WEBVTT - IMF Director of Monetary & Capital Markets, Tobias Adrian, Talks IMF Growth

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Here's the latest this morning at the IMF World Bank

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<v Speaker 2>Spring Meetings. The IMF cunning its growth outlook and warning

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<v Speaker 2>of major risks at the War Persists the IMF Global

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<v Speaker 2>Financial Stability Report. Right in, the global financial system is

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<v Speaker 2>confronting several channels through which market turmoil could escalate into

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<v Speaker 2>financial instability. Tobias Adrian, the IMF Director of Monetary and

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<v Speaker 2>Capital Markets, joins us now from more good morning, So

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<v Speaker 2>it's good to see you.

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<v Speaker 1>Good morning.

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<v Speaker 2>I was just recalling a phrase from the Bank of

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<v Speaker 2>International Settlements from more than a decade ago, and that

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<v Speaker 2>was uneasy calm. And I think that phrase uneasy calm

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<v Speaker 2>maybe captures this moment quite well. Do you agree.

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<v Speaker 1>Well, when we look at markets, there's certainly a lot

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<v Speaker 1>of risk appetite in markets that has come back over

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<v Speaker 1>the past seven weeks. We've seen an ebb and flow

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<v Speaker 1>in terms of this risk appetite. You know, our own

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<v Speaker 1>assessment is that risks continue to be tilted to the downside.

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<v Speaker 3>Well, this is a strange thing, right, So, risks to

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<v Speaker 3>continue to be tilted to the downside, and markets are

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<v Speaker 3>hitting new all time highs. People are moving on as

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<v Speaker 3>though this doesn't exist. I mean, how do you understand

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<v Speaker 3>that from a sort of animal spirit's point of view,

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<v Speaker 3>and where there could be potential systemic risks that are developing.

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<v Speaker 1>Yeah, that's a very good question. So the way that

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<v Speaker 1>we look into the future is by considering three scenarios.

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<v Speaker 1>A reference scenario that is relatively benign, where the inflationary

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<v Speaker 1>shock is somewhat temporary, A network scenario where the inflation

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<v Speaker 1>shock is more persistent and many center banks would have

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<v Speaker 1>to act. And then a severe scenario where financial stability

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<v Speaker 1>problems would start to play a role. And looking back

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<v Speaker 1>again over the past seven weeks, you can imagine that

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<v Speaker 1>sort of like the relative likelihood of those three scenarios

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<v Speaker 1>was shifting over time as the new news flows what's

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<v Speaker 1>setting markets.

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<v Speaker 3>At the same time, it seems like there are a

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<v Speaker 3>number of economies, particularly in Asia Southeast Asia, that don't

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<v Speaker 3>have enough money to acquire physical crud right now, and

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<v Speaker 3>so they're having the shutdowns, they're having some of the

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<v Speaker 3>restrictions on commercial activity. Given how tenuous the financial position

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<v Speaker 3>was to begin with in some of these nations, how

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<v Speaker 3>much does it set back by decades some of the

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<v Speaker 3>countries that had made progress.

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<v Speaker 1>Yeah, that's a very good point. Right, when we look

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<v Speaker 1>across countries, there's a huge variance in terms of how

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<v Speaker 1>how hard countries are hit in terms of pricing and

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<v Speaker 1>in terms of the oil supply shock. So it's the

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<v Speaker 1>more vulnerable countries, whether that's vulnerable emerging markets or developing economies,

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<v Speaker 1>you know, those that disproportionately hit as the share of

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<v Speaker 1>energy consumption and food consumption is much higher relative to

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<v Speaker 1>advanced economies. And of course as many countries are importers

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<v Speaker 1>of oil, imputus of gas, and that is particularly challenging

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<v Speaker 1>for them.

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<v Speaker 3>You know, it's strange. It seems like, yes, there's an

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<v Speaker 3>uneasy comm and there's a war going on that's really

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<v Speaker 3>threatening supply chains. But the atmosphere this year at the

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<v Speaker 3>IMF meetings is actually significantly better than it was last year.

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<v Speaker 2>Why is that?

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<v Speaker 1>So, as you pointed out at the beginning, there is

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<v Speaker 1>quite a bit of a hope that is around. Though

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<v Speaker 1>when we look back over the weeks, you know, there

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<v Speaker 1>has been a back and forth, Right, volatility has come

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<v Speaker 1>up at the moment the VICS is you know, below

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<v Speaker 1>or at about historical averages. But you know, we have

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<v Speaker 1>seen spikes as well, So you know, let's see how

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<v Speaker 1>we evolve.

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<v Speaker 4>To Lisa's point out what's going on in Asia, Bob

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<v Speaker 4>McNally was just on he said, it's a famine when

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<v Speaker 4>it comes to energy. Is that going to hurt capital

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<v Speaker 4>flows into these countries?

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<v Speaker 1>So we have seen a withdrawal of fourier flows out

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<v Speaker 1>of emerging markets that is significant, right compared to twenty

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<v Speaker 1>twenty two, it's about double in terms of outflows, but

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<v Speaker 1>the price action remains somewhat contained. So spreads have widened,

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<v Speaker 1>both hard currency and local currency spreads, but relative to

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<v Speaker 1>the flows, it remains at somewhat benign scenario.

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<v Speaker 2>Is there something about this situation that risks amplifying existing vulnerabilities?

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<v Speaker 2>We talk often about private credit. Do you see a

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<v Speaker 2>connection between the two things at the moment.

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<v Speaker 1>Yeah. So there are a number of vulnerabilities that, taken

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<v Speaker 1>in isolation, seem manageable, but if all the vulnerabilities come together,

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<v Speaker 1>it could become uncomfortable in a severely adverse scenario.

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<v Speaker 2>Do you think that's likely.

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<v Speaker 1>We think there's some likelihood on this severe scenario, but

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<v Speaker 1>it's certainly not our baseline.

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<v Speaker 2>It's certainly not appreciated right now financial markets in general,

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<v Speaker 2>with equity markets at all time highs at the moment

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<v Speaker 2>on the S ANDPR that ASDAC this morning.

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<v Speaker 3>And frankly, if you listen to the rhetoric from a

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<v Speaker 3>lot of their banks CEOs, none of them seem to

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<v Speaker 3>think that private credit is a real systematic threat in fact,

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<v Speaker 3>in fact, they're all investing and broadening out. And what

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<v Speaker 3>Ted pick said yesterday was it's a credit issue. It's

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<v Speaker 3>not just private credit, and if the economy is going gangbusters,

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<v Speaker 3>just guess what credit does well. Ultimately, it seems like

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<v Speaker 3>everyone feels better this time this year then at the

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<v Speaker 3>same time last year, even with no oil or anything

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<v Speaker 3>else getting through the strait of removed.

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<v Speaker 2>There was a line of questioning in your Ted pick

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<v Speaker 2>insview that I thought was really really important. The point

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<v Speaker 2>you made about capital markets activity benefiting from volatility, but

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<v Speaker 2>dealmaking and advisory fees of still held up. That's a

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<v Speaker 2>strange mix. You think about volatility and you think that

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<v Speaker 2>would upset the latter. That didn't happen last quarter.

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<v Speaker 3>It was headline volatility, but it wasn't directionally negative. So

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<v Speaker 3>it was good volatility for banks because people were motivated

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<v Speaker 3>to shift around, particularly on single names, but they still

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<v Speaker 3>got deals done. So it was kind of a perfect

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<v Speaker 3>mix that really led to an incredible results from the

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<v Speaker 3>big banks.

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<v Speaker 2>This headline's coming from a page just moments ago speaking

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<v Speaker 2>to the IEA head saying Europe, we talk a lot

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<v Speaker 2>about this cushion. Europe has maybe six weeks left of

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<v Speaker 2>jet fuel. That headline crossing just mama's agust.

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<v Speaker 4>This is what Asia has been dealing with, and now

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<v Speaker 4>the next stop is going to be Europe. And also

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<v Speaker 4>what Fati Birol, the head of the IA, speaking to

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<v Speaker 4>the AP says, warning of possible fight cancelation soon if

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<v Speaker 4>these supplies remain blocked given what is going on with

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<v Speaker 4>the trader promote.

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<v Speaker 2>Not good to BEA's just good to see you, sir,

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<v Speaker 2>Thanks for being Kreeh, Thank you very much, thanks for

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<v Speaker 2>making a sigh for us. The RF director of Monetary

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<v Speaker 2>and Capital Markets