledgures, and it was really
26:13
Speaker 1: quite disappointing and kind of underscored. How you know, these big, ambitious,
26:19
Speaker 1: nine sounding targets need to be backed up by a
26:21
Speaker 1: shorter term, actionable goals. Um. But you know, I think
26:26
Speaker 1: the entire global economy is shifting, is going through this
26:31
Speaker 1: energy transition. And if you look at China for example,
26:34
Speaker 1: I mean it's not just seeking to be net zero
26:38
Speaker 1: for purely altruistic reasons. I mean it knows that if
26:40
Speaker 1: it can dominate these new renewable energy industries, that will
26:44
Speaker 1: really put the economy ahead of others. And I think
26:48
Speaker 1: um other leaders also see that, and I think we
26:52
Speaker 1: will continue moving in that direction. The big question is
26:55
Speaker 1: whether we can do it fast enough. We're already at
26:58
Speaker 1: one point to degree celsius warming from pre industrial levels,
27:02
Speaker 1: and the Paris Agreement the ideal would be to keep
27:05
Speaker 1: it to one point five um, you know, and we're
27:09
Speaker 1: just not really untracted to that right now. We've all
27:18
Speaker 1: obviously been on a very steep learning curve when it
27:21
Speaker 1: comes to pandemics and coronavirus is this year. I suspect
27:24
Speaker 1: we're going to be now on a very steep learning
27:26
Speaker 1: curve when it comes to green technologies and the challenges
27:30
Speaker 1: of moving to net zero. Now that you're sitting in
27:34
Speaker 1: green what what are we going to be talking about
27:37
Speaker 1: in a year or two is time? But we've never
27:39
Speaker 1: heard of today. Are there any left field technologies out
27:42
Speaker 1: there that you think are actually going to end up
27:44
Speaker 1: being a big part of the conversation? Yeah, I mean,
27:48
Speaker 1: I think hydrogen is the mean next thing that and
27:51
Speaker 1: related to hydrogen ammonia which can be used to store
27:55
Speaker 1: and transport the hydrogen. But I mean it's not a
27:57
Speaker 1: new technology. It's been around for a very long time.
28:00
Speaker 1: But it seems, you know, a lot of major economies
28:03
Speaker 1: are going to rely a lot on it to meet
28:05
Speaker 1: the unnet zero targets. And we have air Bus trying
28:09
Speaker 1: to develop the first hydrogen plane UM, which could really
28:13
Speaker 1: be a game changer in terms of removing those emissions,
28:17
Speaker 1: which are probably going to be one of the hardest
28:19
Speaker 1: to remove as long as people keep traveling. But you know,
28:22
Speaker 1: turning the hydrogen will require reinventing a lot of industries,
28:27
Speaker 1: the airline industry, shipping UM over the way a lot
28:31
Speaker 1: of economies function now. But I think that that would
28:34
Speaker 1: be a major focus. How Peter, you started by talking
28:38
Speaker 1: about how you were surprised that wearing a mask became
28:42
Speaker 1: a partisan issue. UM in the US. Actually, the environment
28:47
Speaker 1: was not so partisan five or ten years ago. Now
28:51
Speaker 1: it does seem to be deeply divided along party lines.
28:54
Speaker 1: Do you think that the new president can do anything
28:56
Speaker 1: to change that or just have all the wildfire's done
28:59
Speaker 1: something to change that? First of all, I really agree
29:01
Speaker 1: with you that environment was not always such a partisan issue.
29:04
Speaker 1: Teddy Roosevelt, who started the National Parks was a Republican.
29:08
Speaker 1: Dwight Eisenhower. UM. Richard Nixon actually started the Environmental Protection
29:13
Speaker 1: Agency and signed the Clean Air and Clean Water Acts.
29:17
Speaker 1: So there's a long tradition of the green in the
29:19
Speaker 1: Republican Party, but under Trump in particular, that's faded away.
29:23
Speaker 1: Trump portrayed as a contest of environment versus labor. So
29:28
Speaker 1: now Biden is trying to turn that around by saying
29:31
Speaker 1: we can do both. In fact, he says, when he
29:35
Speaker 1: thinks about the green and climate change, he thinks about
29:39
Speaker 1: creating jobs. Now that's a challenge too, because it's not
29:44
Speaker 1: always as simple as he might say. Um, there are
29:48
Speaker 1: people who would argue economists that trying to hit two
29:51
Speaker 1: birds with one stone, that is, create jobs and reduce
29:55
Speaker 1: greenhouse gas emissions could end up, you know, missing both birds. Uh.
30:00
Speaker 1: You know that you want to focus on pick one
30:03
Speaker 1: gold and choose the target that choose the tool that
30:07
Speaker 1: is best suited to that target. Uh. And he has
30:10
Speaker 1: splits already within his coalition. For example, Biden is not
30:13
Speaker 1: opposed to all hydraulic fracturing fracking. He's also not opposed
30:18
Speaker 1: to all coal mining, and many, of course the environmentalists
30:21
Speaker 1: and his UH coalition are. And I just don't know
30:26
Speaker 1: if the American public are ready for a strong, meaningful
30:32
Speaker 1: attack on climate change. The Washington Post Kaiser Family Foundation
30:36
Speaker 1: did a survey last year they found. Yeah, sure, three
30:39
Speaker 1: quarters of Americans considered climate change a crisis, but fewer
30:43
Speaker 1: than half. We're willing to pay a two dollar monthly
30:46
Speaker 1: tax on their electricity bills in the name of climate progress,
30:49
Speaker 1: and only a third we're in favor of raising the
30:52
Speaker 1: federal gasolene tax by ten cents a goalon. These are
30:54
Speaker 1: fairly minor measures in the context of global greenhouse gas emissions,
31:00
Speaker 1: and yet Biden has a big job ahead of him
31:03
Speaker 1: trying to pull the American public along to think about
31:06
Speaker 1: it that way. Okay, we've talked too long about too
31:10
Speaker 1: many things. I did start with some of the things
31:12
Speaker 1: that had caught us by surprise this year. Um, what
31:16
Speaker 1: do you think would be what do you think would
31:20
Speaker 1: be the wild cards or the potential big surprises for one?
31:25
Speaker 1: Tom Mullock. So, as you say, Stephanie, we were caught
31:28
Speaker 1: by surprise by the Hollywood movie scenario of a tiny
31:33
Speaker 1: virus laying the world economy waste. Um. So I've done
31:38
Speaker 1: some extensive research on the outlook for one, based on
31:42
Speaker 1: disaster movies from the late nineties, nineties and early two thousands.
31:47
Speaker 1: So the team is going to be modeling the macro
31:49
Speaker 1: impact of freak weather events causing a second ice age,
31:54
Speaker 1: a huge meteor heading towards Earth, and potentially a giant
31:59
Speaker 1: lizard heading from Japan towards the US coast. We're going
32:03
Speaker 1: to try and put a GDP number on each of those.
32:06
Speaker 1: Don't forget shar Tonado. That's not that's not calculable. I'm afraid,
32:11
Speaker 1: Peter um so UM. But more seriously, I mean, and
32:16
Speaker 1: this I think is actually more central scenario than a risk. UM.
32:20
Speaker 1: I just worry that the Biden administration is going to underwhelm.
32:24
Speaker 1: If we look at the composition of the Biden administration, UM,
32:28
Speaker 1: it's a lot of people who have a lot of
32:31
Speaker 1: experience from time in the Obama administration. UM. But perhaps
32:37
Speaker 1: because of that experience, more of a kind of tendency
32:41
Speaker 1: to look for the center, to look for a place
32:43
Speaker 1: of kind of moderation and compromise. UM. So my concern,
32:47
Speaker 1: for one, and looking further forwards, is that the Biden
32:51
Speaker 1: administration underwhelms and by doing so kind of inadvertently confirms
32:59
Speaker 1: the big argument in which the Trump administration and other
33:03
Speaker 1: sort of populists around the world have been making, which
33:06
Speaker 1: is that government doesn't work. In government console the big problems,
33:12
Speaker 1: piece of coy. You know, you asked for a wild card.
33:15
Speaker 1: So this is not necessarily a mainstream prediction. But going
33:18
Speaker 1: back to what Tom and Bloomberg Economics is saying, we're
33:21
Speaker 1: not expecting outbreak of inflation in the US, but let's
33:26
Speaker 1: just say there is. Let's say there's a few months
33:29
Speaker 1: where the CPI year of a year does go above two.
33:33
Speaker 1: Now that's actually what's supposed to happen. The Fed wants
33:37
Speaker 1: that to happen on paper anyway. They said that they
33:41
Speaker 1: need to make up for periods of undershooting on the
33:43
Speaker 1: target by overshooting for some period of time. But my prediction,
33:48
Speaker 1: or I should say my wild card, is if that happens,
33:52
Speaker 1: there's going to be an outbreak of cold sweat and
33:54
Speaker 1: the foreheads of the members of the Federal Open Market
33:57
Speaker 1: Committee people are going to panic that inflation is getting
34:01
Speaker 1: out of control, and despite their best of intentions, despite
34:05
Speaker 1: all their promises about it letting inflation go of two
34:08
Speaker 1: above two, they're gonna start throttling back on monetary stimulus
34:12
Speaker 1: and trying to make sure that the inflation doesn't get
34:15
Speaker 1: out of control again. Francie loquix, your wild card. I'm
34:21
Speaker 1: so happy I don't have Tom's job and actually forecasting
34:24
Speaker 1: what will happen in I would probably just look at
34:27
Speaker 1: the markets, because the markets are on a terror for
34:29
Speaker 1: the moment, and something could happen. You can have a
34:31
Speaker 1: bubble bursting. And then this morning I was actually reading
34:34
Speaker 1: a note in Standard Chargers looking at the potential market
34:36
Speaker 1: surprises for now. They say that they're unlikely, but potential surprises.
34:41
Speaker 1: And I think they had like five, maybe eight. But
34:43
Speaker 1: they had Democrats winning control of the Senate. They had
34:45
Speaker 1: a US China dictance driving Juan rally to six verses
34:49
Speaker 1: of dollar. They had oil crashing at twenty dollars comparel,
34:52
Speaker 1: which I thought was quite interesting because of opaque rupture.
34:55
Speaker 1: And then they also had Biden resigning in favor of
34:57
Speaker 1: Vice President Kamala Harrick. That's great. So we've got we've
35:02
Speaker 1: got about four or five things to worry about for
35:04
Speaker 1: the price of one from you. That's that's typically efficient.
35:06
Speaker 1: You see on the brooding television, you just pack so
35:09
Speaker 1: much into into thirty seconds. You can't stick with just one.
35:12
Speaker 1: Um sarentur um. I think the biggest wild card for
35:17
Speaker 1: me is what happens with the US China. I mean
35:19
Speaker 1: you know, I think for the Chinese government, the one
35:23
Speaker 1: outside of having a Biden administration is that it's back
35:26
Speaker 1: to kind of more predictable politics, you know, more predictable
35:30
Speaker 1: counterpart or or um, yeah, sparring partner because things which
35:36
Speaker 1: just so erratic under Trump. But you know the downside
35:39
Speaker 1: of that for them is that obviously, you know, a
35:42
Speaker 1: Biden administration can be along most strategic um and also
35:46
Speaker 1: con strengthened alliances with other Western countries and find ways
35:51
Speaker 1: to you know, inflict pain. And you know, the biggest
35:55
Speaker 1: wild card, of course, is that something actually happens military early,
36:00
Speaker 1: either in the South China See or with Taiwan, which
36:03
Speaker 1: will likely be I think the place where things could
36:06
Speaker 1: escalate um the most. And you know, I think before
36:11
Speaker 1: this year I also thought it was a very remote possibility.
36:14
Speaker 1: But we've seen that a lot of things can escalate
36:17
Speaker 1: very quickly, and I seem to remember thinking about the
36:19
Speaker 1: first China SEE at this time a year ago. One
36:22
Speaker 1: of these years, it's surely going to produce something frightening.
36:27
Speaker 1: I'm thrilled at fact that we've not talked about Brexit
36:30
Speaker 1: in all this time, so I guess I'd have to
36:32
Speaker 1: also throw in a wild card for the end of
36:34
Speaker 1: the United Kingdom. I think that the politics of of
36:37
Speaker 1: Brexit as this now plays out, after whatever arrangement we
36:42
Speaker 1: get with Europe or non arrangement, I think that the
36:47
Speaker 1: debate could shift remarkably quickly to Scotland's desire to leave,
36:52
Speaker 1: and potentially even Northern Ireland leaving the United Kingdom as well.
36:55
Speaker 1: Maybe something we'll be talking about in a year's time.
36:58
Speaker 1: Thank you so much to all of you. This has
37:01
Speaker 1: been wonderful, Just a treat to have all of you together.
37:05
Speaker 1: Regardless of whether we turn out to be right, no
37:09
Speaker 1: one remember, they will only remember the great conversation. Francine Lui,
37:13
Speaker 1: Peter Coy, Sharon Chen and Tom Orlick. Thank you very much.
37:17
Speaker 1: Thank you. That was the year ahead with Stephanomics. We'll
37:29
Speaker 1: be back with more very soon. In the meantime, remember
37:33
Speaker 1: you can always find us on the Bloomberg Terminal, website,
37:35
Speaker 1: app or wherever you get your podcast. This episode was
37:39
Speaker 1: produced as usual by Magnus Hendrickson, with special thanks to
37:42
Speaker 1: all of our expert correspondence and to the executive producer
37:46
Speaker 1: of Stephanomics, Lucy Meekin the head of Bloomberg podcast is
37:50
Speaker 1: Francesca Levy Happy new three,