Latest / Stephanomics / The Stephanomics Guide to the Global Economy in 2023

Transcript

The Stephanomics Guide to the Global Economy in 2023 · Stephanomics

0:07
Speaker 1: Hello, and welcome to Stephanomics, and today we're bringing the
0:10
Speaker 1: world of three to you. It sound traditional, strangely popular,
0:15
Speaker 1: look ahead to the big themes and questions coming down
0:17
Speaker 1: the track over the next twelve months, with a carefully
0:20
Speaker 1: selected panel of wise men and women who have been
0:23
Speaker 1: kind enough to make Stephanomics part of their holiday season.
0:27
Speaker 1: So in the US we have our Washington bureau chief
0:30
Speaker 1: of Bloomberg, Peggy Collins, and Bloomberg's chief economist and frequent
0:34
Speaker 1: participant on this show, Tom Orlig. Here in London we
0:38
Speaker 1: have the glittering star of Bloomberg Television, Francine Lakoix, and
0:42
Speaker 1: a newcomer to Stephanomics who is not new to the
0:45
Speaker 1: European corridors of power, as views are taken extremely seriously
0:49
Speaker 1: by senior policymakers across Europe and beyond, Charles Grant, director
0:54
Speaker 1: and founder the award winning think tank the Center for
0:57
Speaker 1: European Reform. Welcome to all of you, and thank you
1:01
Speaker 1: very much for doing this, especially people who are doing
1:04
Speaker 1: it for the second time, because you know what you're
1:06
Speaker 1: in for. Um we are all about looking ahead on
1:10
Speaker 1: this program, not looking back. But I think it makes sense,
1:14
Speaker 1: just very briefly to ask you all what your most
1:18
Speaker 1: memorable moment of twenty two was, Peggy, you know, stepanitiely
1:23
Speaker 1: one of the most memorable moments of two that I
1:26
Speaker 1: think will reverberate in actually came in July when surprisingly,
1:32
Speaker 1: after a lot of resistance, Senator Mansion did a U
1:35
Speaker 1: turn um and struck a deal that was a surprise
1:38
Speaker 1: in Washington, which is pretty hard to do um with
1:41
Speaker 1: Senator Chuck Schumer, and they passed what is known now
1:44
Speaker 1: as the Inflation Reduction Act. But it was actually a
1:47
Speaker 1: turned around in the sense that a lot of people
1:50
Speaker 1: had thought that the Biden administration would not be able
1:53
Speaker 1: to get that comprehensive climate you know, energy tech bill
1:58
Speaker 1: through in this before the midterm elections came up. So
2:02
Speaker 1: I think that was one of the surprises for us
2:05
Speaker 1: in the news room of and we're going to get
2:09
Speaker 1: into some of that the changing politics in the US
2:12
Speaker 1: in a minute. Tom Aulick, what was your big surprise?
2:16
Speaker 1: So there were so many huge surprises in Stephanie, and
2:21
Speaker 1: I'm sure the other wise people on the panel, they're
2:23
Speaker 1: gonna going to hit the big ones. A kind of
2:26
Speaker 1: a small acquired a surprise which stuck with me was
2:29
Speaker 1: a moment in June when Treasury Secretary Janet Yelling put
2:34
Speaker 1: her hand in the air and admitted that she had
2:37
Speaker 1: been wrong on inflation. Yelling, in common with the vast
2:43
Speaker 1: majority of the economics profession, had dismissed inflation as a
2:48
Speaker 1: transitory phenomenon, nothing we needed to be really worried about.
2:52
Speaker 1: Of course, that proved to be a hundred and eighty
2:54
Speaker 1: degrees wrong. Inflation was a very serious problem. Central banks
2:58
Speaker 1: had to respond with the most aggressive tightening since we've
3:01
Speaker 1: seen since the nineteen eighties. And as we look ahead
3:05
Speaker 1: into three and recall that not many people anticipated the coronavirus.
3:11
Speaker 1: Not many people anticipated Russia's invasion of Ukraine. Perhaps Charles
3:16
Speaker 1: will help me, that's wrong, um, not people anticipated inflation.
3:21
Speaker 1: I think it's useful to remember that if Janet Yellen
3:24
Speaker 1: can get it wrong on something as big and important
3:26
Speaker 1: as that, we can all get it wrong as well.
3:28
Speaker 1: Oh and we have Charles Grant. What what stuck out
3:31
Speaker 1: for you in the thing that sticks in my memory
3:34
Speaker 1: from is was Olaf Schaltz's speech to the bunders Tag,
3:39
Speaker 1: the so called zeigen Vendor speech. It was two or
3:41
Speaker 1: three days after the Russian invasion. He basically rejected mercles
3:46
Speaker 1: many of the principles of Merkel's foreign policy. So they're
3:48
Speaker 1: gonna be much tougher on Russia. They're going to free
3:51
Speaker 1: themselves from dependency on Russian energy supplies, and we're going
3:54
Speaker 1: to spend two percent of GDP on defense. And meanwhile,
3:56
Speaker 1: a hundred billion euros are going to a special fund
3:58
Speaker 1: so that German forces could catch up with those of
4:01
Speaker 1: their peers. And this was a revolution in German foreign
4:04
Speaker 1: and security policy. Subsequently, one can be a bit frustrated
4:07
Speaker 1: with the slow pace of implementation. One could be a
4:09
Speaker 1: bit annoyed that the revolution didn't extend to China policy,
4:12
Speaker 1: where Germany still seems stuck on the old economic model
4:15
Speaker 1: of using China is a very important export market and
4:19
Speaker 1: almost dependent on China. Nevertheless, it was a revolution in
4:21
Speaker 1: German foreign policy, and I think that that sticks in
4:23
Speaker 1: my memory. Francia, I mean, first of all, time stretches.
4:27
Speaker 1: I feel like the last twelf months were a decade
4:29
Speaker 1: all in one, partly because we wan't used to traveling anymore,
4:32
Speaker 1: but also the news cycle has just been absolutely relentless.
4:35
Speaker 1: So the most memorable moment for me it has to
4:37
Speaker 1: be the lettuce righte the list Trust letters which brought
4:40
Speaker 1: us like, you know, it made us laugh, but it
4:42
Speaker 1: also made us cry at the same time. What a
4:44
Speaker 1: week of absolute mayhem in the UK. That was. I
4:47
Speaker 1: was in Rome covering the Italian elections, Stephanie, and they
4:50
Speaker 1: had to call me back in London because the markets
4:53
Speaker 1: in the UK was so crazy. I've been covering you know,
4:55
Speaker 1: news for twenty years. They never pulled me out of
4:58
Speaker 1: a time story to cover UK one because it was crazier.
5:01
Speaker 1: And you know, we had the Jubilee celebrations, we had
5:03
Speaker 1: Boris Jranson resigning, we had the Queen dying for funeral
5:05
Speaker 1: of the market meldown and then list Trust resigning. So
5:08
Speaker 1: it was quite a year for the UK and the
5:11
Speaker 1: sheer absurdity being symbolized by this Iceberg lettuce, which was
5:16
Speaker 1: judged to be more like more likely to last the
5:19
Speaker 1: month than Liz trusts and and so and so it
5:22
Speaker 1: proved um thanks to everyone for that. I look back
5:27
Speaker 1: at my look Ahead column, which I'm writing again this
5:31
Speaker 1: year for Business Week. I started with what I suspect
5:34
Speaker 1: was not a very bold prediction at the time, that
5:36
Speaker 1: coronavirus was not going to be enemy number one for
5:39
Speaker 1: the global economy. The biggest changes we're going to stem
5:43
Speaker 1: from inflation and the risk that policymakers called the post
5:47
Speaker 1: COVID recovery wrong. I mean, Tom even as I wrote
5:50
Speaker 1: that central banks worst scrambling to reassess how long inflation
5:55
Speaker 1: was going to stick around, what kind of policy action
5:58
Speaker 1: it might require to put it back in its box.
6:01
Speaker 1: I mean, we have now had almost a year and
6:04
Speaker 1: maybe nine months of record breaking monetary tightening around the world,
6:09
Speaker 1: many central banks going up in three quarter of a
6:12
Speaker 1: percentage point increases for the first time. Are we there
6:16
Speaker 1: yet or will three bring more of the same. So
6:21
Speaker 1: the story of two was the story of how far
6:25
Speaker 1: and how fast inflation rose and what central banks have
6:29
Speaker 1: to do to respond. The story of three is going
6:33
Speaker 1: to be the story of how far and how fast
6:35
Speaker 1: inflation recedes um. So our view is that we're going
6:41
Speaker 1: to see a pretty rapid drop from the extremely elevated
6:45
Speaker 1: levels that we've seen in the back end of two.
6:48
Speaker 1: We're not going to see inflation sticking around at for
6:53
Speaker 1: very long. Even so, especially in the United States, where
6:58
Speaker 1: wage games are pretty astronomical, we're going to see inflation
7:02
Speaker 1: sticky at an uncomfortably high level for the FED, the
7:07
Speaker 1: European Central Bank, the Bank of England and others. What
7:11
Speaker 1: that means, we think is that the pace of rate
7:14
Speaker 1: hikes is going to slow and then stop um But
7:19
Speaker 1: we're not quite there yet in terms of central bank tightening.
7:23
Speaker 1: A couple of other wild cards to throw in there
7:25
Speaker 1: in terms of global monetary policy. The first one is Turkey. Now, Turkey,
7:31
Speaker 1: of course has been marching to its own drumma on
7:34
Speaker 1: monetary policy, cutting interest rates despite inflation running at and
7:40
Speaker 1: that's very much been a political decision driven by President Hurdan.
7:45
Speaker 1: Now there's an election coming up in Turkey in June.
7:49
Speaker 1: The view from our Turkey economists, who, by the way,
7:51
Speaker 1: he joined us from the central bank over there, is
7:54
Speaker 1: that the current policy settings just aren't sustainable and after
7:59
Speaker 1: that general election, after that presidential election, no matter who wins,
8:03
Speaker 1: we're going to have to see a significant shift with
8:05
Speaker 1: a big rate hike to stave off a currency and
8:09
Speaker 1: financial crisis. The other wild card, of course is Japan,
8:13
Speaker 1: where Harahiko Coroda, the architect of extreme easing, is now
8:20
Speaker 1: poised to step back from the front lines of policy making,
8:23
Speaker 1: retiring in the first half, that's going to be an
8:26
Speaker 1: opportunity for a reset there as well. And of course,
8:30
Speaker 1: apart from the very modest but significant change at the
8:33
Speaker 1: end of this year, UM that's the one central bank
8:36
Speaker 1: that has just not moved as the world has moved
8:39
Speaker 1: around them. Tom, there's much talk about whether or not
8:42
Speaker 1: we will dodge a recession in the US or indeed globally.
8:46
Speaker 1: What's your take. So it's funny. I think a lot
8:48
Speaker 1: of people look at the strength in the US labor
8:51
Speaker 1: market right now, the strength of UM wage gains, the
8:56
Speaker 1: very low unemployment, and say, you know what, all this
8:59
Speaker 1: talk about recession we had over the last few months,
9:03
Speaker 1: it must have been overdone. The economy is still looking
9:05
Speaker 1: pretty healthy. I think you actually need to flip it
9:09
Speaker 1: around and look at it in the other in the
9:10
Speaker 1: other direction. And it's the fact that the labor market
9:14
Speaker 1: remains very hot, with unemployment low and wages rising quickly,
9:19
Speaker 1: which means the Fed's job is still far from done.
9:22
Speaker 1: And it's the fact that the FED has to carry
9:25
Speaker 1: on layering on rate hikes, which means that a recession,
9:29
Speaker 1: we think in the back end of remains more likely
9:33
Speaker 1: than not. Did they dodge that yeah, they could dodge it.
9:39
Speaker 1: Inflation could disappear more quickly than we expect, the FED
9:42
Speaker 1: could get away with less rate hikes than we expect.
9:46
Speaker 1: Other unexpected stuff could happen. But if you look at
9:50
Speaker 1: the history books, there aren't many examples of this pace
9:55
Speaker 1: of monetary tightening occurring without a downturn following if few
10:00
Speaker 1: months later. And of course, of you're the west of
10:02
Speaker 1: the world, which we'll get onto in a minute. That is,
10:05
Speaker 1: the fact that the US is looking relatively strong now
10:09
Speaker 1: is actually in some sense bad news, because it does mean,
10:11
Speaker 1: as you've suggested, that there will be further interest rate
10:14
Speaker 1: rises that in a sense, the rest of the world
10:17
Speaker 1: may not may not need Peggy just staying in the
10:20
Speaker 1: US for a minute. I mean, if we had spoken
10:24
Speaker 1: six months ago, or even just before the US mid
10:28
Speaker 1: term congressional elections in early November, we would have expected
10:32
Speaker 1: the inflation and the economy to dominate the results of
10:36
Speaker 1: those But it didn't work out like that, did it. Well.
10:39
Speaker 1: It's interesting, Stephanie, because it did in some ways. The
10:42
Speaker 1: economy was certainly a priority on voters minds, but it
10:46
Speaker 1: turned out that the job market that Tom was just
10:50
Speaker 1: talking about, the strength of that, the fact that most
10:53
Speaker 1: Americans had a job, or if they were looking for
10:55
Speaker 1: a job, they could find one, seemed to put them
10:58
Speaker 1: in a better state when they went to the ballot box,
11:01
Speaker 1: and that some of the social and cultural issues that
11:04
Speaker 1: we're really bubbling up with the roev Wade decision um
11:08
Speaker 1: and other things seemed to be one of the most
11:12
Speaker 1: important things for voters when they ultimately pressed the button.
11:15
Speaker 1: So the economy was certainly there. But as Tom is saying,
11:18
Speaker 1: if next year, Ine, we do actually see some of
11:22
Speaker 1: the feds jacking up of interest rates actually hurting people
11:27
Speaker 1: when it comes to whether or not they can hold
11:29
Speaker 1: onto their job or get another job, then you might
11:32
Speaker 1: see voters have more of a reaction at the ballot
11:37
Speaker 1: box against the Bidet administration, if that makes sense, Stephanie, Yeah,
11:40
Speaker 1: And of course we do have there. There was a
11:42
Speaker 1: time when we thought we were going to have a
11:44
Speaker 1: sweep across the boarder for the for the Republicans, which often,
11:47
Speaker 1: of course happens in mid term elections against the incumbent president.
11:51
Speaker 1: We ended up with in a more mixed picture. But
11:54
Speaker 1: we do have a different Congress coming back in January.
11:58
Speaker 1: How is that going to feed through to pull to
12:00
Speaker 1: seeing what Congress does well. It certainly will make a difference.
12:03
Speaker 1: As you said, Stephanie, Democrats did better than many people
12:06
Speaker 1: were expecting, both on the federal level and in many
12:10
Speaker 1: of the governor's races across the country. But it will
12:13
Speaker 1: still mean that Republicans have the House coming into three.
12:17
Speaker 1: That may mean a couple of things, that the White
12:19
Speaker 1: House may have to turn to more executive orders to
12:22
Speaker 1: get things done, and also that they will get fewer
12:25
Speaker 1: things done through Congress. I do think there's some issues
12:29
Speaker 1: that they might still be able to find some common
12:32
Speaker 1: ground on, but we may see, as I mentioned, some
12:35
Speaker 1: more executive orders ruling the day when the Biden administration
12:39
Speaker 1: really wants to get something done. And very briefly, I'm
12:41
Speaker 1: gonna put you on the spot, and of course we've
12:43
Speaker 1: got a countdown now now we've got through the mid terms.
12:45
Speaker 1: Of course we're going to have a gradual crescendo up
12:48
Speaker 1: to the presidential elections in is Trump going to be
12:52
Speaker 1: on the ballot? You have to guess right now, we'll
12:55
Speaker 1: give you the nominee. He says he's going to be
12:57
Speaker 1: on the ballot. So I think we have to Visian ourselves,
13:01
Speaker 1: and and you know, I expect that he will be
13:04
Speaker 1: certainly candidates like Ron de Santa's who hasn't declared a
13:08
Speaker 1: candidacy for the race, but a lot of people expect
13:12
Speaker 1: him to. We expect others will certainly UM surface in
13:15
Speaker 1: the Republican Party. But Trump is still, in many people's minds,
13:20
Speaker 1: the biggest threat to widen and winning a second term
13:24
Speaker 1: if he declares. We're also waiting for that UM decision
13:27
Speaker 1: to come in early January. So to answer you directly, Stephanie,
13:30
Speaker 1: because Trump has said he will run UM, I think
13:33
Speaker 1: we expect him to, but a lot can happen in
13:36
Speaker 1: two years. Okay, we're going to cross the Atlantic now.
13:40
Speaker 1: And Charles Grant Tom mentioned, I mean, we've had many
13:45
Speaker 1: things kind of overturned our predictions in this session. Last year,
13:48
Speaker 1: it would have been the Russia's invasion of Ukraine, which
13:51
Speaker 1: the Russian Experts Center European Reform had definitely put on
13:56
Speaker 1: the radar, but not everyone was predicting. What what surprised
14:00
Speaker 1: you about the way the Russia's invasion of Ukraine has
14:03
Speaker 1: played out? And where do you see it going in
14:05
Speaker 1: twenty three? Two things surprised me Stephanie. I'll say more
14:09
Speaker 1: about the second. The first one. I think everybody was
14:11
Speaker 1: surprised by the Ukrainian's ability to resist the invasion, by
14:14
Speaker 1: the shearing competence of the Russian military leaders. Having said
14:18
Speaker 1: that the war is not over. Ukraine is not one
14:20
Speaker 1: and most of the military experts I talked, I think
14:22
Speaker 1: we're going to face a stalemate of several years, with
14:24
Speaker 1: neither side probably able to greatly pushed back the other
14:27
Speaker 1: side to a huge degree. So I think the war
14:29
Speaker 1: is going to go on, which leads to my second
14:32
Speaker 1: thing that surprised me was the degree of Western unity
14:35
Speaker 1: really surprising given how badly the trans atlantic relationship was
14:38
Speaker 1: at the time that Biden pulled out of Afghanistan, given
14:41
Speaker 1: the arguments within the European Union and how to handle Russia.
14:43
Speaker 1: The fact is the Europeans have been more or less united,
14:47
Speaker 1: with the possible exception of Hungary and and the U
14:49
Speaker 1: S and the EU have worked pretty well together on
14:51
Speaker 1: most disused most of the times. Having said that the
14:53
Speaker 1: caveat is of course, will the unity whole looking forward?
14:57
Speaker 1: I think if if we face a stagflation in the
15:00
Speaker 1: coming years and people see that it's caused by the
15:02
Speaker 1: war in Ukraine leaving very high energy prices and inflation
15:05
Speaker 1: in the lower standard of living. Then you know the
15:08
Speaker 1: public opinion and may be whipped up by populace to
15:11
Speaker 1: oppose the war. It's not really happening to a very
15:14
Speaker 1: great deal at the moment. But perhaps more worrying is
15:16
Speaker 1: that it is just the difference of analysis between two
15:19
Speaker 1: groups of governments. In the EU. You have the the
15:22
Speaker 1: Baltic countries in Poland and to some degree the Nordics
15:25
Speaker 1: and Romania in the Czech Republic, who want to be
15:27
Speaker 1: very tough on Russia. They don't want to talk to poosting.
15:29
Speaker 1: They say regime change in Russia. The warmest go on
15:33
Speaker 1: to Ukraine has reconquered all its territory and isolate Russia.
15:37
Speaker 1: When you have then you have the French and their towns,
15:39
Speaker 1: and the Germans and indeed President Biden, and this isn't
15:41
Speaker 1: the same groups saying, actually, don't humiliate Russia. We're going
15:45
Speaker 1: to have to deal with Russian the longer. At some
15:46
Speaker 1: point that will have to be a negotiation and we
15:48
Speaker 1: have to find a way of working out a relationship
15:50
Speaker 1: with Russia in the long term, which sort of implies
15:52
Speaker 1: that at a certain point they'll put pressure on Ukraine
15:55
Speaker 1: to to compromise some of its territory and return for peace.
15:59
Speaker 1: That nobody's at he's saying that at the moment. That
16:01
Speaker 1: is the implicit I think in the French, German, Italian,
16:03
Speaker 1: American position. So there is this tension between the two
16:06
Speaker 1: schools of thoughts in the European with the British somewhere
16:08
Speaker 1: in the middle, but perhaps on the bit of the
16:11
Speaker 1: tougher end of the spectrum. And the longer the war
16:13
Speaker 1: goes on, the more these tensions will will grow, and
16:15
Speaker 1: the harder it will be to keep the West united.
16:18
Speaker 1: And you mentioned at the start that very striking speech
16:20
Speaker 1: that the Chancellor that Schultz gave, and but you also
16:25
Speaker 1: mentioned that there had been a bit disappointing when it
16:27
Speaker 1: comes to the follow up on that. I mean, when
16:30
Speaker 1: you're someone who's been quite frustrated over the years sometimes
16:34
Speaker 1: that the Europeans were not more muscular in their approach
16:38
Speaker 1: to defense. Is this going to fundamentally change the way
16:42
Speaker 1: Europe sees itself geo politically. Is it going to change
16:46
Speaker 1: its commitment to defense in a lasting way? I think
16:49
Speaker 1: that the war has been good for European defense. Both
16:51
Speaker 1: the sort of manifestations of European defense. What one is NATO,
16:55
Speaker 1: which includes the Americans, one is the EU which doesn't
16:57
Speaker 1: include the Amans. They both actually move forward. NATO is
17:00
Speaker 1: clearly been a very very important organization protecting European countries
17:04
Speaker 1: from the Russian threat, and although Native hasn't has made
17:07
Speaker 1: a point of not being directly involved in the war
17:09
Speaker 1: of course and staying out of it, it is behind
17:11
Speaker 1: the scenes strengthening its eastern flanks, sending more troops to
17:14
Speaker 1: its eastern member states to to protect them. So that's
17:16
Speaker 1: good for Native but also the EU itself outside the spotlight,
17:20
Speaker 1: behind the scenes that he's doing a lot on defense.
17:21
Speaker 1: It's got something called the European Peace Facility which is
17:24
Speaker 1: funding the purchase of arms for Ukraine. It's never done
17:27
Speaker 1: that before and it's spent most of the first seven
17:30
Speaker 1: or eight billion euros has been spent in the Ukraine already.
17:32
Speaker 1: They're replenishing it with another top up of a similar amount.
17:34
Speaker 1: Because the European Defense Fund, which is being spent on
17:37
Speaker 1: European industries that use played a huge rule in pushing
17:40
Speaker 1: through sanctions against against Russia. Because of Ukraine this sounds
17:43
Speaker 1: funny to say it's been good for European defense. I
17:45
Speaker 1: guess in the same way that World War Two is
17:46
Speaker 1: good for Europe's sense of its need for defense. Yes,
17:50
Speaker 1: it's worth actually saying just one number, because bloom Bird
17:53
Speaker 1: likes numbers. European defense budgets have gone up about two
17:56
Speaker 1: hundred billion euros this this year, which is a huge amount.
18:00
Speaker 1: Half of that is the German budget going up by
18:02
Speaker 1: a hundred billion. You're the extra hundred billion for the Germany.
18:04
Speaker 1: So Europe, Europe are actually putting the money where their
18:07
Speaker 1: mouth is when it comes to defense for the first
18:09
Speaker 1: time ever really in many years. And when I was
18:11
Speaker 1: in Japan and not not long ago, that was the
18:13
Speaker 1: week that the Prime minister announced a big increase in
18:15
Speaker 1: defense spending there. So the world has been been shaken
18:18
Speaker 1: shaken up. Francine, you've been very patient. As you mentioned,
18:24
Speaker 1: you were often DoD gadding around Europe for Bloomberg Television
18:28
Speaker 1: and interviewing some of the great and good. I mean,
18:30
Speaker 1: it has not been great for Europe this winter, and
18:33
Speaker 1: we are probably looking at a recession thanks to high
18:37
Speaker 1: energy prices. But what you might have called the real
18:39
Speaker 1: downside scenarios for Europe that we might have had a
18:44
Speaker 1: few months ago as a result of the Ukraine War,
18:46
Speaker 1: they haven't materialized. Is the hard part still to come? Well,
18:51
Speaker 1: I think it could get harder from here, stephanitely partly
18:55
Speaker 1: because of the fairly mild winter I guess that we
18:57
Speaker 1: had in you know, the Euros are and in the
19:00
Speaker 1: UK in October and November, so oddly, and I have
19:02
Speaker 1: checked this with the news room because I couldn't quite
19:05
Speaker 1: believe what I was reading. Europe is ending one of
19:07
Speaker 1: the toughest years for energy in a stronger position than
19:10
Speaker 1: it started the year. And this is partly because of
19:13
Speaker 1: the high energy prices attracting cargoes for example of L
19:17
Speaker 1: and G liquified natural gas over the autumn, which then
19:20
Speaker 1: continued to be discharged. So you're right, you know, we've
19:22
Speaker 1: had a pretty difficulty or inflation climbing to the hystin decades,
19:27
Speaker 1: household builds increasing multi fold, but a lot and everything
19:31
Speaker 1: probably will depend on energy. Um it's a bit counterintuitive that,
19:35
Speaker 1: you know, our storage sites are now at the brim,
19:37
Speaker 1: so we do have quite a few months of being
19:40
Speaker 1: able to cope December that freeze, and we're still in
19:43
Speaker 1: its energy prices soaring, So I guess it's it's whether
19:47
Speaker 1: we have power shortages, whether the situation in Europe will
19:50
Speaker 1: get much worse. Um there are other major risks, example
19:53
Speaker 1: that that gas price cap from the EU, which is
19:55
Speaker 1: seen as a positive, could also send some of the
19:58
Speaker 1: cargoes elsewhere, So you know, as you know, watch out
20:01
Speaker 1: for energy prices which could get a lot higher. And
20:04
Speaker 1: if that touches un employment, then I guess all bets
20:07
Speaker 1: are off. And I mean you spend a lot of
20:09
Speaker 1: time in Italy. It's usually safe to put decent odds
20:12
Speaker 1: on an Italian crisis when the cost of money is
20:15
Speaker 1: going up, and obviously the European Central Bank is raising
20:18
Speaker 1: interest rates. But the new government has been quite timid
20:23
Speaker 1: so far, the government that came in as a as
20:25
Speaker 1: a new populist government. Um, so is it possible that
20:30
Speaker 1: Italy is gonna miss that great moment of reckoning in
20:33
Speaker 1: three They've kind of been our best behavior, haven't there Now.
20:36
Speaker 1: I don't think it will be smooth sailing, but I
20:38
Speaker 1: do think the trend will be it will be trying
20:40
Speaker 1: to stick to the reforms that Mario Druggi had promised
20:43
Speaker 1: in exchange for money. There has been huge opposition, and
20:46
Speaker 1: this is something sometimes that's missed if you're not in Italy.
20:49
Speaker 1: There's been huge opposition to the ECB and to Christine mcgarden,
20:53
Speaker 1: but Georgia Maloney has scrapped one of the controversial measures
20:57
Speaker 1: aimed at promoting cash payments, and that was to please
21:00
Speaker 1: the European Union. And for the moment, she's also stuck
21:03
Speaker 1: to her you know, staunch support for Ukraine following the
21:05
Speaker 1: Russian invasion, which to some could be seen as a surprise.
21:09
Speaker 1: Um so she's been more vocal in questioning that you
21:11
Speaker 1: stands on immigration and energy, but actually, so far it
21:14
Speaker 1: looks like you know, plane sailing for now step famous
21:19
Speaker 1: plane sailing? Can we ever use that phrase for Italy? Charles?
21:23
Speaker 1: Do you share Francine's view? And is there anywhere else
21:26
Speaker 1: that we should be looking for potential trouble in twenty
21:29
Speaker 1: three or not trouble for them? Slightly more right than Francine,
21:32
Speaker 1: I mean, Maloney is a close friend of Mr Kachinsky
21:35
Speaker 1: who runs Poland, and Mr Auburn, who runs Hungry, and
21:38
Speaker 1: they are embarked on a sort of permanent warfare against
21:41
Speaker 1: the EU of a so called rule of laws us
21:43
Speaker 1: that you being upset that they denied the damage the
21:47
Speaker 1: independence of the judicies. And so I think Maloney has,
21:49
Speaker 1: as Francine says, has been a very good good behavior
21:52
Speaker 1: so far. But I'm not sure it's gonna gonna last.
21:54
Speaker 1: I think that the pressures on her from her base
21:56
Speaker 1: to sort of through a few stones at the glass
21:59
Speaker 1: houses suscles may rise. But that's one thing I'm looking
22:01
Speaker 1: at it for. And other things I said is is
22:04
Speaker 1: there going to be a resolution of this endless argument
22:06
Speaker 1: between Poland and Hungry on the one hand and the
22:07
Speaker 1: E and the other over the rule of law. I'm
22:09
Speaker 1: not very optimistic. Two final questions I pose are is
22:13
Speaker 1: that you're going to become more protectionists, more focused on
22:15
Speaker 1: industrial policy, more focused on securing supply chains, which has
22:18
Speaker 1: been the tendency of recent years, and suspending rules on
22:21
Speaker 1: state aid so it can build up huge hydrogen industries,
22:24
Speaker 1: battery industries and so on, and microchip industries. So I think,
22:27
Speaker 1: you know, the use under French leadership is becoming far
22:30
Speaker 1: more protections than it used to be. Is that going
22:31
Speaker 1: to persist in? Finally, We'll come back to this later,
22:34
Speaker 1: I guess Stephanie is will there be a repress more
22:36
Speaker 1: between the UK and the EU. That is an interesting question. Well,
22:39
Speaker 1: we may part the UK briefly because people will feel
22:42
Speaker 1: they've had an excess of Europe already. But Tom, one
22:46
Speaker 1: thing that we've mentioned briefly on this program before that's
22:49
Speaker 1: helped Europe have those overflowing gas supplies that Francine talked
22:55
Speaker 1: about it was the slowdown in China because it made
22:58
Speaker 1: more energy available thought for Europe to snap up. And
23:02
Speaker 1: the part was partly because the Chinese authorities have continued
23:06
Speaker 1: to put control of COVID ahead of economic growth and
23:10
Speaker 1: we had sort of expected that to continue for a
23:13
Speaker 1: large part of three only a grad or move away
23:16
Speaker 1: from the COVID zero policies, but but everything seemed to
23:20
Speaker 1: change very quickly in the last few weeks of the year.
23:24
Speaker 1: Um I guess I'm interested. You spent eleven years in Beijing.
23:28
Speaker 1: How do you read what happened to COVID policies in
23:30
Speaker 1: China and how that affects the outlook for next year? Um, So,
23:36
Speaker 1: before you're getting onto China stuff, and I just wanted
23:38
Speaker 1: to pick up on one comment from Charles, just from
23:41
Speaker 1: a British negotiating position. I suggest we hold back on
23:44
Speaker 1: using French words like reproach, more con sessions from from
23:49
Speaker 1: across across the channel, um so, um so on China,
23:55
Speaker 1: um now. I gave Beijing a lot of credit for
23:59
Speaker 1: the way they manage edged COVID. Yes, COVID zero placed
24:04
Speaker 1: enormous strain on the economy and enormous strain on society,
24:09
Speaker 1: and we saw that social strain bubbling up in those
24:11
Speaker 1: extraordinary protests in the last few weeks. But COVID zero
24:17
Speaker 1: saved a lot of lives until a few weeks ago,
24:20
Speaker 1: just a few thousand people dead from COVID in China
24:24
Speaker 1: compared to vastly larger numbers for much smaller populations in
24:29
Speaker 1: other parts of the world. So I gave them a
24:31
Speaker 1: lot of credit. The last few weeks have sort of
24:35
Speaker 1: really shaken my confidence that they've got a plan for
24:38
Speaker 1: an exit. Um now. There is a way out of
24:41
Speaker 1: COVID zero whilst minimizing public health costs, and that requires
24:45
Speaker 1: a gradual approach to allow time for vaccines to go
24:49
Speaker 1: into arms and for health facilities to be moved into place. Clearly,
24:54
Speaker 1: that is not the approach which China has taken. Reopening
24:57
Speaker 1: has happened really really quickly UM And I'm not an epidemiologist.
25:03
Speaker 1: I don't know how things are going to play out
25:04
Speaker 1: in the next few weeks and months. But the experience
25:07
Speaker 1: in other countries around the world, and what I read
25:11
Speaker 1: from people who are experts in the way diseases spread
25:14
Speaker 1: through populations suggests there's a risk of a really serious
25:18
Speaker 1: public health catastrophe in China in the start of UM.
25:23
Speaker 1: So that's really important. Hasn't happened yet. We don't know
25:27
Speaker 1: how Chinese society, how China's policymakers are going to react
25:31
Speaker 1: to it, and that means there's still a huge amount
25:33
Speaker 1: of uncertainty as we look into China in the year ahead.
25:38
Speaker 1: That said, from an economic perspective, the rapid exit from
25:43
Speaker 1: COVID zero is pretty clearly a positive for China's growth
25:47
Speaker 1: numbers looking forward. Yes, right now, people are pretty cautious.
25:52
Speaker 1: They don't want to get infected in this first wave.
25:55
Speaker 1: They're staying at home. We're going to see some pretty
25:57
Speaker 1: brutal growth numbers from China in the fourth quarter of
26:01
Speaker 1: two and perhaps right at the start of but by
26:05
Speaker 1: the time we get through the winter and into the
26:07
Speaker 1: second quarter of three, I think we're going to start
26:10
Speaker 1: looking at some pretty strong growth numbers out of China.
26:13
Speaker 1: Our base case for the year ahead is that we
26:15
Speaker 1: get five point one percent growth. That base case assumed
26:19
Speaker 1: a gradual reopening. We've now got a more rapid reopening.
26:23
Speaker 1: So I think risks to that five point one percent number.
26:26
Speaker 1: And now to the upside for the rest of the world.
26:29
Speaker 1: Of course, there's a positive there China is going to
26:32
Speaker 1: be buying more stuff, but there's also a negative. Because
26:37
Speaker 1: China is going to be buying more stuff, the prices
26:39
Speaker 1: of stuff are going to start going up, and we'll
26:42
Speaker 1: look especially at prices for commodities like energy and think
26:46
Speaker 1: about how they're going to be playing into the inflation
26:48
Speaker 1: story in the US, in Europe and elsewhere. Yeah, so
26:51
Speaker 1: that if you do have good economic news in China,
26:53
Speaker 1: that will be making the job of central banks everywhere
26:56
Speaker 1: harder and increasing, as you say, the sort of stickiness
26:59
Speaker 1: of inflation. I mean, Charles, obviously, the shifting relations with
27:06
Speaker 1: China is the stuff of years, not months. But we
27:09
Speaker 1: do seem to be in a new era of geoeconomics,
27:12
Speaker 1: and actually I spoke about it at length in the
27:14
Speaker 1: last week's episode with with support Tucker, economic tools increasingly
27:19
Speaker 1: being used for geopolitical objectives. Is Europe inevitably going to
27:23
Speaker 1: be pulled into this what we would call the new
27:26
Speaker 1: Cold War? Or do you think there's a desire to
27:29
Speaker 1: really resist this weaponization of the global economy. I think
27:33
Speaker 1: Europe is going to be pulled into a new Cold War,
27:35
Speaker 1: but rather reluctantly dragging its feet. I mean, Europe's in
27:38
Speaker 1: a very difficult place when it comes to the growing
27:40
Speaker 1: conflict between China and the US because economically it depends
27:44
Speaker 1: more on China than the US does, a greater pertentage
27:47
Speaker 1: of its trade is with China. It also has a
27:49
Speaker 1: very different sort of geopolitical attitude to China. Europeans worried
27:53
Speaker 1: about Chinese behavior, the abuse of human rights, the threats
27:57
Speaker 1: to its neighbors, the theft of intellectual property, and so on.
28:00
Speaker 1: But I think many people in Washington worry about Chinese
28:03
Speaker 1: power per se, and I think many people in Washington,
28:05
Speaker 1: even if China started behaving better, would still see China
28:08
Speaker 1: as a threat to American America's role in in Asian securities. Biden,
28:12
Speaker 1: to his credit, has made an effort to reach out
28:14
Speaker 1: to the Europeans to consult them on what he does
28:16
Speaker 1: on China. But I think that the tensions will will
28:18
Speaker 1: grow because the Europeans just don't want to be as
28:20
Speaker 1: tough as as the Americans. However, the more we get
28:23
Speaker 1: into a sort of new Cold War, and the more
28:24
Speaker 1: inevitably the Europeans, whoever reluctantly, are forced to take sides
28:28
Speaker 1: and will take sides on on the American side as
28:30
Speaker 1: far as I can see. And Peggy, I mean, we
28:32
Speaker 1: talked about the new Congress. The one thing that there
28:34
Speaker 1: is bipartisan agreement on is that the U s should
28:37
Speaker 1: continue to be playing tough with China. Do you sense
28:41
Speaker 1: from the administration and appetite for opening up more sort
28:47
Speaker 1: of wars along the lines of the chip chip wars
28:51
Speaker 1: and more weaponization of trade rules from the US? I
28:56
Speaker 1: do think there's appetite, there's Stephanie. I think the Bion
28:59
Speaker 1: administry and has tried to position itself very tough on
29:02
Speaker 1: China particularly. We saw President Biden himself be very forthright
29:09
Speaker 1: about his feelings about Taiwan, for example, and we've seen
29:12
Speaker 1: Secretary of State Blink in this fall say that the
29:15
Speaker 1: US sees the timetable for China potentially invading Taiwan moving up.
29:20
Speaker 1: So I do think there's quite a um a hawkish
29:24
Speaker 1: viewpoint from the Biden administration towards China while they are
29:27
Speaker 1: still trying to keep a dialogue open, and the Republicans
29:31
Speaker 1: certainly are coming out of the gate in with control
29:35
Speaker 1: of the House in a similar position that they want
29:38
Speaker 1: to look strong on China. So I do think you
29:40
Speaker 1: will continue to see legislator legislators try and policymakers try
29:45
Speaker 1: to show that they're being tough on China while keeping
29:49
Speaker 1: the door open between the two countries because we are
29:52
Speaker 1: still so interconnected. I think that's one thing to watch, certainly.
29:56
Speaker 1: And then the other is the chips bill that you
29:59
Speaker 1: mentioned that is really really just starting to get off
30:01
Speaker 1: the ground, passed in two but a lot of money
30:05
Speaker 1: and energy is going into trying to onshore or near
30:10
Speaker 1: shore the making of semiconductor chips that those all important
30:14
Speaker 1: semiconductor chips. So I do think the Biden administration is
30:17
Speaker 1: hoping that some of that will actually get off the
30:20
Speaker 1: ground in three and potentially offset some of the job
30:24
Speaker 1: losses that we may see from the FED ratcheting up
30:27
Speaker 1: the interest rates. So they are hoping that as the
30:30
Speaker 1: FED tries to strike this soft landing that Tom talk
30:34
Speaker 1: talked about before, that there will be some new jobs
30:37
Speaker 1: coming into the economy from the infrastructure bill that they
30:40
Speaker 1: passed in their first couple of years, and then from
30:43
Speaker 1: this semiconductor bill that passed as well in two Although
30:47
Speaker 1: it's funny because one of our colleagues, Sean donnand has
30:49
Speaker 1: been going has been going down to where the new
30:51
Speaker 1: one of the new semiconductive factories is going to be,
30:54
Speaker 1: and they're struggling to find construction workers. Said that the
30:57
Speaker 1: issue of of tight labor markets as what's turning to
31:01
Speaker 1: bite them. This is the time of year, Peggy, where
31:04
Speaker 1: you as bureau chief of sort of thinking about reallocating
31:07
Speaker 1: people as we see kind of the political mood shifting
31:10
Speaker 1: and activity moving to different areas. And I was struck
31:13
Speaker 1: by you mentioning antitrust sort of competition moves being an
31:19
Speaker 1: area that you saw being a more active next year.
31:22
Speaker 1: Is that is that one of the areas where President
31:24
Speaker 1: Biden can continue to make news and do things even
31:28
Speaker 1: with a divided Congress. Yes, I do think so. I
31:31
Speaker 1: do think there is some appetite in Congress on both
31:34
Speaker 1: sides of the Aisle on this issue of antitrust and
31:38
Speaker 1: particularly related to the consolidation of power amongst the big
31:41
Speaker 1: tech companies. But even without that, the Biden administration has
31:45
Speaker 1: two key allies and potential forces behind it. One is
31:50
Speaker 1: Lena Kahn heading up the FDC, and then also the
31:55
Speaker 1: at the Justice Department there's Assistant Attorney General Jonathan Cantor.
31:59
Speaker 1: Both of them are very aggressive on this anti TUCH
32:02
Speaker 1: issue and they see it as the kind of the
32:04
Speaker 1: new frontier for helping consumers and workers that this consolidation
32:09
Speaker 1: of industries and business has really at many junctures hurt workers,
32:15
Speaker 1: especially given that fewer and fewer of them are protected
32:18
Speaker 1: by unions. And so I do think there's a three
32:21
Speaker 1: pronged effort between the Biden and administration push on the
32:25
Speaker 1: hill as well as um Lena con and Jonathan Canters
32:29
Speaker 1: pushes on antitrust where you could see more moves or
32:32
Speaker 1: cases coming down that could change the landscape. Okay, so
32:37
Speaker 1: I feel like since at least some of us are
32:38
Speaker 1: sitting in UK, we probably have to linger a little
32:41
Speaker 1: bit on the sad, sorry state of the UK economy
32:45
Speaker 1: and politics front scene. You started with the lettuce I
32:48
Speaker 1: was struck by a pole. I just saw of just
32:52
Speaker 1: under half of the UK population is thinking we might
32:55
Speaker 1: get yes, another prime minister in three despite the fact
32:58
Speaker 1: there's no election on the eies and and the government
33:01
Speaker 1: in theory has quite a big majority. There are strikes
33:05
Speaker 1: up and down the country as we speak, including an
33:08
Speaker 1: unprecedented nurses strike ambulance workers. Can it Can it only
33:15
Speaker 1: get better from here? Or do you think actually things
33:17
Speaker 1: are going to get worse? First well, I thought stephanitiely
33:20
Speaker 1: that things could only get better, mainly come an optimism.
33:23
Speaker 1: I spoke to John Stepic of course from Boomburgh Wealth
33:26
Speaker 1: and he thoroughly depressed me on house prices and frankly
33:28
Speaker 1: everything else. So he you know, he argues that house
33:31
Speaker 1: prices could fall over house price fall that's a crash.
33:36
Speaker 1: I mean that's a lot. So frankly, everything depends, as
33:39
Speaker 1: you know now, on the labor market whether that stays strong.
33:43
Speaker 1: I think the lesson from history is that when a
33:45
Speaker 1: recession hits an employment takes about a quarter or so
33:48
Speaker 1: to respond. Once it does, it tends to rise rapidly.
33:51
Speaker 1: So it depends really on the rise and whether the
33:53
Speaker 1: bank in England can manage it whether we get through this.
33:56
Speaker 1: The Bank of England officials that we speak to, and
33:59
Speaker 1: you know them better than me, Stephanie, they're you know,
34:02
Speaker 1: they worry or they think there's a gradual riseing job
34:04
Speaker 1: is right next year. The big risk is that there's
34:07
Speaker 1: a huge increase all of a sudden. If it's a
34:09
Speaker 1: lot more rather than we think, then I guess all
34:11
Speaker 1: better off. And I noticed that our achieved europe economists
34:14
Speaker 1: had done a few sort of back of the envelope
34:16
Speaker 1: calculations that just in terms of where incomes were now
34:19
Speaker 1: and where the affordability of mortgages relative to a year
34:23
Speaker 1: or two ago, house prices look about twenty overvalued in
34:27
Speaker 1: the UK. So it does feel like they're heading for
34:29
Speaker 1: a for one way or another. Charles, that whole mini
34:33
Speaker 1: budget fiasco in the autumn. The optimistic take on that
34:38
Speaker 1: was it was it meant the death of cake is
34:40
Speaker 1: um in the UK. It meant the death of this
34:42
Speaker 1: idea that was associated particularly with Boris Johnson, that you
34:45
Speaker 1: could dodge tough choices, have your cake and eat it.
34:48
Speaker 1: Is that a sort of positive spin on what's happened
34:50
Speaker 1: that now Britain's going to get serious, is going to
34:52
Speaker 1: be forced to go on a better path because it's
34:54
Speaker 1: tried all the other ones. I think Cakism has been
34:58
Speaker 1: defeated and the the establishment and the grown ups are
35:01
Speaker 1: in control of the leavers on the British economy now
35:04
Speaker 1: for now. But let's not forget that the Tory Party
35:07
Speaker 1: has many members of Parliament in it who are who
35:09
Speaker 1: are Cakiss, who like Boris Johnson and his trust, sort
35:12
Speaker 1: of believe you can have tax cuts and spending increases
35:15
Speaker 1: and growth all all at the same time without worrying
35:17
Speaker 1: too much about the consequences. Some of them are still
35:20
Speaker 1: in that of that school, and they are particularly the
35:22
Speaker 1: ones who really hate the European Union. So they may
35:25
Speaker 1: prevent Richie Sunac from, if I may use a French word,
35:30
Speaker 1: engineering a repression of the European Union in the over
35:34
Speaker 1: the coming months, which which it's all about the Northern
35:36
Speaker 1: Ireland Protocol. It's far too boring to explain, but essentially
35:40
Speaker 1: the British Government has to compromise on this protocol and
35:43
Speaker 1: agree to allow some checks on goods passing between Great
35:46
Speaker 1: Britain and Northern Ireland to preserve the fact that there
35:49
Speaker 1: isn't a barrier between the North of Ireland and the
35:51
Speaker 1: South of Ireland because Northern Irelands and the civil market,
35:53
Speaker 1: that's what it's about. The British government is reluctant to
35:56
Speaker 1: do so, we'll have to do so. Richie Sunach is
35:58
Speaker 1: strong enough if he wishes to see down his own
36:00
Speaker 1: right wing Brexiteers and the DUP than leading unionist part
36:04
Speaker 1: and all down if he wishes to, but I'm not
36:05
Speaker 1: sure he's tough enough to do so. And if he
36:07
Speaker 1: doesn't do so, then but President Biden won't come to
36:10
Speaker 1: Northern Island for the for thenversity of the Good Friday
36:13
Speaker 1: Agreement in April, and the Americans to be quite annoyed,
36:16
Speaker 1: and he won't get a better relationship with the European Union,
36:18
Speaker 1: which is really bad in very many respects at the moment.
36:20
Speaker 1: That he does have to take on the cakes, take
36:23
Speaker 1: on the extremist, take on the Brexiteers and defeat them.
36:25
Speaker 1: I hope he does, but I'm not sure that he's
36:26
Speaker 1: going to be able to do something. And probably the
36:28
Speaker 1: single most effective thing you could do to support the
36:30
Speaker 1: economy is to have a stronger trade relationship with the EU.
36:33
Speaker 1: But as you suggest, it's it's it's politically extremely difficult
36:37
Speaker 1: to handle well. I think when we're heaving, probably for
36:40
Speaker 1: a labor government in a couple of years time, that
36:42
Speaker 1: even a labor gunner which will want a stronger relationship
36:45
Speaker 1: with the EU, a close relationship will not reverse the
36:48
Speaker 1: essentials of the Brexity deal, namely out of the Single Market,
36:50
Speaker 1: out of the Customs Union, no freedom of movement. So
36:53
Speaker 1: even a better relationship will still lead to a lot
36:54
Speaker 1: of economic damage. As you may have noticed, Stephanie, the
36:57
Speaker 1: Center for European Reform just published a report today on
37:00
Speaker 1: how much Brexit has damaged the British economy. We've constructed
37:02
Speaker 1: a Doppleganger model of an economy similar to the British
37:05
Speaker 1: economy which didn't undergo Brexit, and the gap between the
37:08
Speaker 1: growth of the Doppelgan economy and the British coconomy is
37:11
Speaker 1: about five and a half percent. That's led to put
37:13
Speaker 1: lead to the income for the treasury being cut by
37:16
Speaker 1: about forty billion pounds a year, which is roughly the
37:18
Speaker 1: same as the tax increases Writchily Sooner recently known. So
37:21
Speaker 1: the cost of the British economy under the exchequer of
37:24
Speaker 1: Brexit is quite large, and it's going to remain. Sadly, Tom,
37:27
Speaker 1: it has been a tough year in Europe, the US
37:30
Speaker 1: still potentially looking at a recession, and China, but it
37:35
Speaker 1: should be said there's a lot of the rest of
37:37
Speaker 1: the world that has not necessarily been as hard hit.
37:41
Speaker 1: I mean, I noticed India's growth is now going to
37:43
Speaker 1: outpace China's for at least a couple of years in
37:45
Speaker 1: a row, and of course the Gulf is booming thanks
37:48
Speaker 1: to high energy prices. Were looking, as a global economist does,
37:53
Speaker 1: at the entire world economy. Who are the relative winners
37:57
Speaker 1: from the shocks of two? Who's coming to this better?
38:01
Speaker 1: First of all, definitely, let me say that I was
38:03
Speaker 1: poised to forgive Charles for the repeat appearance of reproach more,
38:07
Speaker 1: but then he had to follow up with Doppelgang, which
38:09
Speaker 1: is different country but the same, the same, same, same,
38:13
Speaker 1: wrong side of the linguistic divide. Um. So um, So look,
38:18
Speaker 1: I think until quite recently, UM, we could tell a
38:22
Speaker 1: story about a global economy which was supported by three pillars,
38:27
Speaker 1: really low borrowing costs, reliably supercharged demand from China and
38:34
Speaker 1: ever increasing tip trade and financing ties. Um. And what's
38:40
Speaker 1: happened in the last few years is all of those
38:43
Speaker 1: pillars have been kicked away, Borrowing costs have gone to
38:47
Speaker 1: the roof. China, as we've just discussed, has gone from
38:51
Speaker 1: being a reliable growth driver to a real wild card
38:55
Speaker 1: for the global economy next year. And of course, Frank
39:00
Speaker 1: should us China ties and even more rushes invasion of
39:05
Speaker 1: Ukraine are really replaced kind of optimistic hopes for globalization
39:11
Speaker 1: with a new reality of kind of tariffs and embargoes
39:14
Speaker 1: and sanctions and geopolitical state craft. So for the global
39:19
Speaker 1: economy written large, all of these things are negative. Right.
39:24
Speaker 1: Growth is going to be weaker, inflation is going to
39:27
Speaker 1: be higher. But as you mentioned, Stephanie Um, there is
39:31
Speaker 1: also at a kind of micro level going to be
39:34
Speaker 1: a pattern of winners and losers, right, And if we
39:37
Speaker 1: think about some of the potential winners in this new
39:42
Speaker 1: and more chaotic and more disorderly and more fragmented world,
39:46
Speaker 1: I think we can point to companies and countries that
39:50
Speaker 1: control access to crucial resources. Right. So if you're controlling
39:55
Speaker 1: access to a crucial piece of the semiconductor supply chain,
39:59
Speaker 1: or if or pumping a lot of the petrochemicals which
40:03
Speaker 1: the world relies on, potentially the new world looks better
40:07
Speaker 1: for you, more opportunities than the old world. If you're
40:11
Speaker 1: a country that could potentially step into supply chains and
40:16
Speaker 1: give countries and companies a bit of a hedge against
40:20
Speaker 1: their China exposure. If you're in Mexico or a Vietnam
40:25
Speaker 1: or an India, it's definitely you mentioned India now outpacing China.
40:29
Speaker 1: Then this shift to a more broken, more fragmented world
40:33
Speaker 1: could also mean significant opportunities as well as new risks.
40:37
Speaker 1: So I think we tend to think about emerging markets
40:40
Speaker 1: as as a as a pack, right, and certainly investors
40:44
Speaker 1: often treat them as a kind of a pack and
40:46
Speaker 1: don't differentiate in between them and the reality though, of course,
40:50
Speaker 1: is that within the emerging market universe, you've got lots
40:54
Speaker 1: of different qualities of institutions. So you've got Brazil's central Bank,
41:00
Speaker 1: for example, which hikes aggressively to get inflation under control.
41:04
Speaker 1: And you've got turkeys central Bank, which is dominated by
41:08
Speaker 1: politics and which bizarrely cuts interest rates and gives a
41:12
Speaker 1: further leg to already supercharged inflation. You've got emerging markets
41:17
Speaker 1: that are massive commodity exporters, Like many of the emerging
41:21
Speaker 1: markets in the Middle East and which are kind of
41:25
Speaker 1: just counting the money flow into their treasuries as Russia's
41:28
Speaker 1: invasion of Ukraine drives global energy prices through the roof.
41:32
Speaker 1: And then you've got lots of other emerging in frontier
41:34
Speaker 1: economies like Sri Lanka, for example, which defaulted on its
41:39
Speaker 1: debt last year because it couldn't afford to pay for
41:43
Speaker 1: food and pay for energy imports and repay its lenders
41:47
Speaker 1: at the same time. Um So, I think this sort
41:50
Speaker 1: of more fragmented world, the world of higher borrowing costs,
41:54
Speaker 1: the world of broken supply chains. I think it's going
41:57
Speaker 1: to reinforce the sort of the need to differentiate within
42:01
Speaker 1: the emerging market universe. Who's got what technologies, who's got
42:05
Speaker 1: what commodities, who's got good institutions, who's got bad institutions.
42:10
Speaker 1: He's going to be some of the important questions going forward. Okay,
42:14
Speaker 1: So I think we have had our tour of the world.
42:17
Speaker 1: I'm very briefly before you escape. Traditionally I now ask
42:21
Speaker 1: for everyone's wild cards, things to watch, unexpected, things to
42:27
Speaker 1: look out for. In twenty twenty three, Francine, So the
42:35
Speaker 1: one thing I'm watching out force definitely is probably that
42:37
Speaker 1: you could get potentially better data. I don't know whether
42:41
Speaker 1: Tom and you think that we could get inflation, you know,
42:44
Speaker 1: suddenly disappearing quicker than expected. But if that helps the market,
42:48
Speaker 1: then we're in very different economy in two thousand and
42:51
Speaker 1: twenty three, with households, you know, willing to spend and
42:54
Speaker 1: everything looking much rosier. I'm not sure about my own conviction,
42:57
Speaker 1: but that's what I'm watching out for. Child. I think
43:01
Speaker 1: I my sort of wild card would be actually an
43:04
Speaker 1: unexpected represh more in the relationship between China and the West.
43:08
Speaker 1: She's been getting worse and worse for ten years because
43:11
Speaker 1: of Chinese behavior has been unacceptable to the West. It's
43:14
Speaker 1: been bullying its neighbors, stealing intellectual property, abusing human rights
43:17
Speaker 1: and song. But actually, although as Tom said, the economy
43:20
Speaker 1: is probably going to pick up in China, they've got
43:22
Speaker 1: a lot of internal problems. There was unrest we haven't
43:24
Speaker 1: talked about, of demonstrations all across China, which forced es
43:27
Speaker 1: and paying to abandon a zero COVID policy, which is
43:30
Speaker 1: quite a quite a thing. They're tied tied geo politically
43:33
Speaker 1: to Russia, which has turned out to be rather a
43:34
Speaker 1: Dodgy an unsuccessful ally in the West is very united,
43:38
Speaker 1: and I think that the Russian War has made the
43:40
Speaker 1: Chinese scared of invading taime One because they can see
43:43
Speaker 1: the West would back Taiwan probably, and so I think
43:45
Speaker 1: I would predict that the Chinese leadership will be so
43:48
Speaker 1: focused on sorting out domestic problems are actually be a
43:50
Speaker 1: bit nicer to the West and looked looked for some
43:52
Speaker 1: represh more. M's interesting, Peggy, what's your wild card? So,
43:57
Speaker 1: Stephanie in the US, I think the wild card to
43:59
Speaker 1: watch would be the debate over the debt ceiling or
44:02
Speaker 1: debt limit. We are expected to hit that sometime and
44:07
Speaker 1: I think the Republicans are really going to come to
44:09
Speaker 1: the bargaining table to talk about the entitlement programs for
44:13
Speaker 1: the first time in several years. Entitlement programs meetings, social Security, Medicare,
44:18
Speaker 1: and Medicaid. Some changes potentially there to cut costs, and
44:22
Speaker 1: I do think that's one area where Congress likes to
44:25
Speaker 1: go up to the deadline like journalists do, and that
44:28
Speaker 1: could cause some real rattling in markets, not only in
44:32
Speaker 1: the US, around the world. Thanks Peggy, until all like
44:35
Speaker 1: your wild club? So after after after a number of
44:39
Speaker 1: years which have been marked by my plague, by war,
44:44
Speaker 1: by talk of recession, is really easy to focus on
44:49
Speaker 1: what could go wrong, UM, And our base case for
44:52
Speaker 1: the global economy next year is pretty blue. Me We're
44:56
Speaker 1: forecasting two point four percent global growth into any twenty three,
45:01
Speaker 1: and if you leave aside the COVID crisis year of
45:06
Speaker 1: and the global financial crisis year of two thousand and nine,
45:09
Speaker 1: two point four percent growth is actually the lowest going
45:12
Speaker 1: all the way back to so pretty gloomy baseline projection.
45:19
Speaker 1: I think it's also important to keep in mind, though, UM,
45:24
Speaker 1: coming back to sort of Janet Yellen's acknowledgement of forecasting failure,
45:30
Speaker 1: that we could just be wrong right and this time
45:33
Speaker 1: we could end up being too pessimistic. If you ask,
45:36
Speaker 1: inflation disappears more quickly than we expect, if Europe has
45:42
Speaker 1: a warmer winter, more gas and so less of a
45:46
Speaker 1: problem with inflation than we expect, if China manages to
45:51
Speaker 1: exit from COVID zero a bit more smoothly than we expect,
45:55
Speaker 1: and perhaps even as Charles mentions adopts a bit of
45:58
Speaker 1: a warmer relation between Beijing and Washington, d C and Brussels,
46:04
Speaker 1: then we could be looking at a world in three
46:08
Speaker 1: with stronger growth, last inflation and a bit more positive
46:12
Speaker 1: tone to this conversation, and hopefully we get back together
46:15
Speaker 1: on Stephano Mix at the end of the year. Well,
46:17
Speaker 1: that is a very fine thing to hope for now.
46:19
Speaker 1: The other tradition is I lower the tone with my
46:21
Speaker 1: wild card. Last year I had a sporting prediction that
46:23
Speaker 1: England would win the Football World Cup and everyone would
46:25
Speaker 1: judge Cats the best World Cup ever. I didn't quite
46:29
Speaker 1: work out that way, but it was a pretty good final,
46:31
Speaker 1: i would say, and maybe a better World Cup than
46:33
Speaker 1: many thought. I'm going to try my luck and make
46:36
Speaker 1: the same prediction this year that England are going to
46:38
Speaker 1: win the Football World Cup. But I think I have
46:39
Speaker 1: a much better chance of being right this time because
46:41
Speaker 1: it's the women who'll be playing at the finals next
46:43
Speaker 1: summer in Australia. Thanks for listening to Stephanomics. We'll be
46:47
Speaker 1: back next week next year. In the meantime, you can
46:50
Speaker 1: find us on the bloom Book Terminal website or wherever
46:53
Speaker 1: you get your podcasts, and please do rate and review
46:56
Speaker 1: our show so it can reach more listeners. You can
46:59
Speaker 1: also get news and analysis from Bloomberg Economics all the
47:02
Speaker 1: time by following at Economics on Twitter. This episode, as ever,
47:07
Speaker 1: was produced by Magnus Herrickson, Summer Sadi, and Yang Yang,
47:10
Speaker 1: with special thanks to Francine Laquid, Charles Grant, Peggy Collins,
47:14
Speaker 1: and Tom Porlock. Mike Sasso is our executive producer. Thank
47:18
Speaker 1: you to all of you, and a very happy New Year.