Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings you
Speaker 1: the global economy. And this week, all of this week,
Speaker 1: I'm in Singapore for the Bloomberg New Economy Forum, and
Speaker 1: we're going to bring you some sort of mini episodes
Speaker 1: with snippets from the speakers and thinking that we're hearing
Speaker 1: at this forum. It's turned out to be a pretty
Speaker 1: interesting time to be doing this in this region. You've
Speaker 1: got them so many different summits happening, including quite prominently
Speaker 1: obviously the g twenty summit happening right this week, um,
Speaker 1: and that important meeting between the US and Chinese presidents
Speaker 1: which has now happened. And I wanted to kick us
Speaker 1: off with a quick chat with our chief economist, Tom Orlick, who,
Speaker 1: along with me and a cast of fellow economists, contributed
Speaker 1: to a book Thinking about the Risks and Opportunities for
Speaker 1: the Year ahead in the Global Economy for this forum,
Speaker 1: and there was a particularly striking kind of overview that
Speaker 1: you had. You speak to how the fundamental drivers of
Speaker 1: the global economy might have changed and what that could
Speaker 1: mean in the future. But talk us through your view,
Speaker 1: um so um. The big thesis that we set out
Speaker 1: in the book, Stephanie, is that in past decades, rising
Speaker 1: global prosperity was underpinned by three pillars. UM. You had
Speaker 1: low inflation and so you also had low central bank
Speaker 1: rates and low borrowing costs. You had supercharge demand from
Speaker 1: China which spent much of the last four decades averaging,
Speaker 1: and your great rate of ten UM. And after the
Speaker 1: fall of the Berlin Wall in the collapse of the
Speaker 1: Soviet Union, you had very limited geopolitical tensions UM. Russia
Speaker 1: UM sort of being welcomed into the fold as a
Speaker 1: you know, potential your democratic market economy by Europe and
Speaker 1: China being welcomed into the fold by the United States.
Speaker 1: And of course what we've seen in the last few
Speaker 1: months is all of those pillars being kicked away. Global
Speaker 1: borrowing costs are going to the roof, Chinese growth is
Speaker 1: going to the floor UM, and geopolitical tensions have reached
Speaker 1: nosebleed inducing levels UM. So sort of the concern which
Speaker 1: we articulate in this New Economy Foreign Report is that
Speaker 1: these have already sort of started to hit home in
Speaker 1: two but they're also going to be problems that play
Speaker 1: out in the years ahead. And just to take each
Speaker 1: of those in turn, the one that we've often talked
Speaker 1: about is inflation. We had that recent news unexpected softening
Speaker 1: in US inflation. Do you think we are in a
Speaker 1: better place when it comes to the US inflation problem
Speaker 1: or are people overstating how far we might come so? Um,
Speaker 1: the latest print for US inflation came in a bit
Speaker 1: below expectations. So we've got the consumer price index now
Speaker 1: running at an annual rate of seven point seven P
Speaker 1: seven is still really really high UM. And the view
Speaker 1: of our US economics team is that if you look
Speaker 1: at what's happening in the labor market, if you look
Speaker 1: at what's happening with wages, they're really rising at a
Speaker 1: pretty rapid pace UM. And so the expectation is that
Speaker 1: even when we get to the middle of three, we're
Speaker 1: still going to be looking at a CPI of around
Speaker 1: four percent. That's way outside the Federal reserves comfort zone.
Speaker 1: So our view is that interest rates still have a
Speaker 1: bit further to rise, and they're probably going to stay
Speaker 1: at an elevated level for a pretty prolonged period. A
Speaker 1: lot of people make this about whether or not inflation
Speaker 1: is going to fall next year. I don't think there's
Speaker 1: any we have any doubt that inflation is going to
Speaker 1: fall significantly in the u US next year. It's a
Speaker 1: question of whether the feeders succeeded in getting it fully
Speaker 1: out of the system. And we compare it to that
Speaker 1: time in the seventies. Obviously, Arthur Burns kind of carries
Speaker 1: the can for having made the mistakes in the US
Speaker 1: running the US Federal Reserve at that time. And if
Speaker 1: you look at what his own analysis of that after
Speaker 1: the fact, it was interesting because they often did have
Speaker 1: inflation Forum for a year or so and then the
Speaker 1: East on the tightening, and that was always a bit
Speaker 1: too soon because inflation came back. Do you think that
Speaker 1: is a risk this time? So Arthur Burns sort of
Speaker 1: shows up as the villain of recent monetary policy history,
Speaker 1: right Arthur Burns was the guy who let inflation get
Speaker 1: under control, and then Paul Vulcar is the hero who
Speaker 1: comes in at the beginning of the nineteen eighties UM
Speaker 1: and sorts everything out. But actually, if you sort of
Speaker 1: look at the situation which confronted Arthur Burns in the seventies,
Speaker 1: it's kind of easy to see how he made the
Speaker 1: kind of mistakes that he did. Um, the FED was
Speaker 1: setting policy based on forecasts for the inflation outlook, and
Speaker 1: those forecasts turned out to be too optimistic. They thought
Speaker 1: inflation was going to come down faster than it did. Well,
Speaker 1: guess what the Federal Reserve under Jerome Powell made exactly
Speaker 1: that mistake, forecasting transitory inflation when it turned out to
Speaker 1: be sticky. Arthur Burns cut interest rates in a recession,
Speaker 1: but it was a really deep and painful recession with
Speaker 1: a lot of unemployment, and it's difficult to be the
Speaker 1: guy raising interest rates when millions of people are losing
Speaker 1: their jobs. Powell has said, I'm not going to be
Speaker 1: that guy. I'm not going to make that mistake. We'll see.
Speaker 1: It's easy to say that ahead of the recession, harder
Speaker 1: to act on it when markets are falling and unemployment
Speaker 1: is rising. And it is interesting when you look at
Speaker 1: this later period of that inflation fighting period that the
Speaker 1: Fed was often aturally overestimating its inflation. Inflation would come
Speaker 1: in below its forecast for a period, but it would
Speaker 1: then creep back up, and it was that judgment call
Speaker 1: of how long was it going to stay down? That
Speaker 1: was that was the problem. I guess we're all going
Speaker 1: back to the seventies and learning more and more things
Speaker 1: about it. Um. Your second driver was supercharge demand coming
Speaker 1: from China. Um, We're clearly not expecting this time around
Speaker 1: China to come to the rescue of the global economy
Speaker 1: as it did with the slowdown after the global financial crisis.
Speaker 1: But we have had just in the last week or so,
Speaker 1: some somewhat kind of mixed picture, but some suggestion that
Speaker 1: the authorities are potentially moving out of the zero COVID
Speaker 1: policy a little bit faster than we might have anticipated.
Speaker 1: How do you read it, given your Chinese expertise. So,
Speaker 1: I think we've had three bits of good news out
Speaker 1: of China in the last couple of weeks. We've had
Speaker 1: signals that She Jimping is thinking about an exit from
Speaker 1: COVID zero a bit earlier than most people expected. We've
Speaker 1: had a significant package of support for the property sector.
Speaker 1: And just this week we've had She and Biden sitting
Speaker 1: down in Bali and the mood music was positive, They smiled,
Speaker 1: they shook hands. UM indications of a bit of a
Speaker 1: thought in that crucial bilateral relationship. So I think there's
Speaker 1: scope for a bit more optimism about the immediate future
Speaker 1: for China than there was a couple of weeks ago.
Speaker 1: At the same time, it's important to remember that China
Speaker 1: faces some really really significant structural problems. Demographics of turned negative.
Speaker 1: Working age population is shrinking at a pretty rapid pace. UM.
Speaker 1: Even with some additional support for the property sector, there's
Speaker 1: still a massive problem of oversupply, which is going to
Speaker 1: take years to work through. There is really high UM
Speaker 1: and even as the mood music on U S. China
Speaker 1: relations improves a little bit, the substance is still pretty troubling.
Speaker 1: Let's not forget that the US has just moved to
Speaker 1: cut China off from leading edge semiconductors UM, a policy
Speaker 1: which kind of seems to aim at turning China into
Speaker 1: a kind of amish community with their technology development frozen
Speaker 1: in place. UM So, if you put those pieces together,
Speaker 1: if you look at the average of the last four decades,
Speaker 1: China was growing at close to ten percent a year
Speaker 1: ahead of the COVID crisis, that had already slowed to
Speaker 1: araune six percent. On an optimistic scenario coming out of COVID,
Speaker 1: I think we're looking at a run rate of perhaps
Speaker 1: four percent a year, and if things go badly, even
Speaker 1: four percent could well turn out to be too optimistic.
Speaker 1: We were hearing from Mark Williams the China Economistic Capital
Speaker 1: Economics a few days ago. He puts China's growth at
Speaker 1: the end of this decade closer to two percent, and
Speaker 1: the world which China is growing at four percent or
Speaker 1: two percent, it's very different to a world where China
Speaker 1: is growing at ten percent. Big negative implications for a
Speaker 1: big commodity export as the Brazil's, Australia's and Chiles of
Speaker 1: the world, Big negative implications for the rest of Asia.
Speaker 1: Here we are in Singapore, a city state which has
Speaker 1: flourished partly because of really good governance and really industrious population,
Speaker 1: but also because they've been swept up by the rising
Speaker 1: tide of China's economy, and if that tide is now
Speaker 1: going to recede, it's going to be tougher for Singapore
Speaker 1: and other countries in the region to outperform. We've already
Speaker 1: touched on the geopolitics, which is obviously the third driver
Speaker 1: that you highlighted in thinking about the different kind of
Speaker 1: regime that we're now in. We actually did have the
Speaker 1: the US Trade Representative speaking in an interview at the
Speaker 1: first day of the New Economy Forum, echoing some of
Speaker 1: the positivity that you heard, the sort of muted positivity
Speaker 1: out of the g twenty meeting between President Biden and
Speaker 1: President she. How do how do you read that, tom Um?
Speaker 1: I think it seems like Biden's sort of domestic strength
Speaker 1: was stood by out performance by Democrats at the mid terms.
Speaker 1: She jimping, of course, is coming out of a party
Speaker 1: congress where he managed to stack all of the major
Speaker 1: jobs in the Communist Party in the Chinese government with
Speaker 1: his own supporters. And perhaps it's that strength at home
Speaker 1: for both Biden and she which has enabled them to sort,
Speaker 1: I guess, move towards what looks like more like a
Speaker 1: sort of a well managed rivalry rather than a rivalry
Speaker 1: where things seemed to where there was seemed to be
Speaker 1: a risk that things could just spiral out of control. Tom,
Speaker 1: more like, thank you so much, But we are going
Speaker 1: to hear more about this ongoing question of US China
Speaker 1: relations over the next few days. At this forum, we
Speaker 1: not only heard already from the U s Trade Representative
Speaker 1: Catherine Tie, but I chaired a session with the Japanese
Speaker 1: Minister of Trade Yestshi Nishimura and the Senior Minister for
Speaker 1: Singapore tam And Shammuga Atnam, and I didn't get anything
Speaker 1: out of the Japanese minister when it came to the
Speaker 1: US controls on semi conductor is very important for that
Speaker 1: US policy, whether or not the Japanese go along with
Speaker 1: those export restrictions on on chip sales to China. But
Speaker 1: I did get this from Senior Minister Shamagaratnam. There's been
Speaker 1: a lot of talk about partnership and the importance of
Speaker 1: countries working together, but the recent US trade policies and
Speaker 1: for example, the attempts to restrain exports of of key
Speaker 1: semi conductors to China, that surely it makes it difficult
Speaker 1: for an open economy in Asia to navigate and think
Speaker 1: about the future. When the US appears to be trying
Speaker 1: to drive drive lines across the map, I think, first,
Speaker 1: there's a week forward. We haven't reached the precipicecy yet,
Speaker 1: and there's a way of charting a new cause between
Speaker 1: the major powers as well as with the mid sized
Speaker 1: powers and smaller nations like ourselves. It requires first first
Speaker 1: and formal stabilization. Just avoid dialing up the tensions, avoid
Speaker 1: further steps, avoid escalation that then becomes self reinforcing. So
Speaker 1: that's the first order of business. But second, there's so
Speaker 1: much common interest between the US and China and between
Speaker 1: all nations in the biggest challenges we face, climate change,
Speaker 1: endemic preparedness, and just getting growth going. Those are the
Speaker 1: biggest challenges we face which affect the well being of
Speaker 1: our own populations, and focusing bilateral and multilateral efforts around
Speaker 1: those large challenges in the mission driven way, tackle pandemic preparedness,
Speaker 1: create multi valent vaccines, tackle carbon capture, clean steel, clean cement,
Speaker 1: the whole range of innovations that are still out there,
Speaker 1: still the boundaries of what's possible and not yet viable,
Speaker 1: but invest in it. There's a whole range of investments
Speaker 1: that are in the mutual interests that we have to
Speaker 1: collaborate on, and that itselfs forms forms an overarching relationship
Speaker 1: between the major powers, who will otherwise be obsessed with
Speaker 1: competition and obsessed with what divides them. Thirdly, there's also scope,
Speaker 1: I think to all do some dialing down many small
Speaker 1: moves that could reduce tension. Um. I mean, if you
Speaker 1: look at objectively speaking, if we look at much of
Speaker 1: the tariff war that has taken place, it's not been
Speaker 1: in anyone's interests. It's not an interest of American workers,
Speaker 1: not in interest American manufacturing, not in interest of China,
Speaker 1: not in the interests of Singapore, in the smaller nations,
Speaker 1: So there's an opportunity to dial down in every one
Speaker 1: in terrists. So it requires that new understanding, and I
Speaker 1: think there's a very important new start yesterday in the
Speaker 1: meeting between the President Biden in Presdency UH. There's an
Speaker 1: opportunity for a new understanding. But it then requires actions
Speaker 1: avoid further escalation, find ways to dial down, but also
Speaker 1: start exploiting this very large terrain of mutual interests. That
Speaker 1: requires collaborative investments public and private, and using as best
Speaker 1: as we can the multilateral institutions. They are valuable institutions,
Speaker 1: particularly the World Bank and the m DBS. We are
Speaker 1: under using them. By using them to catalyze private finance,
Speaker 1: we can actually go quite some distance to addressing that
Speaker 1: large scale investment challenge that we have. In the next
Speaker 1: ten years. We might hear a little bit potentially of
Speaker 1: the dialing down. We have an opportunity for that anyway,
Speaker 1: because the US Trade Representative will be following. I'm tempted
Speaker 1: from what you've said to get you to do the interview.
Speaker 1: You might you might get get some some global progress
Speaker 1: out of it. But as you said, President Biden had
Speaker 1: did have some some warmer words after his meeting, and
Speaker 1: he suggested that there wasn't a new Cold War. And
Speaker 1: yet it has become quite common for Biden administration officials
Speaker 1: to talk about wanting to prevent China from developing technologically
Speaker 1: in various areas. Do you think that's unhelpful? Well, I
Speaker 1: think first we have to recognize that China is not
Speaker 1: the Soviet Union during the Cold War. China will continue
Speaker 1: to be a growing and emerging economy and it will
Speaker 1: develop capabilities. You can slow the developmental or capabilities, particular
Speaker 1: advanced semiconductors and a few other areas, but you can't
Speaker 1: prevent China from emerging as a major player in the
Speaker 1: global economy and in the global technology space. The question
Speaker 1: is whether you eventually want China as a formidable economy
Speaker 1: to be distrustful of you, to be in a relationship
Speaker 1: of antagonism al whether you want interdependence, and that requires
Speaker 1: drawing careful lines around what is really required to protect
Speaker 1: national security. What is something you can allow to have
Speaker 1: continued exchange and dependence on. But you watch and you
Speaker 1: verify some element of trust and verify and what you
Speaker 1: have open competition on. It requires some clear lines and
Speaker 1: a clear framework that Rosal's lines. I believe it is possible.
Speaker 1: I don't think the US is set on the cause
Speaker 1: of collision with China despite some of the noise you
Speaker 1: make here. I believe it is possible to formulate this framework,
Speaker 1: and it is possible to then incorporate on the much
Speaker 1: larger challenges that both China and the US and the
Speaker 1: rest of the martinnational economy, the globally the community of thesis. Well,
Speaker 1: that's it from this mini episode of Stephanomics, and we'll
Speaker 1: be back tomorrow. This episode is produced by Summer Sadi,
Speaker 1: Young Yang and Magnus Hendrickson. Mike Sasso is the executive
Speaker 1: producer of Stephanomics. M