Speaker 1: Hello, and welcome to Stephonomics. And today we're bringing the
Speaker 1: world of two to you our traditional look ahead to
Speaker 1: the big themes and questions coming down the track over
Speaker 1: the next twelve months, with a carefully selected panel of
Speaker 1: wise men and women who were kind enough to make
Speaker 1: Stephanomics part of their Christmas plans. We have Nancy Cook
Speaker 1: dialing in from Washington, d C, where she covers economic
Speaker 1: policy for Bloomberg as part of the White House Press Corps.
Speaker 1: Also normally in d C, but currently holidaying in Cornwall
Speaker 1: in England. There's Bloomberg's chief economist, Tom Marlick, and from
Speaker 1: New York, Aaron Rutkoff, who runs all things green at Bloomberg,
Speaker 1: among other things. Also from London, and delighted to say,
Speaker 1: we have Muktaba Rahman, the Europe Managing director of the
Speaker 1: Eurasia Research Group. He's new to Stephonomics, I think, but
Speaker 1: definitely not new to Bloomberg and probably known by many
Speaker 1: people listening as a great source of wisdom on what's
Speaker 1: happening behind the scenes in Europe. So thank you everyone
Speaker 1: and welcome. This is all about looking ahead, not looking back,
Speaker 1: but I can't resist very briefly asking you what the
Speaker 1: most memorable moment of one was for you. Nancy, I
Speaker 1: think that it was first when President Biden came into
Speaker 1: office and just started wearing a mask everywhere and and
Speaker 1: really just you know, visually and in terms of his behavior,
Speaker 1: was taking coronavirus much more seriously than President trumpad Aaron,
Speaker 1: what was it for you? Well, I had the chance
Speaker 1: to go to COP twenty six and after such a
Speaker 1: long build up, to return to United Nations Climate talks,
Speaker 1: actually seeing people all in one place and I'll gather
Speaker 1: together in addressing climate change after the kind of in
Speaker 1: the middle of the long shadow of the pandemic. Did
Speaker 1: did leave quite a quite an impression on me, even
Speaker 1: though the outcome of it may not have lived up
Speaker 1: to some people's expectations of what might have come after
Speaker 1: such a long week. Well, so we will probably be
Speaker 1: getting into that with you a bit later, but tom
Speaker 1: alt So for me, Stephanie, it was that moment in
Speaker 1: March where the US top diplomat Anthony Blincoln sat down
Speaker 1: with China's top diplomat Yang Jeacher, and it was meant
Speaker 1: to be a meeting that got the U. S. China
Speaker 1: relationship back on track after the tumult and the trade
Speaker 1: wars of the Trump years. But that's not quite what happened.
Speaker 1: Yang Jia Cher used the opportunity to deliver a forty
Speaker 1: five minute protocol breaching Harangue, saying the US had no
Speaker 1: standing to speak for the world and no moral authority
Speaker 1: to criticize China over Shinjiang, Taiwan, Hong Kong, cyber espionage
Speaker 1: or anything else. And for me, that was a kind
Speaker 1: of a critical moment, a kind of watershed moment in geopolitics,
Speaker 1: where China said, you know what, We're not second place,
Speaker 1: We're not the disciple. We're not going to listen to
Speaker 1: you anymore. We're going to go on go on our
Speaker 1: own path. I remember us having a conversation immediately afterwards.
Speaker 1: It was definitely one where it helped to be fluent
Speaker 1: in Mandarin to get the true implications of that, but
Speaker 1: it was it was quite a moment. Muktaba Ravan, what
Speaker 1: did What are you going to most remember from one,
Speaker 1: without doubt the outcome of the German elections. I think
Speaker 1: we spent most of the year looking at the differences
Speaker 1: between arm In Lachette and Marcus Zoda and we've ended
Speaker 1: up with Olaf Schultz, former finance minister, in partnership with
Speaker 1: the Greens and the Liberal Democrats, which was I think
Speaker 1: a complete surprise. A government that looks as though they're
Speaker 1: going to do big things in Germany and big things
Speaker 1: in Europe. It is interesting. I interviewed Olaf Schultz earlier
Speaker 1: in the summer and asked him, why are you even bothering,
Speaker 1: you know, looking at the polls, why are you even
Speaker 1: bothering to be in this election and carry on the campaigning?
Speaker 1: And he said, well, you know, people with if they
Speaker 1: could choose me and not just the party, they would
Speaker 1: want me as chancellor. And I still think I can
Speaker 1: do that. And of course he was right and I
Speaker 1: was wrong to be to be negative. And let's let's
Speaker 1: kick off with you Tom Alick. Just thinking a bit
Speaker 1: about the economy and oh Macron, because that's put paid
Speaker 1: to a lot of people's expectations very early, already in
Speaker 1: two or before it's even started. So should we be
Speaker 1: throwing away all of our forecasts for the next year
Speaker 1: thanks to the spread of that variant. So if we
Speaker 1: were having this conversation in December, Stephanie, nobody would have
Speaker 1: said a virus creeping out of a wohan wet market
Speaker 1: will trigger the biggest global downturn since the Great Depression.
Speaker 1: And if we were having this conversation in December twenty twenty,
Speaker 1: I don't think anyone would have said that the US
Speaker 1: would be ending with inflation close to seven. So clearly
Speaker 1: COVID has made the already murky crystal ball of economic
Speaker 1: forecasting even murkier. And we should be a bit humble
Speaker 1: about our predictions. We're always humble, obviously, some more than others.
Speaker 1: Um said that said, with a macron, I think clearly
Speaker 1: it's going to be a bump. Um. We're already seeing
Speaker 1: that we've just pulled together on now casts for growth
Speaker 1: at the end of one. They're coming down more or
Speaker 1: less across the board. As a macron triggers more caution
Speaker 1: from consumers and businesses and governments. But I think it's
Speaker 1: going to be a bump. I don't think it's going
Speaker 1: to derail the recovery. Firstly, whilst O macrons seems to
Speaker 1: be more contagious than other variants, it doesn't so far
Speaker 1: appear to be more deadly. Secondly, the world is just
Speaker 1: getting smarter at dealing with COVID, and you see each
Speaker 1: successive wave is having a smaller impact on the economy.
Speaker 1: And I guess just to stick with the macroeconomics for
Speaker 1: a minute, the other sort of dramatic thing that happened
Speaker 1: in December, apart from the the rise of O Macron,
Speaker 1: was this shift from the US Central Bank the Federal Reserve,
Speaker 1: where it really came round to saying inflations now enemy
Speaker 1: number one for the US economy. And as we know,
Speaker 1: there's been many critics, including Larry Summers, who we heard
Speaker 1: from in last week's episode, who think it's about time
Speaker 1: that the Federal Reserve stopped using the word transitory when
Speaker 1: it comes to inflation. But we are now looking at
Speaker 1: several rate increases, are quite significant tightening of monetary policy
Speaker 1: for two at a time when we know a lot
Speaker 1: of that emergency fiscal support for the U s economy
Speaker 1: is also going to be drying up. Tom, you talk
Speaker 1: about what we don't expect twelve months out. Is it
Speaker 1: conceivable that we might be talking about a coming recession
Speaker 1: in twelve months time? What are the risks? Well, I'm
Speaker 1: not sure it's going to be a recession. The US
Speaker 1: recovery still has further to run. The US households are
Speaker 1: still sitting on a bunch of pandemic savings which they
Speaker 1: need to spend. At the same time, the beginning of
Speaker 1: the FED tightening cycle and what looks like potentially a
Speaker 1: rather hurried tightening cycle, does come with some pretty significant
Speaker 1: risks attached. First, as you mentioned, Stephanie, the FED will
Speaker 1: be raising interest rates at almost exactly the moment when
Speaker 1: US fiscal policy starts to run out of umph. Will
Speaker 1: hear more about this from Nancy, I'm sure, but from
Speaker 1: what I can see, the opposition of Senator Joe Mansion
Speaker 1: has dealt a death blow to Biden's Build Back Better agenda. Second,
Speaker 1: the FED is going to be tightening at a moment
Speaker 1: when US equity markets and US property prices are pretty
Speaker 1: close to bubble territory, and that's potentially a toxic combination. Thirdly,
Speaker 1: already in one we've seen some emerging markets getting into trouble,
Speaker 1: especially Turkey, a reflection of the shall we say, idiosyncratic
Speaker 1: approach to policymaking from President Urduan. For the rest of
Speaker 1: the emerging market universe, the start of the FED tightening
Speaker 1: cycle is going to be a challenge movement. We're going
Speaker 1: to see capital outflows, falling currencies, weaker markets, and a
Speaker 1: challenge to growth at exactly the moment when the spread
Speaker 1: of the omicron variant means they need more rather than
Speaker 1: lass support. And Nancy, we mentioned President Biden's fiscal woes
Speaker 1: or fiscal congressional woes with his fiscal package, that this
Speaker 1: is actually in asking you this question, we have to
Speaker 1: come clean that we're actually recording this just before Christmas Eve.
Speaker 1: So it's the worst possible time to be asking you
Speaker 1: what's going to happen to the great Build Back Better
Speaker 1: or agenda because we still have this big tax and
Speaker 1: spending package that we don't know the fate of you.
Speaker 1: By the time this comes out just around New Year's
Speaker 1: do you think President Biden will have passed or be
Speaker 1: about to pass those important tax changes and spending increases.
Speaker 1: I don't think so. I think that as Senator Mansion
Speaker 1: made his position very clear in a Fox News program
Speaker 1: that he was going to oppose it. Uh, there was
Speaker 1: a lot of animosity between himself and the White House
Speaker 1: earlier this week, and and you know, people at the
Speaker 1: Senate will go home to celebrate the holidays, just like
Speaker 1: a lot of other people, and so we will not
Speaker 1: see resolution by New Year's and I would argue we
Speaker 1: probably won't even see resolution by mid January. UM. It's
Speaker 1: a huge disappointment to the White House because they had
Speaker 1: really planned in two on having the president's domestic economic
Speaker 1: agenda sort of in the bag and done so they
Speaker 1: could move on to some other policy things like their
Speaker 1: China policy or some other foreign policy questions, and then
Speaker 1: also just implementing and selling the economic package, and so
Speaker 1: this just really prolongs that. And there were also a
Speaker 1: number of policy changes in there that were very important
Speaker 1: to the progressive wing of the party. And so now
Speaker 1: you have a riff between Senator Joe Mansion, the key
Speaker 1: you know, fiftieth senator who President Biden needs in support,
Speaker 1: but also with the progressives who feel like these are
Speaker 1: the things that they wanted and this was the legacy
Speaker 1: that they wanted Democrats to to really show in voters,
Speaker 1: and it seems like that is slipping away from the
Speaker 1: Biden administration. If presidents don't manage to pass particularly early
Speaker 1: in their administration when they're supposed to have a bit
Speaker 1: more ability to do stuff, usually if they don't pass
Speaker 1: kind of signature legislation. They tend to be relying on
Speaker 1: the economy for whatever support they have in the polls.
Speaker 1: We've got sort of pretty strong economic recovery at the moment,
Speaker 1: but it is coming with this higher inflation, but wages
Speaker 1: at the lower end of the pace Kale are going up.
Speaker 1: Is it going to do him good as we go
Speaker 1: through the year. It doesn't. It doesn't feel like that
Speaker 1: that that relatively positive picture is doing the administration much good.
Speaker 1: It isn't. And we have seen Paul after a political
Speaker 1: poll and it's really fascinating showing that the majority of
Speaker 1: Americans feel like they do not feel optimistic about the economy.
Speaker 1: There was a fascinating ABC News Washing and Post poll
Speaker 1: in November that showed seventy of Americans rathe the economy negatively.
Speaker 1: Despite what you said, which is that the data is
Speaker 1: actually pretty mixed. Um. But what White House people and
Speaker 1: economists and pundance that I talked to really believe is
Speaker 1: that the overhang of inflation and just the uncertainty caused
Speaker 1: by COVID and the virus is coloring people's perception entirely.
Speaker 1: And it's just the sense that people having to pay
Speaker 1: more for groceries and gas. Um, you know, rent, if
Speaker 1: they're renting their apartment or their house, that is really
Speaker 1: coloring you know, everyone's perception, even people who are middle
Speaker 1: income or higher income, who are not as affected by
Speaker 1: an increase in the price of milk, for instance. But
Speaker 1: it's just really sort of psychological at this point, and
Speaker 1: it's it is really affecting the president's approval numbers. Well, Aaron.
Speaker 1: One of the other things that was supposed to be
Speaker 1: the great distinguishing feature of this of anustration was its
Speaker 1: record on the climate. It was gonna be he was
Speaker 1: going to be the greenest president ever. Um. You mentioned
Speaker 1: Cop twenty six in Glasgow. One of the disappointments there
Speaker 1: arguably was that the US was not able to bring
Speaker 1: a dramatic new commitment, or not one that seemed to
Speaker 1: be very dramatic to to outsiders. If if the president
Speaker 1: can't pass these big tax and spending plans, um, what
Speaker 1: chance does he have of being truly transformational on the environment.
Speaker 1: Yet it's very tough. I mean, he and entered office,
Speaker 1: everyone knew he would rejoin the Paris Agreement, the idea
Speaker 1: that the United States would set a net zero target
Speaker 1: at mid century like so many other large nations have,
Speaker 1: was established. Um, what Biden really wanted to arrive at
Speaker 1: cop able to show and what he now with mansioned
Speaker 1: statement on the billback better plan seems really in doubt.
Speaker 1: It's his ability to move the needle on American emissions
Speaker 1: between now and you know, the plan us to reduce
Speaker 1: emissions by half over the two thousand five levels by
Speaker 1: the end of this decade, and without passing legislation, it's
Speaker 1: going to be really hard to do those things. There
Speaker 1: was money in the spending plan for things like ev infrastructure,
Speaker 1: subsidies for consumers who are putting solar panels on their roofs,
Speaker 1: are adopting electric cars, incentives for people to build for
Speaker 1: a company to build more renewable energy. None of those
Speaker 1: things can really effectively be done without passing legislation. You
Speaker 1: can't you can't do it with executive action. One of
Speaker 1: the really interesting things about watching this debate play out
Speaker 1: in Washington is that it's one of the first times
Speaker 1: we've been able to see climate modelers, so professors who
Speaker 1: apply you know, real world computer modeling. We're analyzing legislation
Speaker 1: in real time as it was changed, and being able
Speaker 1: to analyze what it would do to emissions UM and
Speaker 1: by the end of the process there were still a
Speaker 1: huge ability to drive emissions down with the legislation as
Speaker 1: it stood. But without that, I don't think it can
Speaker 1: be replaced by by anything um in executive action. Since
Speaker 1: we're looking ahead, I mean that the there is another COP.
Speaker 1: There's another big meeting in Egypt later in twenty two.
Speaker 1: If what you say is true is the is there
Speaker 1: going to be a great loss of momentum at least
Speaker 1: coming from the US. Well, you know, one of the
Speaker 1: things we saw at this COP that is a sign
Speaker 1: of some some optimism for COP twenty seven in Egypt
Speaker 1: is that the U. S. And China, which are agreeing
Speaker 1: on so little right now and there's so little cooperation
Speaker 1: between them, did make a bilateral agreement to cooperate on
Speaker 1: some key things like methane emissions. So there will be
Speaker 1: things to check in on at COP twenty seven that
Speaker 1: will be really interesting. That said, I don't think you
Speaker 1: can expect to see more action than we saw at
Speaker 1: COP twenty six, which probably sounds a little disappointing. COP
Speaker 1: twenty six was sort of in this five year post
Speaker 1: Paris model where a lot, not just the big emitters
Speaker 1: like the U, S and China, but the whole world
Speaker 1: was supposed to do a stock taking. Um, it's not
Speaker 1: that COP twenty seven won't be interesting, but I think
Speaker 1: the chances of it exceeding what we saw a copped
Speaker 1: and sex are actually quite quite low. So I think
Speaker 1: that is a bit of a downer heading into the
Speaker 1: next year if you're looking for big action on climate
Speaker 1: Moxamma ram And I mean if we cross the Atlantic,
Speaker 1: we've been talking about the interplay between politics and the
Speaker 1: economy in the US and how that may play out
Speaker 1: next year. I mean, how is the recovery playing out
Speaker 1: for governments in Europe? Has has O Macron sent everyone
Speaker 1: back to square one on that? I mean, it definitely
Speaker 1: comes at a very difficult political moment for Europe and
Speaker 1: for the EU, because you've got major transitions that are
Speaker 1: likely next year. And I'm I'm thinking about France and
Speaker 1: Italy in particular, or they've just happened here, I'm thinking
Speaker 1: about Germany. I mean, there is a risk that the
Speaker 1: incoming government in Berlin wobbles a little bit because there
Speaker 1: is a perception that Ola Schultz has been to lax
Speaker 1: on restrictions, and some of the surge that way now
Speaker 1: seeing is because his government hasn't leaned into the challenges
Speaker 1: aggressively as they needed to. I'd argue on Micron is
Speaker 1: probably the single biggest unknown for the outcome of the
Speaker 1: French election. Macron has his election on the tenth and
Speaker 1: twenty fourth of April next year, and you know, as
Speaker 1: as as things stand, I think because of that election,
Speaker 1: he's ruled against the kind of draconian social restrictions we're
Speaker 1: seeing in countries like Denmark and the Netherlands and probably
Speaker 1: in the UK, because he thinks they will probably test
Speaker 1: the nation's patients and puncture. The economic recovery. France is
Speaker 1: looking at six or seven percent growth this year, so
Speaker 1: he's he's making a big gamble that boosters on the
Speaker 1: vaccination side and tightening of the health pass will allow
Speaker 1: France to weather what would otherwise be a sixth wave.
Speaker 1: If the gamble fails, I think he may forfeit his
Speaker 1: claim to have steered France through the pandemic reasonably well.
Speaker 1: I would say that people around Macron believe actually there
Speaker 1: is a resurgence of the pandemic. It could play quite
Speaker 1: well for him because his ratings typically tend to rise
Speaker 1: into into in times of acute health crisis. But I
Speaker 1: think the big point is it has unknown and unpredicted
Speaker 1: impact on a very consequential race in the European Union
Speaker 1: next year. Well, we'll come back to you on the
Speaker 1: on the more on the on the European politics in
Speaker 1: a minute, But Tom, we should get back to China
Speaker 1: because it was such a big feature of discussions last
Speaker 1: year when you we were talking about the FED at
Speaker 1: the beginning raising rates. It's certainly the first time I
Speaker 1: can remember that we're going into a year where the
Speaker 1: US Central Bank is expected to be raising interest rates,
Speaker 1: but China is actually not going to be slavishly following
Speaker 1: the FED. It's going to be doing its own thing,
Speaker 1: cutting rates to support its economy. That is a moment
Speaker 1: in itself, isn't it, Tom? But I guess we should
Speaker 1: also worry about two of the largest economies in the
Speaker 1: world slowing down at the same time. So I think
Speaker 1: there's a couple of things going on their staff. The first,
Speaker 1: as you know, is that the FED and the PUC
Speaker 1: are very likely going to be moving in opposite directions
Speaker 1: in two and that in itself is already pretty remark cable. Historically,
Speaker 1: because China's currency, the rem and B, was tied to
Speaker 1: the dollar, the People's Bank of China had to follow
Speaker 1: the FED. It didn't matter what economic conditions were like
Speaker 1: in China. If the FED hiked, the PBOC had to
Speaker 1: follow them, and if the FED cut, the PBOC had
Speaker 1: to follow them. Now, after a decade of careful, painstaking reforms,
Speaker 1: the remin b is much closer to a free floating currency,
Speaker 1: and that's given China's central bank a new degree of
Speaker 1: freedom on how it manages monetary policy, and we already
Speaker 1: see them using it. The second important implication of the
Speaker 1: PBOC loosening is what it says about China's current economic condition.
Speaker 1: In the third quarter of one we saw China grind
Speaker 1: to a halt, a reflection of the ever grand property
Speaker 1: slump of the government's zero COVID strategy and all that
Speaker 1: means for lockdowns and of energy shortages. And in two
Speaker 1: two of those problems, the property slump and the zero
Speaker 1: COVID strategy are going to be there with China still.
Speaker 1: What that means is that the PBOC is very likely
Speaker 1: going to need to loosen further, and they're going to
Speaker 1: be pretty grateful that those years of reform on the
Speaker 1: exchange rate have brought them the freedom to move in
Speaker 1: a different direction from a tightening fed. You've just you've
Speaker 1: added in another question market with something to worry about.
Speaker 1: For the for the strength of the of the global economy.
Speaker 1: In in two we seem to be adding them up.
Speaker 1: Aaron Rakoff, you will have a better sense of this
Speaker 1: than anyone. I always feel there's a bit of a
Speaker 1: sort of disconnect in discussions around China and climate because
Speaker 1: on the one hand, we sort of, you know, they
Speaker 1: didn't the leaderships, senior leadership, didn't come to COP twenty six,
Speaker 1: the the commitments on the sort of global stage seem
Speaker 1: a bit um week compared to some countries. But then
Speaker 1: I talked to China experts who say, no, they're the
Speaker 1: country that has done most to really embed climate commitments
Speaker 1: in their development strategy, at least on paper, and it's
Speaker 1: going to fundamentally change the direction of the economy in
Speaker 1: the next few years. So so what's right, I mean,
Speaker 1: should we take um China more or less seriously on
Speaker 1: the climate? Well, I mean, you can look at China's
Speaker 1: current emissions and it's really the lynch pain for the
Speaker 1: whole world. In a lot of ways. The Chinese emissions
Speaker 1: right now are about the equivalent of the next for
Speaker 1: largest emitters nation states combined um and within China, you
Speaker 1: can look at some of the biggest emitting companies, many
Speaker 1: which are state controlled or heavily state influenced, and the
Speaker 1: emissions of those companies will be as large as some
Speaker 1: very significant you know, like individual Europeans and Chinese steelmaker
Speaker 1: will have the same size emissions. But there's also a
Speaker 1: lot of signs for optimism there. I mean, unlike Joe
Speaker 1: Biden's struggles in the United States, the Chinese government does
Speaker 1: have a large voice in terms of what it's a
Speaker 1: huge omitting companies do. There's not a need to pass legislation.
Speaker 1: China is enormous consumer and driver of the renewable energy transition.
Speaker 1: Whether you're looking at things like the installed wind capacity
Speaker 1: that will be added in two so much of that
Speaker 1: will be in China. The same thing with a new
Speaker 1: solar capacity will be arriving in China. And even at
Speaker 1: the end of this year, we saw China cross a
Speaker 1: threshold where one in five vehicle sold was an electric vehicle.
Speaker 1: So there really are signs for optimism there. Uh, it's
Speaker 1: like everything else though, I guess a bit of a
Speaker 1: mixed bag. And I think Tom also mentioned the sort
Speaker 1: of the energy shortages and ectricity problems in China last year.
Speaker 1: I did see there was an article in The Economist
Speaker 1: actually that was claiming that this two was going to
Speaker 1: be a real reality check moment for the world's climate ambitions,
Speaker 1: because we saw last year when push comes to shove,
Speaker 1: or in the case of the UK, you know, the
Speaker 1: wind fails to blow, um, we immediately crank up you know,
Speaker 1: the dirtiest power stations again, or in the case of
Speaker 1: China and India, we crank up coal output because energy
Speaker 1: prices are soaring, and that and those carbon neutral options,
Speaker 1: those green options that we like to think we have,
Speaker 1: are actually not quite there yet. Do we have a
Speaker 1: another disconnect there between our our great green ambitions and
Speaker 1: where the world actually is now. I think that's right.
Speaker 1: If the expectation is that renewable energy could step in
Speaker 1: the place of very volatible fossil energy markets and just
Speaker 1: you know, be a stabilizing force when the price of
Speaker 1: natural gas or oil or call was shooting up, I
Speaker 1: think that that is premature. On the other hand, I
Speaker 1: think there's a certain degree of the transition that is
Speaker 1: beaked into the kick ring now, even if you're looking
Speaker 1: at a place like China. UM, the China's whole strategy
Speaker 1: around electric vehicle adoption is because they don't have much
Speaker 1: in the way of oil domestically. They're reliant in an
Speaker 1: American and Australian lergy imports. So I don't think there's
Speaker 1: anything that's going to throw off the continued adoption in
Speaker 1: around the world, but especially in China, of renewable energy.
Speaker 1: And I think one of the really fascinating questions to
Speaker 1: track in the year ahead is the extent to which
Speaker 1: higher fossil energy prices, higher oil prices um are something
Speaker 1: that drive people towards more renewable energy investment, or it
Speaker 1: creates kind of political backlash against renewables and slows things down.
Speaker 1: It's a real open question. I think. I feel like
Speaker 1: it's an economist I should know whether it's a good
Speaker 1: thing or a bad thing for energy prices to go up.
Speaker 1: But I agree with you, I think it's it's it's
Speaker 1: kind of difficult. Um. Mid climate concerns were pretty prominent
Speaker 1: in the German election When I talked to our German
Speaker 1: correspondents a few weeks ago about the new government, they
Speaker 1: didn't think it was going to signal a very big
Speaker 1: change in German policy for twenty two empty two. But
Speaker 1: you've already highlighted we have another fantastically important election coming up,
Speaker 1: the French presidential election. Is there a chance of a
Speaker 1: serious upset there? Quickly on Germany, Stephanie, before I talked
Speaker 1: to you about France, I think we're actually upcoming a
Speaker 1: bit more bullish on Germany. Actually, I think Schultz is
Speaker 1: going to do quite a lot domestically on fiscal policy.
Speaker 1: I think that's clear. They're not going to amend the constitution,
Speaker 1: but they're figuring out all kinds of innovative ways in
Speaker 1: which they can circumvent the rules and ensure they're they're
Speaker 1: spending more, maybe you know, in the order of no
Speaker 1: point five one one five percentage GDP that could be
Speaker 1: quite substantial. But even on Europe, I think people are
Speaker 1: getting a bit more optimistic about what shots might do.
Speaker 1: The Finance Minister Christine Lindner has been sounding very very
Speaker 1: dovish indeed, and I think now the question is if
Speaker 1: Linda is not a constraint how far the shots himself
Speaker 1: want to go. So I think Germany is something to watch,
Speaker 1: certainly on the Europe side, where there might be quite
Speaker 1: some upside surprise next year. In France, I think, look,
Speaker 1: Macron is in an interesting position. He's at twenty tw
Speaker 1: ex percent, quite stable for a sitting president at this
Speaker 1: point in his political cycle. All of the carnage is
Speaker 1: one level below Macron, primarily on the center right and
Speaker 1: the far right, where you have Lapen, Valerie Progress who
Speaker 1: is the nominee for the center right, and Eric Zamore,
Speaker 1: this somewhat weird racist pundit who announced his campaign to
Speaker 1: great fanfare, had a fair amoun of momentum but has
Speaker 1: now has now dropped off. He's basically around fourteen percent.
Speaker 1: Progress has got something of a boost, she's at seventeen
Speaker 1: and La penn is in second place. So Macron is
Speaker 1: floating above all of this mess. Assuming or Macron does
Speaker 1: not massively derail things, I suspect you know he will.
Speaker 1: He will ultimately capture the Elize his His most competitive
Speaker 1: contender would be Valerie Progress in the run off. If
Speaker 1: she can get into the run off, she'll be dangerous
Speaker 1: for him because she's competent, Centrists sensible on Europe. There's
Speaker 1: a very large part of the left that feels they
Speaker 1: put Macron into power. Now they feel completely disenfranchised because
Speaker 1: he tapped to the right during his during his presidency,
Speaker 1: her challenge will be getting into the runoff. So I think, look,
Speaker 1: I think it should be good for Macron, assuming no
Speaker 1: big surprises. Otherwise, I think progress is the one to
Speaker 1: look for. The last thing I'll say on the pen,
Speaker 1: I think this is her final moment. She's a proven
Speaker 1: loser at every every every election she's runn she typically
Speaker 1: performs worse than her pollings. I suspect next year Will
Speaker 1: Will Will Will will be much the same, and at
Speaker 1: some point the niece will then take over and there'll
Speaker 1: be a bigger challenge for two thousand and twenty seven.
Speaker 1: This is a family that just keeps on producing more
Speaker 1: potential candidates for the for the far right. And you'll
Speaker 1: correct me, but my memory is this time in the
Speaker 1: residential cycle where Macron was elected. At this stage he
Speaker 1: was nowhere as a candidate. I mean we should remember
Speaker 1: he was an outsider. He had created his own political
Speaker 1: movement in order to run and conversations we would have
Speaker 1: had even sort of early in the year of the election. UM,
Speaker 1: he would not have featured very prominently in UM. It
Speaker 1: took a scandal, uh, and the for for one of
Speaker 1: the other main candidates to put in more seriously in
Speaker 1: the running. You know, is there any chance of that
Speaker 1: it's just someone coming out of nowhere at this point, Well,
Speaker 1: we've already had two surprises, Stephanie. I mean, Eric Zamore
Speaker 1: was a surprise, and Valerie Progresses, the center right nominee,
Speaker 1: was a surprise. We all expected Michelle Barnier. So I
Speaker 1: absolutely expect there to be more surprised as I can't
Speaker 1: say what they will be, but inherent I think in
Speaker 1: the French race, because it's a two round runoff means
Speaker 1: as you approached the first round on the tenth of April,
Speaker 1: if there was a big terrorist attack some of the
Speaker 1: bad news, that could completely derail Macron and then all
Speaker 1: of a sudden you've got to run off with you know,
Speaker 1: a candidate with lpennens and more or something else, which
Speaker 1: I think would be quite dangerous with lots of downside risks.
Speaker 1: So it's absolutely possible. So I guess that's that's one
Speaker 1: tip for next year. If you're if you're someone who
Speaker 1: loves the thrills and spills of an entertaining presidential election
Speaker 1: and you're casting around for one to follow. France has
Speaker 1: a proven track record of being entertaining, um and full
Speaker 1: of surprises. As we speak, there has been no end
Speaker 1: of scandals and bad news for Boris Johnson in the UK,
Speaker 1: which we don't need to go into, but mainly involved
Speaker 1: various leaks involving lots of parties that he had been
Speaker 1: part of, all his staff have been part of when
Speaker 1: everybody else was supposedly locked up at home due to COVID.
Speaker 1: I guess I'll just ask you the straight question. There's
Speaker 1: no election scheduled, but will Boris Johnson still be Prime
Speaker 1: Minister of the UK in twelve months time? So it
Speaker 1: was Stephanie where a Fort that he will be replaced
Speaker 1: next year, and I'd say strong upward pressure on that number.
Speaker 1: You know, I'll say to you that every single person
Speaker 1: I'm talking to Westminster basically thinks it's the base case
Speaker 1: that he will go next year. They think it's inevitable.
Speaker 1: Now you know he's really in trouble, and you know
Speaker 1: the Tory Party is not the labor party. If they
Speaker 1: believe Johnson's an electoral liability, they will look to ditch him,
Speaker 1: I think next year so that they're competitive for twenty four.
Speaker 1: Everybody is looking at the at the swinging Shropshire North
Speaker 1: where the Tories just lost a safe seat to the
Speaker 1: Liberal Democrats and calculating what that would mean for their seats.
Speaker 1: I think there's lots of concern about Johnson and what
Speaker 1: are the opinion polls saying Labor has a nine point
Speaker 1: lead now on average. I think in the last five
Speaker 1: or ten surveys, you know, can the Tories close that
Speaker 1: gap or his case star I'm going to keep a
Speaker 1: steel on those numbers. If he does, I suspect that
Speaker 1: again will promote more trouble for Johnson next year. The
Speaker 1: one thing to look for will be the main local elections.
Speaker 1: If the Tories performed badly in those local authority elections,
Speaker 1: then I think there will be a move to probably
Speaker 1: on seat him with a view to the third quarter
Speaker 1: next year. So if you weren't paying attention to Shropshire North,
Speaker 1: that's another election for you to to to pay attention to.
Speaker 1: Thanks thanks mad Nancy. If we come back to the
Speaker 1: us UM, the big political event there for two is
Speaker 1: obviously going to be the mid terms. At the moment,
Speaker 1: very low expectations in terms of the Democrat outcome. The
Speaker 1: Democrat result in those elections is inflation does does does?
Speaker 1: What happens to inflation between now and then? Is that
Speaker 1: going to have a big impact on those results or
Speaker 1: do you think it's it's already sort of toast for
Speaker 1: the Democrats. I think that the Democrats, you know, historically
Speaker 1: the party in power always loses seats in the mid terms,
Speaker 1: and I think that people in the White House expect
Speaker 1: that Democrats will lose seats. I think it's just a
Speaker 1: matter of to what degree they lose seats. I think
Speaker 1: the two key things that I'll be watching in the
Speaker 1: mid terms are what is happening with COVID and what
Speaker 1: is happening with the economy, particularly with inflation. Um you know,
Speaker 1: I think people in the White House are hoping that
Speaker 1: inflation eases by the summer, because that's when voters typically
Speaker 1: make up their minds. But a lot of economists think
Speaker 1: it will ease sometime in two but not necessarily by
Speaker 1: the election, And so I think the timing of when
Speaker 1: prices start to drop will be very key to Biden's
Speaker 1: political future. And then of course just COVID, I mean,
Speaker 1: are they able to get it under control? Is there
Speaker 1: a new variant um, can they convince more people to
Speaker 1: get vaccinated and boosted? Those are really the outstanding questions
Speaker 1: that I think, will you know, determine that the contours
Speaker 1: of the midterms and what happens with Democrats if they
Speaker 1: lose both the House and Senate or just one um,
Speaker 1: But I think people in the White House are bracing
Speaker 1: for a big loss in and just quickly. I mean,
Speaker 1: you spend your life working in the White House. I
Speaker 1: mean a year ago, the staff is that you see
Speaker 1: there would have been super excited and enthusiastic about getting
Speaker 1: getting their hands back on the levers of power in
Speaker 1: the US. You had a big State of the Union
Speaker 1: addressed by President Biden that people got felt like was
Speaker 1: a real sort of momentum. Are they all really depressed
Speaker 1: now and they have their hands heads in their hands?
Speaker 1: That's a great question. I think it has been a
Speaker 1: very very rough stretch for them, and it started with
Speaker 1: the withdrawal from Afghan to stand in August, which did
Speaker 1: not go as they thought it would. It was you know,
Speaker 1: very poor, and and the President was very upset about it.
Speaker 1: His advisors were upset about it. They were blaming people. Um.
Speaker 1: And then I think that inflation and how long it
Speaker 1: has lasted has been a surprise to them. They were
Speaker 1: wrong about the trajectory of that, and it has caught
Speaker 1: the muff guard. And then COVID has just been a
Speaker 1: real problem for them. They really claimed victory and July
Speaker 1: fourth and said that there was going to be a
Speaker 1: return to normalcy. That has not turned out to be
Speaker 1: the case. And I feel like people there feel very
Speaker 1: frustrated that, you know, their plans have gone a little
Speaker 1: bit astray, partly you know, out of their own making,
Speaker 1: like the Afghanistan withdrawal, But then other things are a
Speaker 1: little bit out of their control, like a new variant
Speaker 1: or Americans refusal to get vaccinated. Those are things that
Speaker 1: they can't necessarily control, but yet will still be blamed for. Okay, well,
Speaker 1: we had pretty much to the end. Uh tol M
Speaker 1: actually started by reminding us of some of the stories
Speaker 1: that called us by surprise in the last year or two. UM.
Speaker 1: So I want to just end by asking all of
Speaker 1: you briefly what you'll be looking out for in the
Speaker 1: form of surprises. You know what, what would be the
Speaker 1: wild card that you think, um, we should pay attention
Speaker 1: to in twenty twenty two. Well, I think one thing
Speaker 1: that's gonna be fascinating to watch play out next year
Speaker 1: is the way that net zero is defined by big
Speaker 1: banks and big financial firms. We saw four and fifty
Speaker 1: financial firms worldwide, including all the biggest banks in the
Speaker 1: US and Europe, sign up to a net zero plan
Speaker 1: and the margins of COP that kind of on the
Speaker 1: sidelines of COP, no one really knows what it means
Speaker 1: to be a net zero bank at this point, and
Speaker 1: that process of defining that is going to play out
Speaker 1: over the upcoming months, and it will be fascinating to
Speaker 1: see how a big bank like JP Morgan tries to um,
Speaker 1: you know, shape those rules in terms of how we
Speaker 1: define that and finance more broadly, As the sort of
Speaker 1: options for big like government action under Biden are diminishing
Speaker 1: the role of finance and business in the energy transition,
Speaker 1: next year is just going to be enormous. So whether
Speaker 1: that's watching venture capital spending on things like clean meat
Speaker 1: or new materials, or um looking at the nascent market
Speaker 1: for carbon removal and watching how venture money moves into that.
Speaker 1: I think all of those things are going to be
Speaker 1: really fascinating and I could wouldn't be a good climate
Speaker 1: editor without mentioning the always wild card hanging over all
Speaker 1: of this, which is, you know, the likelihood and chance
Speaker 1: for extreme weather disasters fueled by climate change to really
Speaker 1: affect the way, um this story unfolds in the year ahead.
Speaker 1: I mean, that's a risk we're going to be living
Speaker 1: with basically forever now, um. And there's all all manner
Speaker 1: of risk on that front next year, and we should
Speaker 1: say there was plenty of that in twenty one as well.
Speaker 1: Thanks um mox Abo Roman, what's your wild card? We're
Speaker 1: looking at the tensions between Eastern and Western Europe. I
Speaker 1: think they could prove to be a very big deal
Speaker 1: next year. Poland and Hungary and have not received money
Speaker 1: from this Pandemic Recovery fund that was the style lisition
Speaker 1: in December twenty to facilitate economic recovery on the back
Speaker 1: of COVID because the institutions in Brussels, Germany other member
Speaker 1: states want to bring them back into compliance with the
Speaker 1: EUSE Treatise. There's a sense that the democratic backsliding that
Speaker 1: we've seen in both those countries has gone too far,
Speaker 1: and now is the moment to pull them back into
Speaker 1: the quote unquote European fold. I think their their threat
Speaker 1: effectively to the rest of Europe is give us our
Speaker 1: money or will wreck your union. So does does the
Speaker 1: European Union become ungovernable next year because of the vetos
Speaker 1: that are being used by Poland and Hungary that prevent
Speaker 1: progress on legislative and strategic and political goals. I think
Speaker 1: that's a big risk and something certainly will be watching closely. Nancy.
Speaker 1: I'm assuming on the base of what you said that
Speaker 1: your wild card isn't a great stunning Democrat victory in elections. Yes,
Speaker 1: it's not that. I In addition to inflation and what
Speaker 1: happens with COVID, I would say the wild card that
Speaker 1: we haven't talked about in the U s A is
Speaker 1: the housing market. Um. The housing market has really taken off,
Speaker 1: particularly for single family homes and so have been homes
Speaker 1: as people were looking for more space and backyards in
Speaker 1: the pandemic, and I think it's been very frothy. Prices
Speaker 1: have risen quite a bit um and I think that
Speaker 1: it's something that economists that I talked to, but also
Speaker 1: White House officials are closely watching just to see if
Speaker 1: this ends up being some sort of housing bubble. Tom Wolick,
Speaker 1: your world card, um so so. Two years into the
Speaker 1: pandemic stuff, I'm finding it increasingly difficult to separate my
Speaker 1: entrenched pessimism from attempts at objective analysis. And I have
Speaker 1: to say that the threat of extreme weather events, a
Speaker 1: collapse of the European Union or bursting of the US
Speaker 1: real estate bubble on on helping with that effort. But
Speaker 1: let me let me add to the sort of sense
Speaker 1: of despair by throwing out the possibility of a twilight
Speaker 1: of the economic idols um so um across the world.
Speaker 1: We've just just throwing that out throwing out there. Now
Speaker 1: I'm gonna attempt to define it as well. Um So.
Speaker 1: Around the world we've seen sort of this populous wave
Speaker 1: sweep away all of the institutions, um But the institutions
Speaker 1: that have remained standing have been the economic policy institutions. Right.
Speaker 1: We can still count on the I, m F and
Speaker 1: the FED and the other central banks for objective analysis
Speaker 1: for policy decisions which are well intentioned and which are right.
Speaker 1: More often than they're wrong. But in one we've seen
Speaker 1: scandal after scandal. We've seen scandals at the I m
Speaker 1: F and the World Bank. Accusations that the head of
Speaker 1: the International Monetary Fund was cooking the books on the
Speaker 1: Doing Business rankings to elevate China up the rankings. Allegations
Speaker 1: about insider trading at the FED, members of the f
Speaker 1: O m C actively trading in the markets which are
Speaker 1: shaped so heavily by their interest rate decisions. So my
Speaker 1: risk for two, and it really is a risk, not
Speaker 1: a base case, is that we see a collapse of
Speaker 1: confidence in the economic policy institutions, and of course coming
Speaker 1: at a moment when inflation is high and inflation expectations arising.
Speaker 1: If that collapsing confidence happens, it really couldn't be worse timed. Well. Typically,
Speaker 1: Tom will like you've ended on this very magisterial note,
Speaker 1: so I must immediately lower the tone and say my
Speaker 1: personal wild card is much more prosaic. It's the English
Speaker 1: football team is going to win the cat Art World Cup. Um,
Speaker 1: and then all the people that have been complaining about
Speaker 1: this is a horribly controversial World Cup, a completely the
Speaker 1: wrong time in a country that doesn't play football. We
Speaker 1: will all agree that it was a fantastic place to
Speaker 1: hold the World Cup after all. Thanks to everyone who's
Speaker 1: been on this panel, I hope you've enjoyed listening. We'll
Speaker 1: be back next week with more on the ground insight
Speaker 1: into the global economy, and in the meantime, you can
Speaker 1: find us on the Bloomberg Terminal, website, app, or wherever
Speaker 1: you get your podcasts. And for more news and analysis
Speaker 1: from Bloomberg Economics, you should also follow at Economics on Twitter.
Speaker 1: You can find me on at my Stephanomics. This episode
Speaker 1: was produced by Mangus Hendrickson, with special thanks to my
Speaker 1: panelist Muktaba Raman, Nancy Cook, Aaron Rutkoff, and Tom Marlick.
Speaker 1: Mike Sasso is our executive producer and the head of
Speaker 1: Bloomberg Podcast is Francesca Levi. A very happy New Year.