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Speaker 1: Hello, and welcome to Stephanomics, and today we're bringing the

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Speaker 1: world of three to you. It sound traditional, strangely popular,

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Speaker 1: look ahead to the big themes and questions coming down

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Speaker 1: the track over the next twelve months, with a carefully

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Speaker 1: selected panel of wise men and women who have been

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Speaker 1: kind enough to make Stephanomics part of their holiday season.

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Speaker 1: So in the US we have our Washington bureau chief

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Speaker 1: of Bloomberg, Peggy Collins, and Bloomberg's chief economist and frequent

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Speaker 1: participant on this show, Tom Orlig. Here in London we

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Speaker 1: have the glittering star of Bloomberg Television, Francine Lakoix, and

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Speaker 1: a newcomer to Stephanomics who is not new to the

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Speaker 1: European corridors of power, as views are taken extremely seriously

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Speaker 1: by senior policymakers across Europe and beyond, Charles Grant, director

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Speaker 1: and founder the award winning think tank the Center for

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Speaker 1: European Reform. Welcome to all of you, and thank you

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Speaker 1: very much for doing this, especially people who are doing

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Speaker 1: it for the second time, because you know what you're

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Speaker 1: in for. Um we are all about looking ahead on

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Speaker 1: this program, not looking back. But I think it makes sense,

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Speaker 1: just very briefly to ask you all what your most

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Speaker 1: memorable moment of twenty two was, Peggy, you know, stepanitiely

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Speaker 1: one of the most memorable moments of two that I

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Speaker 1: think will reverberate in actually came in July when surprisingly,

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Speaker 1: after a lot of resistance, Senator Mansion did a U

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Speaker 1: turn um and struck a deal that was a surprise

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Speaker 1: in Washington, which is pretty hard to do um with

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Speaker 1: Senator Chuck Schumer, and they passed what is known now

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Speaker 1: as the Inflation Reduction Act. But it was actually a

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Speaker 1: turned around in the sense that a lot of people

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Speaker 1: had thought that the Biden administration would not be able

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Speaker 1: to get that comprehensive climate you know, energy tech bill

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Speaker 1: through in this before the midterm elections came up. So

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Speaker 1: I think that was one of the surprises for us

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Speaker 1: in the news room of and we're going to get

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Speaker 1: into some of that the changing politics in the US

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Speaker 1: in a minute. Tom Aulick, what was your big surprise?

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Speaker 1: So there were so many huge surprises in Stephanie, and

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Speaker 1: I'm sure the other wise people on the panel, they're

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Speaker 1: gonna going to hit the big ones. A kind of

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Speaker 1: a small acquired a surprise which stuck with me was

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Speaker 1: a moment in June when Treasury Secretary Janet Yelling put

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Speaker 1: her hand in the air and admitted that she had

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Speaker 1: been wrong on inflation. Yelling, in common with the vast

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Speaker 1: majority of the economics profession, had dismissed inflation as a

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Speaker 1: transitory phenomenon, nothing we needed to be really worried about.

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Speaker 1: Of course, that proved to be a hundred and eighty

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Speaker 1: degrees wrong. Inflation was a very serious problem. Central banks

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Speaker 1: had to respond with the most aggressive tightening since we've

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Speaker 1: seen since the nineteen eighties. And as we look ahead

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Speaker 1: into three and recall that not many people anticipated the coronavirus.

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Speaker 1: Not many people anticipated Russia's invasion of Ukraine. Perhaps Charles

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Speaker 1: will help me, that's wrong, um, not people anticipated inflation.

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Speaker 1: I think it's useful to remember that if Janet Yellen

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Speaker 1: can get it wrong on something as big and important

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Speaker 1: as that, we can all get it wrong as well.

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Speaker 1: Oh and we have Charles Grant. What what stuck out

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Speaker 1: for you in the thing that sticks in my memory

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Speaker 1: from is was Olaf Schaltz's speech to the bunders Tag,

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Speaker 1: the so called zeigen Vendor speech. It was two or

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Speaker 1: three days after the Russian invasion. He basically rejected mercles

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Speaker 1: many of the principles of Merkel's foreign policy. So they're

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Speaker 1: gonna be much tougher on Russia. They're going to free

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Speaker 1: themselves from dependency on Russian energy supplies, and we're going

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Speaker 1: to spend two percent of GDP on defense. And meanwhile,

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Speaker 1: a hundred billion euros are going to a special fund

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Speaker 1: so that German forces could catch up with those of

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Speaker 1: their peers. And this was a revolution in German foreign

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Speaker 1: and security policy. Subsequently, one can be a bit frustrated

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Speaker 1: with the slow pace of implementation. One could be a

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Speaker 1: bit annoyed that the revolution didn't extend to China policy,

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Speaker 1: where Germany still seems stuck on the old economic model

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Speaker 1: of using China is a very important export market and

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Speaker 1: almost dependent on China. Nevertheless, it was a revolution in

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Speaker 1: German foreign policy, and I think that that sticks in

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Speaker 1: my memory. Francia, I mean, first of all, time stretches.

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Speaker 1: I feel like the last twelf months were a decade

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Speaker 1: all in one, partly because we wan't used to traveling anymore,

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Speaker 1: but also the news cycle has just been absolutely relentless.

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Speaker 1: So the most memorable moment for me it has to

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Speaker 1: be the lettuce righte the list Trust letters which brought

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Speaker 1: us like, you know, it made us laugh, but it

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Speaker 1: also made us cry at the same time. What a

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Speaker 1: week of absolute mayhem in the UK. That was. I

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Speaker 1: was in Rome covering the Italian elections, Stephanie, and they

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Speaker 1: had to call me back in London because the markets

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Speaker 1: in the UK was so crazy. I've been covering you know,

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Speaker 1: news for twenty years. They never pulled me out of

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Speaker 1: a time story to cover UK one because it was crazier.

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Speaker 1: And you know, we had the Jubilee celebrations, we had

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Speaker 1: Boris Jranson resigning, we had the Queen dying for funeral

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Speaker 1: of the market meldown and then list Trust resigning. So

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Speaker 1: it was quite a year for the UK and the

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Speaker 1: sheer absurdity being symbolized by this Iceberg lettuce, which was

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Speaker 1: judged to be more like more likely to last the

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Speaker 1: month than Liz trusts and and so and so it

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Speaker 1: proved um thanks to everyone for that. I look back

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Speaker 1: at my look Ahead column, which I'm writing again this

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Speaker 1: year for Business Week. I started with what I suspect

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Speaker 1: was not a very bold prediction at the time, that

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Speaker 1: coronavirus was not going to be enemy number one for

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Speaker 1: the global economy. The biggest changes we're going to stem

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Speaker 1: from inflation and the risk that policymakers called the post

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Speaker 1: COVID recovery wrong. I mean, Tom even as I wrote

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Speaker 1: that central banks worst scrambling to reassess how long inflation

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Speaker 1: was going to stick around, what kind of policy action

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Speaker 1: it might require to put it back in its box.

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Speaker 1: I mean, we have now had almost a year and

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Speaker 1: maybe nine months of record breaking monetary tightening around the world,

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Speaker 1: many central banks going up in three quarter of a

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Speaker 1: percentage point increases for the first time. Are we there

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Speaker 1: yet or will three bring more of the same. So

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Speaker 1: the story of two was the story of how far

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Speaker 1: and how fast inflation rose and what central banks have

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Speaker 1: to do to respond. The story of three is going

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Speaker 1: to be the story of how far and how fast

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Speaker 1: inflation recedes um. So our view is that we're going

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Speaker 1: to see a pretty rapid drop from the extremely elevated

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Speaker 1: levels that we've seen in the back end of two.

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Speaker 1: We're not going to see inflation sticking around at for

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Speaker 1: very long. Even so, especially in the United States, where

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Speaker 1: wage games are pretty astronomical, we're going to see inflation

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Speaker 1: sticky at an uncomfortably high level for the FED, the

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Speaker 1: European Central Bank, the Bank of England and others. What

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Speaker 1: that means, we think is that the pace of rate

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Speaker 1: hikes is going to slow and then stop um But

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Speaker 1: we're not quite there yet in terms of central bank tightening.

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Speaker 1: A couple of other wild cards to throw in there

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Speaker 1: in terms of global monetary policy. The first one is Turkey. Now, Turkey,

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Speaker 1: of course has been marching to its own drumma on

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Speaker 1: monetary policy, cutting interest rates despite inflation running at and

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Speaker 1: that's very much been a political decision driven by President Hurdan.

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Speaker 1: Now there's an election coming up in Turkey in June.

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Speaker 1: The view from our Turkey economists, who, by the way,

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Speaker 1: he joined us from the central bank over there, is

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Speaker 1: that the current policy settings just aren't sustainable and after

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Speaker 1: that general election, after that presidential election, no matter who wins,

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Speaker 1: we're going to have to see a significant shift with

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Speaker 1: a big rate hike to stave off a currency and

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Speaker 1: financial crisis. The other wild card, of course is Japan,

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Speaker 1: where Harahiko Coroda, the architect of extreme easing, is now

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Speaker 1: poised to step back from the front lines of policy making,

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Speaker 1: retiring in the first half, that's going to be an

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Speaker 1: opportunity for a reset there as well. And of course,

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Speaker 1: apart from the very modest but significant change at the

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Speaker 1: end of this year, UM that's the one central bank

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Speaker 1: that has just not moved as the world has moved

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Speaker 1: around them. Tom, there's much talk about whether or not

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Speaker 1: we will dodge a recession in the US or indeed globally.

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Speaker 1: What's your take. So it's funny. I think a lot

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Speaker 1: of people look at the strength in the US labor

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Speaker 1: market right now, the strength of UM wage gains, the

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Speaker 1: very low unemployment, and say, you know what, all this

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Speaker 1: talk about recession we had over the last few months,

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Speaker 1: it must have been overdone. The economy is still looking

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Speaker 1: pretty healthy. I think you actually need to flip it

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Speaker 1: around and look at it in the other in the

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Speaker 1: other direction. And it's the fact that the labor market

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Speaker 1: remains very hot, with unemployment low and wages rising quickly,

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Speaker 1: which means the Fed's job is still far from done.

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Speaker 1: And it's the fact that the FED has to carry

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Speaker 1: on layering on rate hikes, which means that a recession,

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Speaker 1: we think in the back end of remains more likely

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Speaker 1: than not. Did they dodge that yeah, they could dodge it.

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Speaker 1: Inflation could disappear more quickly than we expect, the FED

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Speaker 1: could get away with less rate hikes than we expect.

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Speaker 1: Other unexpected stuff could happen. But if you look at

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Speaker 1: the history books, there aren't many examples of this pace

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Speaker 1: of monetary tightening occurring without a downturn following if few

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Speaker 1: months later. And of course, of you're the west of

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Speaker 1: the world, which we'll get onto in a minute. That is,

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Speaker 1: the fact that the US is looking relatively strong now

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Speaker 1: is actually in some sense bad news, because it does mean,

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Speaker 1: as you've suggested, that there will be further interest rate

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Speaker 1: rises that in a sense, the rest of the world

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Speaker 1: may not may not need Peggy just staying in the

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Speaker 1: US for a minute. I mean, if we had spoken

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Speaker 1: six months ago, or even just before the US mid

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Speaker 1: term congressional elections in early November, we would have expected

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Speaker 1: the inflation and the economy to dominate the results of

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Speaker 1: those But it didn't work out like that, did it. Well.

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Speaker 1: It's interesting, Stephanie, because it did in some ways. The

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Speaker 1: economy was certainly a priority on voters minds, but it

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Speaker 1: turned out that the job market that Tom was just

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Speaker 1: talking about, the strength of that, the fact that most

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Speaker 1: Americans had a job, or if they were looking for

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Speaker 1: a job, they could find one, seemed to put them

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Speaker 1: in a better state when they went to the ballot box,

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Speaker 1: and that some of the social and cultural issues that

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Speaker 1: we're really bubbling up with the roev Wade decision um

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Speaker 1: and other things seemed to be one of the most

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Speaker 1: important things for voters when they ultimately pressed the button.

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Speaker 1: So the economy was certainly there. But as Tom is saying,

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Speaker 1: if next year, Ine, we do actually see some of

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Speaker 1: the feds jacking up of interest rates actually hurting people

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Speaker 1: when it comes to whether or not they can hold

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Speaker 1: onto their job or get another job, then you might

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Speaker 1: see voters have more of a reaction at the ballot

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Speaker 1: box against the Bidet administration, if that makes sense, Stephanie, Yeah,

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Speaker 1: And of course we do have there. There was a

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Speaker 1: time when we thought we were going to have a

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Speaker 1: sweep across the boarder for the for the Republicans, which often,

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Speaker 1: of course happens in mid term elections against the incumbent president.

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Speaker 1: We ended up with in a more mixed picture. But

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Speaker 1: we do have a different Congress coming back in January.

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Speaker 1: How is that going to feed through to pull to

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Speaker 1: seeing what Congress does well. It certainly will make a difference.

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Speaker 1: As you said, Stephanie, Democrats did better than many people

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Speaker 1: were expecting, both on the federal level and in many

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Speaker 1: of the governor's races across the country. But it will

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Speaker 1: still mean that Republicans have the House coming into three.

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Speaker 1: That may mean a couple of things, that the White

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Speaker 1: House may have to turn to more executive orders to

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Speaker 1: get things done, and also that they will get fewer

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Speaker 1: things done through Congress. I do think there's some issues

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Speaker 1: that they might still be able to find some common

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Speaker 1: ground on, but we may see, as I mentioned, some

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Speaker 1: more executive orders ruling the day when the Biden administration

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Speaker 1: really wants to get something done. And very briefly, I'm

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Speaker 1: gonna put you on the spot, and of course we've

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Speaker 1: got a countdown now now we've got through the mid terms.

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Speaker 1: Of course we're going to have a gradual crescendo up

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Speaker 1: to the presidential elections in is Trump going to be

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Speaker 1: on the ballot? You have to guess right now, we'll

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Speaker 1: give you the nominee. He says he's going to be

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Speaker 1: on the ballot. So I think we have to Visian ourselves,

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Speaker 1: and and you know, I expect that he will be

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Speaker 1: certainly candidates like Ron de Santa's who hasn't declared a

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Speaker 1: candidacy for the race, but a lot of people expect

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Speaker 1: him to. We expect others will certainly UM surface in

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Speaker 1: the Republican Party. But Trump is still, in many people's minds,

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Speaker 1: the biggest threat to widen and winning a second term

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Speaker 1: if he declares. We're also waiting for that UM decision

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Speaker 1: to come in early January. So to answer you directly, Stephanie,

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Speaker 1: because Trump has said he will run UM, I think

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Speaker 1: we expect him to, but a lot can happen in

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Speaker 1: two years. Okay, we're going to cross the Atlantic now.

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Speaker 1: And Charles Grant Tom mentioned, I mean, we've had many

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Speaker 1: things kind of overturned our predictions in this session. Last year,

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Speaker 1: it would have been the Russia's invasion of Ukraine, which

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Speaker 1: the Russian Experts Center European Reform had definitely put on

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Speaker 1: the radar, but not everyone was predicting. What what surprised

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Speaker 1: you about the way the Russia's invasion of Ukraine has

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Speaker 1: played out? And where do you see it going in

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Speaker 1: twenty three? Two things surprised me Stephanie. I'll say more

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Speaker 1: about the second. The first one. I think everybody was

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Speaker 1: surprised by the Ukrainian's ability to resist the invasion, by

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Speaker 1: the shearing competence of the Russian military leaders. Having said

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Speaker 1: that the war is not over. Ukraine is not one

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Speaker 1: and most of the military experts I talked, I think

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Speaker 1: we're going to face a stalemate of several years, with

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Speaker 1: neither side probably able to greatly pushed back the other

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Speaker 1: side to a huge degree. So I think the war

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Speaker 1: is going to go on, which leads to my second

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Speaker 1: thing that surprised me was the degree of Western unity

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Speaker 1: really surprising given how badly the trans atlantic relationship was

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Speaker 1: at the time that Biden pulled out of Afghanistan, given

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Speaker 1: the arguments within the European Union and how to handle Russia.

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Speaker 1: The fact is the Europeans have been more or less united,

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Speaker 1: with the possible exception of Hungary and and the U

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Speaker 1: S and the EU have worked pretty well together on

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Speaker 1: most disused most of the times. Having said that the

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Speaker 1: caveat is of course, will the unity whole looking forward?

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Speaker 1: I think if if we face a stagflation in the

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Speaker 1: coming years and people see that it's caused by the

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Speaker 1: war in Ukraine leaving very high energy prices and inflation

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Speaker 1: in the lower standard of living. Then you know the

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Speaker 1: public opinion and may be whipped up by populace to

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Speaker 1: oppose the war. It's not really happening to a very

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Speaker 1: great deal at the moment. But perhaps more worrying is

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Speaker 1: that it is just the difference of analysis between two

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Speaker 1: groups of governments. In the EU. You have the the

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Speaker 1: Baltic countries in Poland and to some degree the Nordics

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Speaker 1: and Romania in the Czech Republic, who want to be

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Speaker 1: very tough on Russia. They don't want to talk to poosting.

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Speaker 1: They say regime change in Russia. The warmest go on

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Speaker 1: to Ukraine has reconquered all its territory and isolate Russia.

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Speaker 1: When you have then you have the French and their towns,

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Speaker 1: and the Germans and indeed President Biden, and this isn't

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Speaker 1: the same groups saying, actually, don't humiliate Russia. We're going

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Speaker 1: to have to deal with Russian the longer. At some

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Speaker 1: point that will have to be a negotiation and we

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Speaker 1: have to find a way of working out a relationship

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Speaker 1: with Russia in the long term, which sort of implies

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Speaker 1: that at a certain point they'll put pressure on Ukraine

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Speaker 1: to to compromise some of its territory and return for peace.

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Speaker 1: That nobody's at he's saying that at the moment. That

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Speaker 1: is the implicit I think in the French, German, Italian,

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Speaker 1: American position. So there is this tension between the two

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Speaker 1: schools of thoughts in the European with the British somewhere

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Speaker 1: in the middle, but perhaps on the bit of the

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Speaker 1: tougher end of the spectrum. And the longer the war

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Speaker 1: goes on, the more these tensions will will grow, and

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Speaker 1: the harder it will be to keep the West united.

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Speaker 1: And you mentioned at the start that very striking speech

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Speaker 1: that the Chancellor that Schultz gave, and but you also

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Speaker 1: mentioned that there had been a bit disappointing when it

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Speaker 1: comes to the follow up on that. I mean, when

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Speaker 1: you're someone who's been quite frustrated over the years sometimes

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Speaker 1: that the Europeans were not more muscular in their approach

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Speaker 1: to defense. Is this going to fundamentally change the way

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Speaker 1: Europe sees itself geo politically. Is it going to change

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Speaker 1: its commitment to defense in a lasting way? I think

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Speaker 1: that the war has been good for European defense. Both

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Speaker 1: the sort of manifestations of European defense. What one is NATO,

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Speaker 1: which includes the Americans, one is the EU which doesn't

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Speaker 1: include the Amans. They both actually move forward. NATO is

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Speaker 1: clearly been a very very important organization protecting European countries

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Speaker 1: from the Russian threat, and although Native hasn't has made

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Speaker 1: a point of not being directly involved in the war

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Speaker 1: of course and staying out of it, it is behind

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Speaker 1: the scenes strengthening its eastern flanks, sending more troops to

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Speaker 1: its eastern member states to to protect them. So that's

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Speaker 1: good for Native but also the EU itself outside the spotlight,

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Speaker 1: behind the scenes that he's doing a lot on defense.

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Speaker 1: It's got something called the European Peace Facility which is

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Speaker 1: funding the purchase of arms for Ukraine. It's never done

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Speaker 1: that before and it's spent most of the first seven

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Speaker 1: or eight billion euros has been spent in the Ukraine already.

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Speaker 1: They're replenishing it with another top up of a similar amount.

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Speaker 1: Because the European Defense Fund, which is being spent on

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Speaker 1: European industries that use played a huge rule in pushing

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Speaker 1: through sanctions against against Russia. Because of Ukraine this sounds

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Speaker 1: funny to say it's been good for European defense. I

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Speaker 1: guess in the same way that World War Two is

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Speaker 1: good for Europe's sense of its need for defense. Yes,

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Speaker 1: it's worth actually saying just one number, because bloom Bird

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Speaker 1: likes numbers. European defense budgets have gone up about two

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Speaker 1: hundred billion euros this this year, which is a huge amount.

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Speaker 1: Half of that is the German budget going up by

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Speaker 1: a hundred billion. You're the extra hundred billion for the Germany.

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Speaker 1: So Europe, Europe are actually putting the money where their

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Speaker 1: mouth is when it comes to defense for the first

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Speaker 1: time ever really in many years. And when I was

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Speaker 1: in Japan and not not long ago, that was the

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Speaker 1: week that the Prime minister announced a big increase in

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Speaker 1: defense spending there. So the world has been been shaken

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Speaker 1: shaken up. Francine, you've been very patient. As you mentioned,

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Speaker 1: you were often DoD gadding around Europe for Bloomberg Television

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Speaker 1: and interviewing some of the great and good. I mean,

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Speaker 1: it has not been great for Europe this winter, and

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Speaker 1: we are probably looking at a recession thanks to high

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Speaker 1: energy prices. But what you might have called the real

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Speaker 1: downside scenarios for Europe that we might have had a

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Speaker 1: few months ago as a result of the Ukraine War,

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Speaker 1: they haven't materialized. Is the hard part still to come? Well,

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Speaker 1: I think it could get harder from here, stephanitely partly

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Speaker 1: because of the fairly mild winter I guess that we

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Speaker 1: had in you know, the Euros are and in the

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Speaker 1: UK in October and November, so oddly, and I have

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Speaker 1: checked this with the news room because I couldn't quite

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Speaker 1: believe what I was reading. Europe is ending one of

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Speaker 1: the toughest years for energy in a stronger position than

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Speaker 1: it started the year. And this is partly because of

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Speaker 1: the high energy prices attracting cargoes for example of L

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Speaker 1: and G liquified natural gas over the autumn, which then

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Speaker 1: continued to be discharged. So you're right, you know, we've

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Speaker 1: had a pretty difficulty or inflation climbing to the hystin decades,

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Speaker 1: household builds increasing multi fold, but a lot and everything

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Speaker 1: probably will depend on energy. Um it's a bit counterintuitive that,

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Speaker 1: you know, our storage sites are now at the brim,

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Speaker 1: so we do have quite a few months of being

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Speaker 1: able to cope December that freeze, and we're still in

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Speaker 1: its energy prices soaring, So I guess it's it's whether

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Speaker 1: we have power shortages, whether the situation in Europe will

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Speaker 1: get much worse. Um there are other major risks, example

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Speaker 1: that that gas price cap from the EU, which is

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Speaker 1: seen as a positive, could also send some of the

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Speaker 1: cargoes elsewhere, So you know, as you know, watch out

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Speaker 1: for energy prices which could get a lot higher. And

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Speaker 1: if that touches un employment, then I guess all bets

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Speaker 1: are off. And I mean you spend a lot of

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Speaker 1: time in Italy. It's usually safe to put decent odds

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Speaker 1: on an Italian crisis when the cost of money is

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Speaker 1: going up, and obviously the European Central Bank is raising

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Speaker 1: interest rates. But the new government has been quite timid

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Speaker 1: so far, the government that came in as a as

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Speaker 1: a new populist government. Um, so is it possible that

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Speaker 1: Italy is gonna miss that great moment of reckoning in

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Speaker 1: three They've kind of been our best behavior, haven't there Now.

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Speaker 1: I don't think it will be smooth sailing, but I

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Speaker 1: do think the trend will be it will be trying

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Speaker 1: to stick to the reforms that Mario Druggi had promised

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Speaker 1: in exchange for money. There has been huge opposition, and

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Speaker 1: this is something sometimes that's missed if you're not in Italy.

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Speaker 1: There's been huge opposition to the ECB and to Christine mcgarden,

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Speaker 1: but Georgia Maloney has scrapped one of the controversial measures

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Speaker 1: aimed at promoting cash payments, and that was to please

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Speaker 1: the European Union. And for the moment, she's also stuck

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Speaker 1: to her you know, staunch support for Ukraine following the

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Speaker 1: Russian invasion, which to some could be seen as a surprise.

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Speaker 1: Um so she's been more vocal in questioning that you

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Speaker 1: stands on immigration and energy, but actually, so far it

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Speaker 1: looks like you know, plane sailing for now step famous

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Speaker 1: plane sailing? Can we ever use that phrase for Italy? Charles?

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Speaker 1: Do you share Francine's view? And is there anywhere else

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Speaker 1: that we should be looking for potential trouble in twenty

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Speaker 1: three or not trouble for them? Slightly more right than Francine,

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Speaker 1: I mean, Maloney is a close friend of Mr Kachinsky

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Speaker 1: who runs Poland, and Mr Auburn, who runs Hungry, and

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Speaker 1: they are embarked on a sort of permanent warfare against

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Speaker 1: the EU of a so called rule of laws us

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Speaker 1: that you being upset that they denied the damage the

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Speaker 1: independence of the judicies. And so I think Maloney has,

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Speaker 1: as Francine says, has been a very good good behavior

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Speaker 1: so far. But I'm not sure it's gonna gonna last.

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Speaker 1: I think that the pressures on her from her base

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Speaker 1: to sort of through a few stones at the glass

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Speaker 1: houses suscles may rise. But that's one thing I'm looking

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Speaker 1: at it for. And other things I said is is

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Speaker 1: there going to be a resolution of this endless argument

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Speaker 1: between Poland and Hungry on the one hand and the

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Speaker 1: E and the other over the rule of law. I'm

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Speaker 1: not very optimistic. Two final questions I pose are is

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Speaker 1: that you're going to become more protectionists, more focused on

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Speaker 1: industrial policy, more focused on securing supply chains, which has

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Speaker 1: been the tendency of recent years, and suspending rules on

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Speaker 1: state aid so it can build up huge hydrogen industries,

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Speaker 1: battery industries and so on, and microchip industries. So I think,

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Speaker 1: you know, the use under French leadership is becoming far

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Speaker 1: more protections than it used to be. Is that going

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Speaker 1: to persist in? Finally, We'll come back to this later,

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Speaker 1: I guess Stephanie is will there be a repress more

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Speaker 1: between the UK and the EU. That is an interesting question. Well,

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Speaker 1: we may part the UK briefly because people will feel

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Speaker 1: they've had an excess of Europe already. But Tom, one

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Speaker 1: thing that we've mentioned briefly on this program before that's

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Speaker 1: helped Europe have those overflowing gas supplies that Francine talked

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Speaker 1: about it was the slowdown in China because it made

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Speaker 1: more energy available thought for Europe to snap up. And

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Speaker 1: the part was partly because the Chinese authorities have continued

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Speaker 1: to put control of COVID ahead of economic growth and

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Speaker 1: we had sort of expected that to continue for a

433
00:23:13,760 --> 00:23:16,919
Speaker 1: large part of three only a grad or move away

434
00:23:16,960 --> 00:23:20,520
Speaker 1: from the COVID zero policies, but but everything seemed to

435
00:23:20,560 --> 00:23:23,680
Speaker 1: change very quickly in the last few weeks of the year.

436
00:23:24,080 --> 00:23:27,480
Speaker 1: Um I guess I'm interested. You spent eleven years in Beijing.

437
00:23:28,040 --> 00:23:30,800
Speaker 1: How do you read what happened to COVID policies in

438
00:23:30,880 --> 00:23:36,000
Speaker 1: China and how that affects the outlook for next year? Um, So,

439
00:23:36,080 --> 00:23:38,160
Speaker 1: before you're getting onto China stuff, and I just wanted

440
00:23:38,200 --> 00:23:41,040
Speaker 1: to pick up on one comment from Charles, just from

441
00:23:41,040 --> 00:23:44,280
Speaker 1: a British negotiating position. I suggest we hold back on

442
00:23:44,480 --> 00:23:49,080
Speaker 1: using French words like reproach, more con sessions from from

443
00:23:49,080 --> 00:23:54,480
Speaker 1: across across the channel, um so, um so on China,

444
00:23:55,280 --> 00:23:59,080
Speaker 1: um now. I gave Beijing a lot of credit for

445
00:23:59,119 --> 00:24:04,240
Speaker 1: the way they manage edged COVID. Yes, COVID zero placed

446
00:24:04,520 --> 00:24:09,360
Speaker 1: enormous strain on the economy and enormous strain on society,

447
00:24:09,440 --> 00:24:11,920
Speaker 1: and we saw that social strain bubbling up in those

448
00:24:11,960 --> 00:24:17,640
Speaker 1: extraordinary protests in the last few weeks. But COVID zero

449
00:24:17,680 --> 00:24:20,320
Speaker 1: saved a lot of lives until a few weeks ago,

450
00:24:20,400 --> 00:24:23,960
Speaker 1: just a few thousand people dead from COVID in China

451
00:24:24,119 --> 00:24:29,000
Speaker 1: compared to vastly larger numbers for much smaller populations in

452
00:24:29,080 --> 00:24:31,720
Speaker 1: other parts of the world. So I gave them a

453
00:24:31,720 --> 00:24:35,280
Speaker 1: lot of credit. The last few weeks have sort of

454
00:24:35,320 --> 00:24:38,040
Speaker 1: really shaken my confidence that they've got a plan for

455
00:24:38,119 --> 00:24:41,520
Speaker 1: an exit. Um now. There is a way out of

456
00:24:41,520 --> 00:24:45,480
Speaker 1: COVID zero whilst minimizing public health costs, and that requires

457
00:24:45,480 --> 00:24:49,040
Speaker 1: a gradual approach to allow time for vaccines to go

458
00:24:49,080 --> 00:24:54,400
Speaker 1: into arms and for health facilities to be moved into place. Clearly,

459
00:24:54,400 --> 00:24:57,760
Speaker 1: that is not the approach which China has taken. Reopening

460
00:24:57,760 --> 00:25:03,200
Speaker 1: has happened really really quickly UM And I'm not an epidemiologist.

461
00:25:03,280 --> 00:25:04,920
Speaker 1: I don't know how things are going to play out

462
00:25:04,920 --> 00:25:07,800
Speaker 1: in the next few weeks and months. But the experience

463
00:25:07,840 --> 00:25:10,960
Speaker 1: in other countries around the world, and what I read

464
00:25:11,040 --> 00:25:14,359
Speaker 1: from people who are experts in the way diseases spread

465
00:25:14,359 --> 00:25:18,280
Speaker 1: through populations suggests there's a risk of a really serious

466
00:25:18,320 --> 00:25:23,680
Speaker 1: public health catastrophe in China in the start of UM.

467
00:25:23,720 --> 00:25:27,399
Speaker 1: So that's really important. Hasn't happened yet. We don't know

468
00:25:27,480 --> 00:25:31,359
Speaker 1: how Chinese society, how China's policymakers are going to react

469
00:25:31,359 --> 00:25:33,639
Speaker 1: to it, and that means there's still a huge amount

470
00:25:33,640 --> 00:25:36,800
Speaker 1: of uncertainty as we look into China in the year ahead.

471
00:25:38,119 --> 00:25:43,120
Speaker 1: That said, from an economic perspective, the rapid exit from

472
00:25:43,119 --> 00:25:47,040
Speaker 1: COVID zero is pretty clearly a positive for China's growth

473
00:25:47,119 --> 00:25:52,360
Speaker 1: numbers looking forward. Yes, right now, people are pretty cautious.

474
00:25:52,400 --> 00:25:54,840
Speaker 1: They don't want to get infected in this first wave.

475
00:25:55,000 --> 00:25:57,639
Speaker 1: They're staying at home. We're going to see some pretty

476
00:25:57,680 --> 00:26:01,280
Speaker 1: brutal growth numbers from China in the fourth quarter of

477
00:26:01,359 --> 00:26:05,919
Speaker 1: two and perhaps right at the start of but by

478
00:26:05,960 --> 00:26:07,919
Speaker 1: the time we get through the winter and into the

479
00:26:07,960 --> 00:26:10,359
Speaker 1: second quarter of three, I think we're going to start

480
00:26:10,359 --> 00:26:12,920
Speaker 1: looking at some pretty strong growth numbers out of China.

481
00:26:13,600 --> 00:26:15,600
Speaker 1: Our base case for the year ahead is that we

482
00:26:15,640 --> 00:26:19,720
Speaker 1: get five point one percent growth. That base case assumed

483
00:26:19,720 --> 00:26:23,119
Speaker 1: a gradual reopening. We've now got a more rapid reopening.

484
00:26:23,160 --> 00:26:25,720
Speaker 1: So I think risks to that five point one percent number.

485
00:26:26,080 --> 00:26:29,399
Speaker 1: And now to the upside for the rest of the world.

486
00:26:29,960 --> 00:26:32,440
Speaker 1: Of course, there's a positive there China is going to

487
00:26:32,520 --> 00:26:37,000
Speaker 1: be buying more stuff, but there's also a negative. Because

488
00:26:37,119 --> 00:26:39,880
Speaker 1: China is going to be buying more stuff, the prices

489
00:26:39,920 --> 00:26:42,160
Speaker 1: of stuff are going to start going up, and we'll

490
00:26:42,160 --> 00:26:46,280
Speaker 1: look especially at prices for commodities like energy and think

491
00:26:46,280 --> 00:26:48,520
Speaker 1: about how they're going to be playing into the inflation

492
00:26:48,600 --> 00:26:51,639
Speaker 1: story in the US, in Europe and elsewhere. Yeah, so

493
00:26:51,680 --> 00:26:53,680
Speaker 1: that if you do have good economic news in China,

494
00:26:53,760 --> 00:26:56,480
Speaker 1: that will be making the job of central banks everywhere

495
00:26:56,600 --> 00:26:59,159
Speaker 1: harder and increasing, as you say, the sort of stickiness

496
00:26:59,200 --> 00:27:06,400
Speaker 1: of inflation. I mean, Charles, obviously, the shifting relations with

497
00:27:06,560 --> 00:27:09,560
Speaker 1: China is the stuff of years, not months. But we

498
00:27:09,640 --> 00:27:12,639
Speaker 1: do seem to be in a new era of geoeconomics,

499
00:27:12,680 --> 00:27:14,520
Speaker 1: and actually I spoke about it at length in the

500
00:27:14,600 --> 00:27:19,120
Speaker 1: last week's episode with with support Tucker, economic tools increasingly

501
00:27:19,160 --> 00:27:23,600
Speaker 1: being used for geopolitical objectives. Is Europe inevitably going to

502
00:27:23,640 --> 00:27:26,800
Speaker 1: be pulled into this what we would call the new

503
00:27:26,840 --> 00:27:29,359
Speaker 1: Cold War? Or do you think there's a desire to

504
00:27:29,440 --> 00:27:33,360
Speaker 1: really resist this weaponization of the global economy. I think

505
00:27:33,400 --> 00:27:35,440
Speaker 1: Europe is going to be pulled into a new Cold War,

506
00:27:35,480 --> 00:27:38,919
Speaker 1: but rather reluctantly dragging its feet. I mean, Europe's in

507
00:27:38,920 --> 00:27:40,800
Speaker 1: a very difficult place when it comes to the growing

508
00:27:40,840 --> 00:27:44,720
Speaker 1: conflict between China and the US because economically it depends

509
00:27:44,760 --> 00:27:47,040
Speaker 1: more on China than the US does, a greater pertentage

510
00:27:47,040 --> 00:27:49,240
Speaker 1: of its trade is with China. It also has a

511
00:27:49,320 --> 00:27:53,720
Speaker 1: very different sort of geopolitical attitude to China. Europeans worried

512
00:27:53,720 --> 00:27:57,000
Speaker 1: about Chinese behavior, the abuse of human rights, the threats

513
00:27:57,040 --> 00:27:59,800
Speaker 1: to its neighbors, the theft of intellectual property, and so on.

514
00:28:00,160 --> 00:28:03,159
Speaker 1: But I think many people in Washington worry about Chinese

515
00:28:03,240 --> 00:28:05,360
Speaker 1: power per se, and I think many people in Washington,

516
00:28:05,400 --> 00:28:08,240
Speaker 1: even if China started behaving better, would still see China

517
00:28:08,280 --> 00:28:12,879
Speaker 1: as a threat to American America's role in in Asian securities. Biden,

518
00:28:12,920 --> 00:28:14,480
Speaker 1: to his credit, has made an effort to reach out

519
00:28:14,520 --> 00:28:16,120
Speaker 1: to the Europeans to consult them on what he does

520
00:28:16,119 --> 00:28:18,440
Speaker 1: on China. But I think that the tensions will will

521
00:28:18,480 --> 00:28:20,560
Speaker 1: grow because the Europeans just don't want to be as

522
00:28:20,560 --> 00:28:23,640
Speaker 1: tough as as the Americans. However, the more we get

523
00:28:23,640 --> 00:28:24,960
Speaker 1: into a sort of new Cold War, and the more

524
00:28:24,960 --> 00:28:28,359
Speaker 1: inevitably the Europeans, whoever reluctantly, are forced to take sides

525
00:28:28,400 --> 00:28:30,800
Speaker 1: and will take sides on on the American side as

526
00:28:30,800 --> 00:28:32,600
Speaker 1: far as I can see. And Peggy, I mean, we

527
00:28:32,680 --> 00:28:34,880
Speaker 1: talked about the new Congress. The one thing that there

528
00:28:34,920 --> 00:28:37,879
Speaker 1: is bipartisan agreement on is that the U s should

529
00:28:37,920 --> 00:28:41,520
Speaker 1: continue to be playing tough with China. Do you sense

530
00:28:41,560 --> 00:28:47,760
Speaker 1: from the administration and appetite for opening up more sort

531
00:28:47,760 --> 00:28:50,920
Speaker 1: of wars along the lines of the chip chip wars

532
00:28:51,160 --> 00:28:56,360
Speaker 1: and more weaponization of trade rules from the US? I

533
00:28:56,400 --> 00:28:59,360
Speaker 1: do think there's appetite, there's Stephanie. I think the Bion

534
00:28:59,400 --> 00:29:02,440
Speaker 1: administry and has tried to position itself very tough on

535
00:29:02,520 --> 00:29:09,080
Speaker 1: China particularly. We saw President Biden himself be very forthright

536
00:29:09,120 --> 00:29:12,040
Speaker 1: about his feelings about Taiwan, for example, and we've seen

537
00:29:12,080 --> 00:29:15,479
Speaker 1: Secretary of State Blink in this fall say that the

538
00:29:15,600 --> 00:29:20,080
Speaker 1: US sees the timetable for China potentially invading Taiwan moving up.

539
00:29:20,400 --> 00:29:24,520
Speaker 1: So I do think there's quite a um a hawkish

540
00:29:24,560 --> 00:29:27,800
Speaker 1: viewpoint from the Biden administration towards China while they are

541
00:29:27,840 --> 00:29:31,560
Speaker 1: still trying to keep a dialogue open, and the Republicans

542
00:29:31,560 --> 00:29:35,560
Speaker 1: certainly are coming out of the gate in with control

543
00:29:35,560 --> 00:29:38,280
Speaker 1: of the House in a similar position that they want

544
00:29:38,280 --> 00:29:40,760
Speaker 1: to look strong on China. So I do think you

545
00:29:40,800 --> 00:29:45,840
Speaker 1: will continue to see legislator legislators try and policymakers try

546
00:29:45,920 --> 00:29:48,960
Speaker 1: to show that they're being tough on China while keeping

547
00:29:49,000 --> 00:29:52,160
Speaker 1: the door open between the two countries because we are

548
00:29:52,240 --> 00:29:56,880
Speaker 1: still so interconnected. I think that's one thing to watch, certainly.

549
00:29:56,920 --> 00:29:58,960
Speaker 1: And then the other is the chips bill that you

550
00:29:59,040 --> 00:30:01,320
Speaker 1: mentioned that is really really just starting to get off

551
00:30:01,320 --> 00:30:05,440
Speaker 1: the ground, passed in two but a lot of money

552
00:30:05,600 --> 00:30:10,440
Speaker 1: and energy is going into trying to onshore or near

553
00:30:10,520 --> 00:30:14,160
Speaker 1: shore the making of semiconductor chips that those all important

554
00:30:14,240 --> 00:30:17,600
Speaker 1: semiconductor chips. So I do think the Biden administration is

555
00:30:17,640 --> 00:30:20,600
Speaker 1: hoping that some of that will actually get off the

556
00:30:20,640 --> 00:30:24,320
Speaker 1: ground in three and potentially offset some of the job

557
00:30:24,400 --> 00:30:27,480
Speaker 1: losses that we may see from the FED ratcheting up

558
00:30:27,720 --> 00:30:30,880
Speaker 1: the interest rates. So they are hoping that as the

559
00:30:30,920 --> 00:30:34,120
Speaker 1: FED tries to strike this soft landing that Tom talk

560
00:30:34,360 --> 00:30:37,520
Speaker 1: talked about before, that there will be some new jobs

561
00:30:37,560 --> 00:30:40,239
Speaker 1: coming into the economy from the infrastructure bill that they

562
00:30:40,280 --> 00:30:43,000
Speaker 1: passed in their first couple of years, and then from

563
00:30:43,040 --> 00:30:47,280
Speaker 1: this semiconductor bill that passed as well in two Although

564
00:30:47,280 --> 00:30:49,280
Speaker 1: it's funny because one of our colleagues, Sean donnand has

565
00:30:49,320 --> 00:30:51,600
Speaker 1: been going has been going down to where the new

566
00:30:51,720 --> 00:30:54,320
Speaker 1: one of the new semiconductive factories is going to be,

567
00:30:54,600 --> 00:30:57,160
Speaker 1: and they're struggling to find construction workers. Said that the

568
00:30:57,200 --> 00:31:00,800
Speaker 1: issue of of tight labor markets as what's turning to

569
00:31:01,360 --> 00:31:04,640
Speaker 1: bite them. This is the time of year, Peggy, where

570
00:31:04,680 --> 00:31:07,480
Speaker 1: you as bureau chief of sort of thinking about reallocating

571
00:31:07,560 --> 00:31:10,640
Speaker 1: people as we see kind of the political mood shifting

572
00:31:10,680 --> 00:31:13,760
Speaker 1: and activity moving to different areas. And I was struck

573
00:31:13,960 --> 00:31:19,360
Speaker 1: by you mentioning antitrust sort of competition moves being an

574
00:31:19,400 --> 00:31:22,240
Speaker 1: area that you saw being a more active next year.

575
00:31:22,280 --> 00:31:24,920
Speaker 1: Is that is that one of the areas where President

576
00:31:24,960 --> 00:31:28,800
Speaker 1: Biden can continue to make news and do things even

577
00:31:28,840 --> 00:31:31,640
Speaker 1: with a divided Congress. Yes, I do think so. I

578
00:31:31,680 --> 00:31:34,880
Speaker 1: do think there is some appetite in Congress on both

579
00:31:34,920 --> 00:31:37,880
Speaker 1: sides of the Aisle on this issue of antitrust and

580
00:31:38,000 --> 00:31:41,400
Speaker 1: particularly related to the consolidation of power amongst the big

581
00:31:41,440 --> 00:31:45,800
Speaker 1: tech companies. But even without that, the Biden administration has

582
00:31:45,840 --> 00:31:50,320
Speaker 1: two key allies and potential forces behind it. One is

583
00:31:50,440 --> 00:31:54,560
Speaker 1: Lena Kahn heading up the FDC, and then also the

584
00:31:55,360 --> 00:31:58,880
Speaker 1: at the Justice Department there's Assistant Attorney General Jonathan Cantor.

585
00:31:59,120 --> 00:32:01,960
Speaker 1: Both of them are very aggressive on this anti TUCH

586
00:32:02,040 --> 00:32:04,920
Speaker 1: issue and they see it as the kind of the

587
00:32:04,960 --> 00:32:08,920
Speaker 1: new frontier for helping consumers and workers that this consolidation

588
00:32:09,120 --> 00:32:15,240
Speaker 1: of industries and business has really at many junctures hurt workers,

589
00:32:15,360 --> 00:32:18,280
Speaker 1: especially given that fewer and fewer of them are protected

590
00:32:18,280 --> 00:32:21,000
Speaker 1: by unions. And so I do think there's a three

591
00:32:21,040 --> 00:32:25,720
Speaker 1: pronged effort between the Biden and administration push on the

592
00:32:25,840 --> 00:32:29,520
Speaker 1: hill as well as um Lena con and Jonathan Canters

593
00:32:29,560 --> 00:32:32,880
Speaker 1: pushes on antitrust where you could see more moves or

594
00:32:32,920 --> 00:32:37,040
Speaker 1: cases coming down that could change the landscape. Okay, so

595
00:32:37,080 --> 00:32:38,640
Speaker 1: I feel like since at least some of us are

596
00:32:38,640 --> 00:32:41,520
Speaker 1: sitting in UK, we probably have to linger a little

597
00:32:41,560 --> 00:32:44,920
Speaker 1: bit on the sad, sorry state of the UK economy

598
00:32:45,040 --> 00:32:48,760
Speaker 1: and politics front scene. You started with the lettuce I

599
00:32:48,840 --> 00:32:52,600
Speaker 1: was struck by a pole. I just saw of just

600
00:32:52,800 --> 00:32:55,600
Speaker 1: under half of the UK population is thinking we might

601
00:32:55,640 --> 00:32:58,800
Speaker 1: get yes, another prime minister in three despite the fact

602
00:32:58,840 --> 00:33:01,880
Speaker 1: there's no election on the eies and and the government

603
00:33:01,960 --> 00:33:05,640
Speaker 1: in theory has quite a big majority. There are strikes

604
00:33:05,800 --> 00:33:08,600
Speaker 1: up and down the country as we speak, including an

605
00:33:08,680 --> 00:33:15,240
Speaker 1: unprecedented nurses strike ambulance workers. Can it Can it only

606
00:33:15,280 --> 00:33:17,440
Speaker 1: get better from here? Or do you think actually things

607
00:33:17,480 --> 00:33:20,600
Speaker 1: are going to get worse? First well, I thought stephanitiely

608
00:33:20,600 --> 00:33:23,400
Speaker 1: that things could only get better, mainly come an optimism.

609
00:33:23,560 --> 00:33:25,960
Speaker 1: I spoke to John Stepic of course from Boomburgh Wealth

610
00:33:26,040 --> 00:33:28,560
Speaker 1: and he thoroughly depressed me on house prices and frankly

611
00:33:28,600 --> 00:33:31,640
Speaker 1: everything else. So he you know, he argues that house

612
00:33:31,680 --> 00:33:36,440
Speaker 1: prices could fall over house price fall that's a crash.

613
00:33:36,480 --> 00:33:39,840
Speaker 1: I mean that's a lot. So frankly, everything depends, as

614
00:33:39,880 --> 00:33:42,640
Speaker 1: you know now, on the labor market whether that stays strong.

615
00:33:43,480 --> 00:33:45,120
Speaker 1: I think the lesson from history is that when a

616
00:33:45,160 --> 00:33:48,000
Speaker 1: recession hits an employment takes about a quarter or so

617
00:33:48,120 --> 00:33:51,720
Speaker 1: to respond. Once it does, it tends to rise rapidly.

618
00:33:51,760 --> 00:33:53,480
Speaker 1: So it depends really on the rise and whether the

619
00:33:53,560 --> 00:33:55,959
Speaker 1: bank in England can manage it whether we get through this.

620
00:33:56,760 --> 00:33:59,239
Speaker 1: The Bank of England officials that we speak to, and

621
00:33:59,280 --> 00:34:01,840
Speaker 1: you know them better than me, Stephanie, they're you know,

622
00:34:02,000 --> 00:34:04,560
Speaker 1: they worry or they think there's a gradual riseing job

623
00:34:04,640 --> 00:34:07,560
Speaker 1: is right next year. The big risk is that there's

624
00:34:07,560 --> 00:34:09,279
Speaker 1: a huge increase all of a sudden. If it's a

625
00:34:09,280 --> 00:34:11,799
Speaker 1: lot more rather than we think, then I guess all

626
00:34:11,840 --> 00:34:14,680
Speaker 1: better off. And I noticed that our achieved europe economists

627
00:34:14,680 --> 00:34:16,280
Speaker 1: had done a few sort of back of the envelope

628
00:34:16,280 --> 00:34:19,239
Speaker 1: calculations that just in terms of where incomes were now

629
00:34:19,840 --> 00:34:23,879
Speaker 1: and where the affordability of mortgages relative to a year

630
00:34:23,960 --> 00:34:27,880
Speaker 1: or two ago, house prices look about twenty overvalued in

631
00:34:27,880 --> 00:34:29,719
Speaker 1: the UK. So it does feel like they're heading for

632
00:34:29,800 --> 00:34:33,080
Speaker 1: a for one way or another. Charles, that whole mini

633
00:34:33,120 --> 00:34:38,239
Speaker 1: budget fiasco in the autumn. The optimistic take on that

634
00:34:38,400 --> 00:34:40,560
Speaker 1: was it was it meant the death of cake is

635
00:34:40,640 --> 00:34:42,480
Speaker 1: um in the UK. It meant the death of this

636
00:34:42,640 --> 00:34:45,880
Speaker 1: idea that was associated particularly with Boris Johnson, that you

637
00:34:45,920 --> 00:34:48,400
Speaker 1: could dodge tough choices, have your cake and eat it.

638
00:34:48,480 --> 00:34:50,520
Speaker 1: Is that a sort of positive spin on what's happened

639
00:34:50,560 --> 00:34:52,560
Speaker 1: that now Britain's going to get serious, is going to

640
00:34:52,640 --> 00:34:54,960
Speaker 1: be forced to go on a better path because it's

641
00:34:54,960 --> 00:34:58,200
Speaker 1: tried all the other ones. I think Cakism has been

642
00:34:58,239 --> 00:35:01,759
Speaker 1: defeated and the the establishment and the grown ups are

643
00:35:01,760 --> 00:35:03,960
Speaker 1: in control of the leavers on the British economy now

644
00:35:04,080 --> 00:35:07,000
Speaker 1: for now. But let's not forget that the Tory Party

645
00:35:07,040 --> 00:35:09,839
Speaker 1: has many members of Parliament in it who are who

646
00:35:09,880 --> 00:35:12,160
Speaker 1: are Cakiss, who like Boris Johnson and his trust, sort

647
00:35:12,200 --> 00:35:15,120
Speaker 1: of believe you can have tax cuts and spending increases

648
00:35:15,239 --> 00:35:17,840
Speaker 1: and growth all all at the same time without worrying

649
00:35:17,960 --> 00:35:20,040
Speaker 1: too much about the consequences. Some of them are still

650
00:35:20,080 --> 00:35:22,120
Speaker 1: in that of that school, and they are particularly the

651
00:35:22,160 --> 00:35:25,000
Speaker 1: ones who really hate the European Union. So they may

652
00:35:25,080 --> 00:35:29,200
Speaker 1: prevent Richie Sunac from, if I may use a French word,

653
00:35:30,280 --> 00:35:34,560
Speaker 1: engineering a repression of the European Union in the over

654
00:35:34,560 --> 00:35:36,840
Speaker 1: the coming months, which which it's all about the Northern

655
00:35:36,880 --> 00:35:40,200
Speaker 1: Ireland Protocol. It's far too boring to explain, but essentially

656
00:35:40,560 --> 00:35:42,960
Speaker 1: the British Government has to compromise on this protocol and

657
00:35:43,000 --> 00:35:46,320
Speaker 1: agree to allow some checks on goods passing between Great

658
00:35:46,320 --> 00:35:49,120
Speaker 1: Britain and Northern Ireland to preserve the fact that there

659
00:35:49,160 --> 00:35:50,960
Speaker 1: isn't a barrier between the North of Ireland and the

660
00:35:51,040 --> 00:35:53,480
Speaker 1: South of Ireland because Northern Irelands and the civil market,

661
00:35:53,520 --> 00:35:56,200
Speaker 1: that's what it's about. The British government is reluctant to

662
00:35:56,239 --> 00:35:58,319
Speaker 1: do so, we'll have to do so. Richie Sunach is

663
00:35:58,320 --> 00:36:00,920
Speaker 1: strong enough if he wishes to see down his own

664
00:36:00,960 --> 00:36:04,440
Speaker 1: right wing Brexiteers and the DUP than leading unionist part

665
00:36:04,440 --> 00:36:05,800
Speaker 1: and all down if he wishes to, but I'm not

666
00:36:05,840 --> 00:36:07,239
Speaker 1: sure he's tough enough to do so. And if he

667
00:36:07,280 --> 00:36:10,160
Speaker 1: doesn't do so, then but President Biden won't come to

668
00:36:10,200 --> 00:36:13,640
Speaker 1: Northern Island for the for thenversity of the Good Friday

669
00:36:13,640 --> 00:36:16,120
Speaker 1: Agreement in April, and the Americans to be quite annoyed,

670
00:36:16,160 --> 00:36:18,040
Speaker 1: and he won't get a better relationship with the European Union,

671
00:36:18,040 --> 00:36:20,359
Speaker 1: which is really bad in very many respects at the moment.

672
00:36:20,400 --> 00:36:23,080
Speaker 1: That he does have to take on the cakes, take

673
00:36:23,120 --> 00:36:25,200
Speaker 1: on the extremist, take on the Brexiteers and defeat them.

674
00:36:25,280 --> 00:36:26,600
Speaker 1: I hope he does, but I'm not sure that he's

675
00:36:26,600 --> 00:36:28,000
Speaker 1: going to be able to do something. And probably the

676
00:36:28,040 --> 00:36:30,239
Speaker 1: single most effective thing you could do to support the

677
00:36:30,239 --> 00:36:33,680
Speaker 1: economy is to have a stronger trade relationship with the EU.

678
00:36:33,760 --> 00:36:36,960
Speaker 1: But as you suggest, it's it's it's politically extremely difficult

679
00:36:37,680 --> 00:36:40,200
Speaker 1: to handle well. I think when we're heaving, probably for

680
00:36:40,239 --> 00:36:42,400
Speaker 1: a labor government in a couple of years time, that

681
00:36:42,520 --> 00:36:45,200
Speaker 1: even a labor gunner which will want a stronger relationship

682
00:36:45,239 --> 00:36:47,920
Speaker 1: with the EU, a close relationship will not reverse the

683
00:36:48,040 --> 00:36:50,440
Speaker 1: essentials of the Brexity deal, namely out of the Single Market,

684
00:36:50,600 --> 00:36:52,960
Speaker 1: out of the Customs Union, no freedom of movement. So

685
00:36:53,120 --> 00:36:54,799
Speaker 1: even a better relationship will still lead to a lot

686
00:36:54,800 --> 00:36:57,160
Speaker 1: of economic damage. As you may have noticed, Stephanie, the

687
00:36:57,200 --> 00:36:59,680
Speaker 1: Center for European Reform just published a report today on

688
00:37:00,120 --> 00:37:02,880
Speaker 1: how much Brexit has damaged the British economy. We've constructed

689
00:37:02,880 --> 00:37:05,840
Speaker 1: a Doppleganger model of an economy similar to the British

690
00:37:05,840 --> 00:37:08,680
Speaker 1: economy which didn't undergo Brexit, and the gap between the

691
00:37:08,680 --> 00:37:11,160
Speaker 1: growth of the Doppelgan economy and the British coconomy is

692
00:37:11,160 --> 00:37:13,359
Speaker 1: about five and a half percent. That's led to put

693
00:37:13,480 --> 00:37:16,080
Speaker 1: lead to the income for the treasury being cut by

694
00:37:16,080 --> 00:37:18,840
Speaker 1: about forty billion pounds a year, which is roughly the

695
00:37:18,840 --> 00:37:21,239
Speaker 1: same as the tax increases Writchily Sooner recently known. So

696
00:37:21,320 --> 00:37:24,360
Speaker 1: the cost of the British economy under the exchequer of

697
00:37:24,440 --> 00:37:27,360
Speaker 1: Brexit is quite large, and it's going to remain. Sadly, Tom,

698
00:37:27,400 --> 00:37:30,600
Speaker 1: it has been a tough year in Europe, the US

699
00:37:30,640 --> 00:37:35,000
Speaker 1: still potentially looking at a recession, and China, but it

700
00:37:35,040 --> 00:37:37,080
Speaker 1: should be said there's a lot of the rest of

701
00:37:37,080 --> 00:37:41,000
Speaker 1: the world that has not necessarily been as hard hit.

702
00:37:41,080 --> 00:37:43,080
Speaker 1: I mean, I noticed India's growth is now going to

703
00:37:43,120 --> 00:37:45,440
Speaker 1: outpace China's for at least a couple of years in

704
00:37:45,480 --> 00:37:48,680
Speaker 1: a row, and of course the Gulf is booming thanks

705
00:37:48,719 --> 00:37:53,120
Speaker 1: to high energy prices. Were looking, as a global economist does,

706
00:37:53,760 --> 00:37:57,200
Speaker 1: at the entire world economy. Who are the relative winners

707
00:37:57,520 --> 00:38:01,320
Speaker 1: from the shocks of two? Who's coming to this better?

708
00:38:01,719 --> 00:38:03,440
Speaker 1: First of all, definitely, let me say that I was

709
00:38:03,520 --> 00:38:07,040
Speaker 1: poised to forgive Charles for the repeat appearance of reproach more,

710
00:38:07,120 --> 00:38:09,319
Speaker 1: but then he had to follow up with Doppelgang, which

711
00:38:09,360 --> 00:38:13,560
Speaker 1: is different country but the same, the same, same, same,

712
00:38:13,600 --> 00:38:18,080
Speaker 1: wrong side of the linguistic divide. Um. So um, So look,

713
00:38:18,760 --> 00:38:22,200
Speaker 1: I think until quite recently, UM, we could tell a

714
00:38:22,320 --> 00:38:26,560
Speaker 1: story about a global economy which was supported by three pillars,

715
00:38:27,600 --> 00:38:34,239
Speaker 1: really low borrowing costs, reliably supercharged demand from China and

716
00:38:34,440 --> 00:38:40,319
Speaker 1: ever increasing tip trade and financing ties. Um. And what's

717
00:38:40,360 --> 00:38:42,960
Speaker 1: happened in the last few years is all of those

718
00:38:43,000 --> 00:38:46,880
Speaker 1: pillars have been kicked away, Borrowing costs have gone to

719
00:38:47,000 --> 00:38:51,080
Speaker 1: the roof. China, as we've just discussed, has gone from

720
00:38:51,120 --> 00:38:55,640
Speaker 1: being a reliable growth driver to a real wild card

721
00:38:55,760 --> 00:38:59,880
Speaker 1: for the global economy next year. And of course, Frank

722
00:39:00,000 --> 00:39:05,400
Speaker 1: should us China ties and even more rushes invasion of

723
00:39:05,600 --> 00:39:10,800
Speaker 1: Ukraine are really replaced kind of optimistic hopes for globalization

724
00:39:11,400 --> 00:39:14,879
Speaker 1: with a new reality of kind of tariffs and embargoes

725
00:39:14,960 --> 00:39:19,880
Speaker 1: and sanctions and geopolitical state craft. So for the global

726
00:39:19,880 --> 00:39:23,719
Speaker 1: economy written large, all of these things are negative. Right.

727
00:39:24,239 --> 00:39:27,040
Speaker 1: Growth is going to be weaker, inflation is going to

728
00:39:27,080 --> 00:39:31,400
Speaker 1: be higher. But as you mentioned, Stephanie Um, there is

729
00:39:31,440 --> 00:39:34,000
Speaker 1: also at a kind of micro level going to be

730
00:39:34,040 --> 00:39:37,719
Speaker 1: a pattern of winners and losers, right, And if we

731
00:39:37,800 --> 00:39:41,920
Speaker 1: think about some of the potential winners in this new

732
00:39:42,080 --> 00:39:45,480
Speaker 1: and more chaotic and more disorderly and more fragmented world,

733
00:39:46,480 --> 00:39:50,480
Speaker 1: I think we can point to companies and countries that

734
00:39:50,560 --> 00:39:55,640
Speaker 1: control access to crucial resources. Right. So if you're controlling

735
00:39:55,680 --> 00:39:58,879
Speaker 1: access to a crucial piece of the semiconductor supply chain,

736
00:39:59,680 --> 00:40:03,080
Speaker 1: or if or pumping a lot of the petrochemicals which

737
00:40:03,080 --> 00:40:07,720
Speaker 1: the world relies on, potentially the new world looks better

738
00:40:07,760 --> 00:40:11,960
Speaker 1: for you, more opportunities than the old world. If you're

739
00:40:11,960 --> 00:40:16,640
Speaker 1: a country that could potentially step into supply chains and

740
00:40:16,760 --> 00:40:20,680
Speaker 1: give countries and companies a bit of a hedge against

741
00:40:20,680 --> 00:40:25,520
Speaker 1: their China exposure. If you're in Mexico or a Vietnam

742
00:40:25,640 --> 00:40:29,840
Speaker 1: or an India, it's definitely you mentioned India now outpacing China.

743
00:40:29,920 --> 00:40:33,240
Speaker 1: Then this shift to a more broken, more fragmented world

744
00:40:33,560 --> 00:40:37,799
Speaker 1: could also mean significant opportunities as well as new risks.

745
00:40:37,800 --> 00:40:40,759
Speaker 1: So I think we tend to think about emerging markets

746
00:40:40,600 --> 00:40:44,000
Speaker 1: as as a as a pack, right, and certainly investors

747
00:40:44,080 --> 00:40:46,400
Speaker 1: often treat them as a kind of a pack and

748
00:40:46,480 --> 00:40:50,480
Speaker 1: don't differentiate in between them and the reality though, of course,

749
00:40:50,960 --> 00:40:54,760
Speaker 1: is that within the emerging market universe, you've got lots

750
00:40:54,760 --> 00:40:59,800
Speaker 1: of different qualities of institutions. So you've got Brazil's central Bank,

751
00:41:00,000 --> 00:41:04,040
Speaker 1: for example, which hikes aggressively to get inflation under control.

752
00:41:04,520 --> 00:41:07,960
Speaker 1: And you've got turkeys central Bank, which is dominated by

753
00:41:08,040 --> 00:41:12,319
Speaker 1: politics and which bizarrely cuts interest rates and gives a

754
00:41:12,360 --> 00:41:17,800
Speaker 1: further leg to already supercharged inflation. You've got emerging markets

755
00:41:17,840 --> 00:41:21,680
Speaker 1: that are massive commodity exporters, Like many of the emerging

756
00:41:21,719 --> 00:41:24,719
Speaker 1: markets in the Middle East and which are kind of

757
00:41:25,080 --> 00:41:28,800
Speaker 1: just counting the money flow into their treasuries as Russia's

758
00:41:28,800 --> 00:41:32,160
Speaker 1: invasion of Ukraine drives global energy prices through the roof.

759
00:41:32,800 --> 00:41:34,960
Speaker 1: And then you've got lots of other emerging in frontier

760
00:41:34,960 --> 00:41:39,600
Speaker 1: economies like Sri Lanka, for example, which defaulted on its

761
00:41:39,640 --> 00:41:42,960
Speaker 1: debt last year because it couldn't afford to pay for

762
00:41:43,000 --> 00:41:47,160
Speaker 1: food and pay for energy imports and repay its lenders

763
00:41:47,600 --> 00:41:50,879
Speaker 1: at the same time. Um So, I think this sort

764
00:41:50,880 --> 00:41:54,440
Speaker 1: of more fragmented world, the world of higher borrowing costs,

765
00:41:54,440 --> 00:41:57,560
Speaker 1: the world of broken supply chains. I think it's going

766
00:41:57,640 --> 00:42:01,600
Speaker 1: to reinforce the sort of the need to differentiate within

767
00:42:01,680 --> 00:42:05,640
Speaker 1: the emerging market universe. Who's got what technologies, who's got

768
00:42:05,640 --> 00:42:10,200
Speaker 1: what commodities, who's got good institutions, who's got bad institutions.

769
00:42:10,680 --> 00:42:14,040
Speaker 1: He's going to be some of the important questions going forward. Okay,

770
00:42:14,120 --> 00:42:17,560
Speaker 1: So I think we have had our tour of the world.

771
00:42:17,719 --> 00:42:21,279
Speaker 1: I'm very briefly before you escape. Traditionally I now ask

772
00:42:21,360 --> 00:42:27,200
Speaker 1: for everyone's wild cards, things to watch, unexpected, things to

773
00:42:27,280 --> 00:42:35,040
Speaker 1: look out for. In twenty twenty three, Francine, So the

774
00:42:35,080 --> 00:42:37,759
Speaker 1: one thing I'm watching out force definitely is probably that

775
00:42:37,880 --> 00:42:41,520
Speaker 1: you could get potentially better data. I don't know whether

776
00:42:41,880 --> 00:42:44,120
Speaker 1: Tom and you think that we could get inflation, you know,

777
00:42:44,200 --> 00:42:48,120
Speaker 1: suddenly disappearing quicker than expected. But if that helps the market,

778
00:42:48,160 --> 00:42:51,800
Speaker 1: then we're in very different economy in two thousand and

779
00:42:51,840 --> 00:42:54,480
Speaker 1: twenty three, with households, you know, willing to spend and

780
00:42:54,560 --> 00:42:57,760
Speaker 1: everything looking much rosier. I'm not sure about my own conviction,

781
00:42:57,800 --> 00:43:01,520
Speaker 1: but that's what I'm watching out for. Child. I think

782
00:43:01,560 --> 00:43:04,840
Speaker 1: I my sort of wild card would be actually an

783
00:43:04,920 --> 00:43:08,560
Speaker 1: unexpected represh more in the relationship between China and the West.

784
00:43:08,920 --> 00:43:11,000
Speaker 1: She's been getting worse and worse for ten years because

785
00:43:11,000 --> 00:43:14,000
Speaker 1: of Chinese behavior has been unacceptable to the West. It's

786
00:43:14,040 --> 00:43:17,919
Speaker 1: been bullying its neighbors, stealing intellectual property, abusing human rights

787
00:43:17,920 --> 00:43:20,640
Speaker 1: and song. But actually, although as Tom said, the economy

788
00:43:20,680 --> 00:43:22,640
Speaker 1: is probably going to pick up in China, they've got

789
00:43:22,680 --> 00:43:24,680
Speaker 1: a lot of internal problems. There was unrest we haven't

790
00:43:24,680 --> 00:43:27,880
Speaker 1: talked about, of demonstrations all across China, which forced es

791
00:43:27,960 --> 00:43:30,480
Speaker 1: and paying to abandon a zero COVID policy, which is

792
00:43:30,520 --> 00:43:33,240
Speaker 1: quite a quite a thing. They're tied tied geo politically

793
00:43:33,280 --> 00:43:34,880
Speaker 1: to Russia, which has turned out to be rather a

794
00:43:34,920 --> 00:43:38,520
Speaker 1: Dodgy an unsuccessful ally in the West is very united,

795
00:43:38,560 --> 00:43:40,400
Speaker 1: and I think that the Russian War has made the

796
00:43:40,480 --> 00:43:42,919
Speaker 1: Chinese scared of invading taime One because they can see

797
00:43:43,080 --> 00:43:45,680
Speaker 1: the West would back Taiwan probably, and so I think

798
00:43:45,760 --> 00:43:48,200
Speaker 1: I would predict that the Chinese leadership will be so

799
00:43:48,239 --> 00:43:50,320
Speaker 1: focused on sorting out domestic problems are actually be a

800
00:43:50,320 --> 00:43:51,960
Speaker 1: bit nicer to the West and looked looked for some

801
00:43:52,160 --> 00:43:57,400
Speaker 1: represh more. M's interesting, Peggy, what's your wild card? So,

802
00:43:57,440 --> 00:43:59,600
Speaker 1: Stephanie in the US, I think the wild card to

803
00:43:59,640 --> 00:44:02,920
Speaker 1: watch would be the debate over the debt ceiling or

804
00:44:02,960 --> 00:44:06,960
Speaker 1: debt limit. We are expected to hit that sometime and

805
00:44:07,040 --> 00:44:09,400
Speaker 1: I think the Republicans are really going to come to

806
00:44:09,440 --> 00:44:13,040
Speaker 1: the bargaining table to talk about the entitlement programs for

807
00:44:13,080 --> 00:44:18,240
Speaker 1: the first time in several years. Entitlement programs meetings, social Security, Medicare,

808
00:44:18,239 --> 00:44:22,080
Speaker 1: and Medicaid. Some changes potentially there to cut costs, and

809
00:44:22,120 --> 00:44:25,279
Speaker 1: I do think that's one area where Congress likes to

810
00:44:25,480 --> 00:44:28,200
Speaker 1: go up to the deadline like journalists do, and that

811
00:44:28,239 --> 00:44:32,239
Speaker 1: could cause some real rattling in markets, not only in

812
00:44:32,239 --> 00:44:35,400
Speaker 1: the US, around the world. Thanks Peggy, until all like

813
00:44:35,840 --> 00:44:38,960
Speaker 1: your wild club? So after after after a number of

814
00:44:39,000 --> 00:44:43,640
Speaker 1: years which have been marked by my plague, by war,

815
00:44:44,800 --> 00:44:49,320
Speaker 1: by talk of recession, is really easy to focus on

816
00:44:49,560 --> 00:44:52,520
Speaker 1: what could go wrong, UM, And our base case for

817
00:44:52,560 --> 00:44:56,200
Speaker 1: the global economy next year is pretty blue. Me We're

818
00:44:56,280 --> 00:45:01,120
Speaker 1: forecasting two point four percent global growth into any twenty three,

819
00:45:01,480 --> 00:45:04,560
Speaker 1: and if you leave aside the COVID crisis year of

820
00:45:06,040 --> 00:45:08,919
Speaker 1: and the global financial crisis year of two thousand and nine,

821
00:45:09,360 --> 00:45:12,200
Speaker 1: two point four percent growth is actually the lowest going

822
00:45:12,360 --> 00:45:18,440
Speaker 1: all the way back to so pretty gloomy baseline projection.

823
00:45:19,680 --> 00:45:24,200
Speaker 1: I think it's also important to keep in mind, though, UM,

824
00:45:24,200 --> 00:45:29,200
Speaker 1: coming back to sort of Janet Yellen's acknowledgement of forecasting failure,

825
00:45:30,360 --> 00:45:32,800
Speaker 1: that we could just be wrong right and this time

826
00:45:33,120 --> 00:45:36,719
Speaker 1: we could end up being too pessimistic. If you ask,

827
00:45:36,800 --> 00:45:42,640
Speaker 1: inflation disappears more quickly than we expect, if Europe has

828
00:45:42,640 --> 00:45:46,640
Speaker 1: a warmer winter, more gas and so less of a

829
00:45:46,680 --> 00:45:50,960
Speaker 1: problem with inflation than we expect, if China manages to

830
00:45:51,120 --> 00:45:55,560
Speaker 1: exit from COVID zero a bit more smoothly than we expect,

831
00:45:55,600 --> 00:45:58,120
Speaker 1: and perhaps even as Charles mentions adopts a bit of

832
00:45:58,120 --> 00:46:03,920
Speaker 1: a warmer relation between Beijing and Washington, d C and Brussels,

833
00:46:04,239 --> 00:46:07,759
Speaker 1: then we could be looking at a world in three

834
00:46:08,200 --> 00:46:12,600
Speaker 1: with stronger growth, last inflation and a bit more positive

835
00:46:12,640 --> 00:46:15,360
Speaker 1: tone to this conversation, and hopefully we get back together

836
00:46:15,400 --> 00:46:17,319
Speaker 1: on Stephano Mix at the end of the year. Well,

837
00:46:17,320 --> 00:46:19,160
Speaker 1: that is a very fine thing to hope for now.

838
00:46:19,200 --> 00:46:21,200
Speaker 1: The other tradition is I lower the tone with my

839
00:46:21,280 --> 00:46:23,360
Speaker 1: wild card. Last year I had a sporting prediction that

840
00:46:23,400 --> 00:46:25,640
Speaker 1: England would win the Football World Cup and everyone would

841
00:46:25,680 --> 00:46:29,479
Speaker 1: judge Cats the best World Cup ever. I didn't quite

842
00:46:29,480 --> 00:46:31,760
Speaker 1: work out that way, but it was a pretty good final,

843
00:46:31,920 --> 00:46:33,719
Speaker 1: i would say, and maybe a better World Cup than

844
00:46:33,719 --> 00:46:36,040
Speaker 1: many thought. I'm going to try my luck and make

845
00:46:36,080 --> 00:46:38,200
Speaker 1: the same prediction this year that England are going to

846
00:46:38,239 --> 00:46:39,759
Speaker 1: win the Football World Cup. But I think I have

847
00:46:39,800 --> 00:46:41,640
Speaker 1: a much better chance of being right this time because

848
00:46:41,640 --> 00:46:43,959
Speaker 1: it's the women who'll be playing at the finals next

849
00:46:43,960 --> 00:46:47,480
Speaker 1: summer in Australia. Thanks for listening to Stephanomics. We'll be

850
00:46:47,520 --> 00:46:50,279
Speaker 1: back next week next year. In the meantime, you can

851
00:46:50,320 --> 00:46:53,200
Speaker 1: find us on the bloom Book Terminal website or wherever

852
00:46:53,239 --> 00:46:56,280
Speaker 1: you get your podcasts, and please do rate and review

853
00:46:56,280 --> 00:46:59,200
Speaker 1: our show so it can reach more listeners. You can

854
00:46:59,239 --> 00:47:02,480
Speaker 1: also get news and analysis from Bloomberg Economics all the

855
00:47:02,560 --> 00:47:06,960
Speaker 1: time by following at Economics on Twitter. This episode, as ever,

856
00:47:07,080 --> 00:47:10,680
Speaker 1: was produced by Magnus Herrickson, Summer Sadi, and Yang Yang,

857
00:47:10,840 --> 00:47:14,600
Speaker 1: with special thanks to Francine Laquid, Charles Grant, Peggy Collins,

858
00:47:14,680 --> 00:47:18,799
Speaker 1: and Tom Porlock. Mike Sasso is our executive producer. Thank

859
00:47:18,840 --> 00:47:21,080
Speaker 1: you to all of you, and a very happy New Year.