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Speaker 1: Let's get to our guest, Katrina els With, a senior

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Speaker 1: economist at Moody's Analytics joining us from Sydney. Katrina, thanks

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Speaker 1: for being with us. I think you have to admit

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Speaker 1: the data that we had here in the US was

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Speaker 1: pretty encouraging. The retail sales number stronger than forecast, and

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Speaker 1: inflation expectations moderated a bit this month. Yeah, it's fantastic news, actually,

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Speaker 1: and it does mean that, um, that the US economy

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Speaker 1: is actually uh, you know, in a in a better

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Speaker 1: position than what was expected, and it you know, it

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Speaker 1: does also increase the likelihood that you know, we're hearing

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Speaker 1: a lot about whether the FED is actually going to

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Speaker 1: be able to engineer this this magical soft landing as

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Speaker 1: a result of its more aggressive tightening policy. And if

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Speaker 1: we do have consumers in a in a better position,

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Speaker 1: and if we do have inflation expectations coming down, it

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Speaker 1: does really improve that optimism. And we're really craving optimism

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Speaker 1: at the moment because we know that there's there's so

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Speaker 1: many headwinds to the global economy and so the fact

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Speaker 1: that US consumers are doing a bit better and inflation

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Speaker 1: expectations are coming down is certainly good news. So where

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Speaker 1: does that place things in terms of your expectations for

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Speaker 1: the FED meeting this month? Is a hundred basis points

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Speaker 1: live or is it going to be the seventy I

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Speaker 1: mean it's looking at this point like it's going to

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Speaker 1: be the seventy five basis points. I mean, if inflation

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Speaker 1: expectations are coming down, there's really no need for the

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Speaker 1: FED to really go so dung ho and aggressive on

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Speaker 1: a hundred basis points. I mean, it just doesn't make sense.

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Speaker 1: And it also really does mean that because US consumers

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Speaker 1: and US business sentiment is is in that fragile position.

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Speaker 1: I mean, I think it's a lot for them to

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Speaker 1: try and take in their stride. That additional hundred basis

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Speaker 1: points and I mean seventy five basis points as well

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Speaker 1: is quite a lot to take in their stride as well. So, um, yeah,

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Speaker 1: I think the seventy five basis points is definitely the

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Speaker 1: more sensible option at this point. So do you think

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Speaker 1: the commodities market is telling us that the FED will

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Speaker 1: succeed and perhaps there is a high probability of a

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Speaker 1: soft landing. I mean, that's the that's the question that's

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Speaker 1: on everyone's minds at the moment. I mean, there is

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Speaker 1: a there is still that really overwhelming fear that we

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Speaker 1: are heading towards a global recession, and recession risks in

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Speaker 1: the US are still uncomfortably high, and part of that

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Speaker 1: is a consequence of the fact that the FED is

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Speaker 1: moving so aggressively to try and tame inflation and inflation expectations.

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Speaker 1: So it really does remain to be seen. But what

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Speaker 1: we're really paying a lot of attention on is how

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Speaker 1: how business and how well business and consumer sentiment are traveling.

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Speaker 1: Because we know that while there, you know, isn't necessarily

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Speaker 1: a strong causal link between how businesses and consumers feel

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Speaker 1: and how they actually spend and make investment plans, we

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Speaker 1: know that if they do start to really materially retreat,

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Speaker 1: and that anxiety that they're already feeling does translate to

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Speaker 1: their behavior, then that's something that we really need to

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Speaker 1: play close attention to. We've had this warning today from

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Speaker 1: the i m F that it's going to cut its

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Speaker 1: growth outlook substantially. How would you define substantial? I mean

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Speaker 1: substantial in this kind of environment, is is really a

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Speaker 1: relative term. I mean, what we're seeing at the moment

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Speaker 1: is that there's so many headwinds coming to the to

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Speaker 1: the global economy at the moment. I mean it's not

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Speaker 1: just coming from major central banks moving aggressively, and it's

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Speaker 1: not just as a consequence of Russia's invasion of Ukraine

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Speaker 1: pushing up um supply side inflation. But you know, if

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Speaker 1: we're looking particularly at a pack at the moment, I mean,

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Speaker 1: China zero COVID policy is is really causing substantial and

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Speaker 1: significant economic headwinds. We saw that GDP print for China

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Speaker 1: release last week and that was a material downside surprise.

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Speaker 1: And so I mean, if we're seeing global growth coming

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Speaker 1: in between that two to three pc realm this year,

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Speaker 1: I think that that would be within expectations at this point.

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Speaker 1: And Katrinia did mention COVID zero when we were talking

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Speaker 1: just a moment ago in China for China growth. What

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Speaker 1: are the longer term implications of hanging on to this policy. Yeah,

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Speaker 1: I mean there are significant headwinds as a result of

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Speaker 1: this ongoing zero COVID policy. I mean we know that, Um,

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Speaker 1: you know, policymakers in China are really acting counter sectly

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Speaker 1: called to the rest of the globe because um, they

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Speaker 1: are having to be be very quite you know, quite

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Speaker 1: aggressive when it comes to monetary stimulus and fiscal stimulus

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Speaker 1: to try and insulate the economy, you know, partially as

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Speaker 1: a result of this zero COVID policy. I mean, when

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Speaker 1: it comes to the property market, we've seen that local

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Speaker 1: governments have eased buying curves, they've they've cut mortgage rates,

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Speaker 1: they've partially relaxed ownership rules, all in a bid to

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Speaker 1: try and reinvigorate the property market, just because it's such

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Speaker 1: an important stimulus for for the order economy. And I mean,

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Speaker 1: to date, they haven't had UM, you know, much success

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Speaker 1: when it comes to all these actions that they've done,

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Speaker 1: because the potency of policy has been reduced by by

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Speaker 1: zero COVID and so that's that's a concern. And it

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Speaker 1: means that UM from a medium term perspective, if the

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Speaker 1: government's really shifted its stance away from UM de leveraging

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Speaker 1: campaign and looking at the longer term sustainability questions towards

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Speaker 1: really trying to to prop up near term growth in China.

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Speaker 1: And it's the best way to do that, in your view,

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Speaker 1: is to go about spending a little bit more on infrastructure.

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Speaker 1: Is that going to really deliver the bang that is necessary?

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Speaker 1: I mean, that's the Chinese government's tried and true method

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Speaker 1: when it comes to trying to um stimulate the economy

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Speaker 1: to move to that infrastructure spending, and I mean, you know,

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Speaker 1: in the past that has been quite a good way

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Speaker 1: of actually helping China's economy get back on its feet

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Speaker 1: from a demand perspective, and we are actually expecting that

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Speaker 1: infrastructure of spending this year will provide a decent lift

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Speaker 1: to Chinese growth. So, um, yeah, I think it's it's

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Speaker 1: a decent and tried and true method in China. Is

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Speaker 1: it going to work this time though, because it's COVID

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Speaker 1: zero policy, everyone's going to stay home. Yeah. I mean

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Speaker 1: what we're seeing as well in China is that, um,

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Speaker 1: you know, while there is the risk of another kind

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Speaker 1: of Shanghai style lockdown where we do see these extended lockdowns,

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Speaker 1: you know, there is that that strong preference as well

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Speaker 1: towards more localized, sharp lockdowns. And so while that is

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Speaker 1: obviously creating a lot of anxiety because the government isn't

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Speaker 1: embracing endemic living the way the rest of the world is,

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Speaker 1: it does mean that more localized lockdown, you know, means

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Speaker 1: that you know that the infrastructure spending might be able

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Speaker 1: to to kind of lift the demand environment, particularly if

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Speaker 1: there are exemptions offered to to certain workers to continue

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Speaker 1: to um you know, allow those projeck to to keep going.

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Speaker 1: One of the interesting things to watch is this the

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Speaker 1: boycotting situation on some of the mortgages for these properties.

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Speaker 1: And I'm wondering if you've considered the second order effect

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Speaker 1: of something like this. Yeah, I mean, it is really interesting,

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Speaker 1: and it's also concerning what's happening in China when it

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Speaker 1: comes to UM the fact that you know, the stimulus

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Speaker 1: that's being offered isn't necessarily being um, you know, taken

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Speaker 1: up by households. So households are refusing to, for example,

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Speaker 1: pay UM their mortgage payments because they're not able to

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Speaker 1: actually do that. And so I mean that's that's a consequence,

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Speaker 1: and it really does bring to the forefront the broader

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Speaker 1: questions around social cohesion in China, because we know that UM,

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Speaker 1: you know, Chinese growth needs to take over at a

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Speaker 1: certain rate for jobs growth to continue and for UM

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Speaker 1: social cohesion to continue, and if that's not happening, then

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Speaker 1: it really does UM you know, yeah, bring to the

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Speaker 1: fourth those questions about UM how you know, whether households

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Speaker 1: are going to continue to adhere to the zero COVID

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Speaker 1: policy even if there are those significant restrictions on their activity.

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Speaker 1: Katrina thirty seconds left. Couple of big central bank meetings

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Speaker 1: in Asia this week. Bank of Indonesia, Bank of Japan.

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Speaker 1: What are you expecting? So the real one to watch

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Speaker 1: will be Bank Indonesia, where you are expecting a twenty

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Speaker 1: five basis point hike from them because the root here

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Speaker 1: is coming under increasing um, you know, pressure and so um,

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Speaker 1: they are wanting to kind of stabilize that. And so

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Speaker 1: we think that Bank Indonesia will finally come off the

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Speaker 1: sidelines and deliver a twenty five basis point hike. All right,

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Speaker 1: thanks so much, Katrina L. Senior economists at Moody's Analytics,