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Speaker 2: This is Bloomberg day Break Weekend, our global look at
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Speaker 2: all around the world. Straight Ahead on the program, we'll
Speaker 2: look at what to expect from the spring meetings of
Speaker 2: the International Monetary Fund and World Bank. I'm Tom Busby
Speaker 2: in New York.
Speaker 3: I'm Stephen Carolyn London. We're looking ahead to German Chancellor
Speaker 3: Olaf Schultz's trip to China amid trade tensions with the EU.
Speaker 4: I'm Brian Curtis in Hong Kong. We look ahead to
Speaker 4: a ton of eco data in China, and as usual,
Speaker 4: we hunt for a catalyst that might fire up the
Speaker 4: Chinese economic kitchen.
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Speaker 2: Good day to you. I'm Tom Busby, and we begin
Speaker 2: today's program with the Spring meetings of the International Monetary Fund,
Speaker 2: the IMF and the World Bank. This coming week, central
Speaker 2: bank leaders and finance ministers from around the world gather
Speaker 2: in Washington, d C. To discuss interest rates, monetary policy,
Speaker 2: and other issues of global concern. For more on what
Speaker 2: to expect, we're joined by Michael McKee Bloomberg International Economics
Speaker 2: and Policy correspondent Well Michael. In a written statement to
Speaker 2: be delivered this week, the Managing director of the IMF
Speaker 2: says it'll push its global growth forecast slightly higher, up
Speaker 2: one notch to three point two percent in twenty twenty five.
Speaker 2: That's despite stubbornly high inflation massive debt loads. What's behind
Speaker 2: that rather upbeat assessment.
Speaker 6: The fact that the economy of the United States in particular,
Speaker 6: but other economies around the world have been able to
Speaker 6: grow faster than people anticipated coming out of the recession. Now,
Speaker 6: we've talked many, many times about the weirdness of this
Speaker 6: pandemic recession and how it has upended all kinds of
Speaker 6: economic ideas and forecasts, and the IMF is just reflecting
Speaker 6: what reality is that, whether we understand it or not,
Speaker 6: things are better than we had thought.
Speaker 2: Well, the IMF predicting US growth this year two point
Speaker 2: one percent. It's not going to blow anyone away, but
Speaker 2: it's pretty steady and actually a drop in twenty twenty
Speaker 2: five one point seven percent.
Speaker 6: Why is that there's a feeling that we can't sustain
Speaker 6: this growth level? But I don't think there's a whole
Speaker 6: lot of confidence behind that prediction. The other thing that's
Speaker 6: important to realize about the world economic outlook, which is
Speaker 6: what the IMF will be putting out next week with
Speaker 6: actual numbers. And basically nobody pays any attention to the
Speaker 6: numbers they generate for the US and the European Union
Speaker 6: and the United Kingdom, Japan, China, because there are people,
Speaker 6: thousands of people paid around the world to do that.
Speaker 6: Where the IMF does get some interest is especially people
Speaker 6: who trade in emerging markets because those aren't covered as well,
Speaker 6: and they really do have the depth of information about
Speaker 6: what's going on in those countries. Is not a lot
Speaker 6: of value add to say the US is going to
Speaker 6: grow two point one percent when the FED is already
Speaker 6: saying it's going to grow two point one percent, and
Speaker 6: everybody on Wall Street is weighing in how much it's
Speaker 6: going to grow.
Speaker 2: So it's those sleeper countries, like you said, not Japan,
Speaker 2: not the Eurozone, not China, but the ones maybe on
Speaker 2: the back burner.
Speaker 6: Right, yeah, frontier markets, emerging markets.
Speaker 2: Okay, now, China forecasting pretty solid growth. That's not exactly
Speaker 2: a sluggish economy, is it. It's just not what we're
Speaker 2: used to seeing in China.
Speaker 6: Right They've started to run into the law of large
Speaker 6: numbers that it's really hard to keep improving at the
Speaker 6: same rate when you start to get as large as
Speaker 6: their economy is right now. They're also going through something
Speaker 6: of a recession there and real credit issue problems, so
Speaker 6: we don't know. There isn't a lot of faith put
Speaker 6: it that way in Chinese economic data, so we don't
Speaker 6: know for sure how fast they're growing, And it is
Speaker 6: interesting to see what the IMF will say because there
Speaker 6: are a lot of private sector economists who think China's
Speaker 6: growing a lot more slowly than the numbers that China
Speaker 6: will put out. So the only odd thing about it,
Speaker 6: or not odd thing about it, but the only thing
Speaker 6: is it's really hard to invest in China, so it's
Speaker 6: not like you're going to be using a lot of
Speaker 6: these numbers just to readjust your portfolio.
Speaker 7: Got it.
Speaker 2: Well, one thing that we know is going to be
Speaker 2: talked about in that is interest rates. We saw Christine
Speaker 2: Legard from the ECB just this week holding steady. We
Speaker 2: know here we're in sort of a holding pattern in
Speaker 2: the USA US on interest rates at least maybe eve
Speaker 2: until later in the year. What's going to be the
Speaker 2: big discussion, Well.
Speaker 6: You know, when they were meeting last fall, there was
Speaker 6: a lot of talk about interest rates eventually coming down
Speaker 6: because we've sort of gotten through the recession and we've
Speaker 6: sort of gotten through inflation and things were getting better.
Speaker 6: And now the conversation is going to be different because
Speaker 6: the major central banks are all stepping back from the
Speaker 6: precipice of rate cuts, with the exception of the ECB,
Speaker 6: because they're at this point still worried about the possibility
Speaker 6: of inflation resurging. The conversations at the IMF meetings World
Speaker 6: bank meetings will be basically around the idea of synchronicity.
Speaker 6: Will everybody be moving at once or will somebody move
Speaker 6: much faster than everyone else? And in her news conference
Speaker 6: last week, Christin Laguard was asked about that because what
Speaker 6: happens is if you cut your interest rate and others don't,
Speaker 6: then your currency is going to fall and it's just
Speaker 6: more attractive to invest in the higher rate countries. She
Speaker 6: did not want to comment on that, but you can
Speaker 6: bet that's going to be one of the discussion points
Speaker 6: behind closed doors at the meetings.
Speaker 2: And another one because of all this geopolitical risk out
Speaker 2: there in the Middle East, Ukraine and Russia. I mean,
Speaker 2: that has got to be also forefront on the agenda.
Speaker 2: What to do and when to do it.
Speaker 6: Well, this is an opportunity for a lot of discussions
Speaker 6: because the finance and foreign ministers from all over the
Speaker 6: world come and attend along with central bankers these meetings,
Speaker 6: and they have a lot of meetings together, and so
Speaker 6: that sort of thing will get discussed. You just can't
Speaker 6: expect any kind of answers or conclusions about what should
Speaker 6: be done, because if they haven't got it right now,
Speaker 6: just a few more meetings in Washington next week are
Speaker 6: going to make a difference.
Speaker 2: And the meetings are here. What role does the US
Speaker 2: play in these meetings and in the World Bank, in
Speaker 2: the IMF.
Speaker 6: Well, the US is the host. We're the biggest economy
Speaker 6: in the world, and we have perhaps the best infrastructure
Speaker 6: for bringing all of these people together from the disparate
Speaker 6: countries of the world. And so twice a year they
Speaker 6: come to the US and they hold the IMF and
Speaker 6: World Bank meetings. We're the headquarters for the IMF and
Speaker 6: the World Bank, so this is the place where they
Speaker 6: can get things done.
Speaker 2: Well, it's a lot to look forward to our thanks
Speaker 2: to Michael McKee, Bloomberg International Economics and Policy Correspondent. Next
Speaker 2: week we get a sense of how cautious consumers are
Speaker 2: being with their money. We get US retail sales data
Speaker 2: for March that's out on Monday. Also, how could this
Speaker 2: possibly impact FED policy going forward? And for more we're
Speaker 2: joined by Anawong, Bloomberg Chief US Economists. So Anna, what
Speaker 2: are you expecting to see in the March retail sales number?
Speaker 8: Right, we are expecting to see tapped number. I think
Speaker 8: there are various signs pointing to consumers being exhausted by
Speaker 8: the price increases over the past two years. We saw
Speaker 8: that a March purchases of cars has fallen sharply, and
Speaker 8: that was following a rebound in February after another slump
Speaker 8: in January. But if you smooth over the first three
Speaker 8: months of the year. It is clearly showing a slowdown
Speaker 8: and that's consistent with what we're seeing and also auto
Speaker 8: loans rejections. It's harder to get financing to auto loans
Speaker 8: given that auto loan rates are still pretty high. And
Speaker 8: for the category of retail that directly go into Q
Speaker 8: one GDP, it's the control groups sales which excludes vehicles, gasoline,
Speaker 8: food service, and building materials. We are expecting a tappit
Speaker 8: zero point two percent gains that's versus zero percent in
Speaker 8: the previous month. I think that overall the US consumption
Speaker 8: will be growing at about the two percent pace in
Speaker 8: the first quarter, and that's a slow down from the
Speaker 8: more than three percent in the fourth quarter. And I
Speaker 8: think that as we go into the year, to slow
Speaker 8: down will further be more evident. And by the end
Speaker 8: of the year, we're only expecting a one percent quarterly
Speaker 8: growth in PCE spending, so.
Speaker 2: A steady decline in spending. Do you attribute this mostly
Speaker 2: to inflation? I mean everywhere you go everything costs more.
Speaker 2: Every time you go to the store, you go out
Speaker 2: to dinner, you look at a sticker on a car, everything.
Speaker 8: Yeah, it's both a combination of inflation and also increasing
Speaker 8: job in security layoffs announcements have risen in news headlines
Speaker 8: and that naturally could make people more cautious, and that
Speaker 8: would how that translate to spending behavior is that people
Speaker 8: would think, Okay, I don't know if I'm on the
Speaker 8: chopping block next, I better spend as much and so
Speaker 8: saving rates should overall increase as a result of this caution.
Speaker 8: So in the March CPI report that was released last week,
Speaker 8: we saw that a few consumer categories prices fall. So
Speaker 8: for example, recreational goods and consumer electronics, where two categories
Speaker 8: in the core goods category. That's a very sharp decline
Speaker 8: and prices, and I think that reflects that the discretionary
Speaker 8: component of consumer budget is being slimmed down because they
Speaker 8: have to pay you know, twenty percent higher for auto insurance,
Speaker 8: and auto insurance is non negotiable. It's a big part
Speaker 8: of consumer spending because everybody needs to drive a car.
Speaker 8: And as a result, what we are seeing is less
Speaker 8: spending on things that could be cut and that will
Speaker 8: show up in the retail as well. That I think
Speaker 8: the retail goods component discretionary good spending, we'll see a decline,
Speaker 8: whereas most of spending is coming from services and which
Speaker 8: is benefiting from the stock rally in the past couple months,
Speaker 8: and people who are primarily spending and services are they
Speaker 8: are the people who are benefiting from the market rally,
Speaker 8: which they tend to be older people baby boomers though
Speaker 8: that's a two track economy for you.
Speaker 2: Well, another thing I want to talk to you about,
Speaker 2: non discretionary is the price at the gas pump, which
Speaker 2: has been going up steadily since the start of the year,
Speaker 2: triple A predicting gas will average four bucks a gallon
Speaker 2: by the summer. How will that affect budgets and spending?
Speaker 8: So, gasoline and food, especially for the lower income household,
Speaker 8: account for more than a fifth of their budget, so
Speaker 8: it will definitely squeeze the budget. It's not a very
Speaker 8: comforting thing for a household. The only thing that could
Speaker 8: offset that somewhat is the hike and minimum wage across
Speaker 8: many states early in the year. So in California we
Speaker 8: just saw early this month in April that fast food
Speaker 8: workers minimum wage have been increased by by almost twenty percent.
Speaker 8: And in Florida, for example, early this year, the state
Speaker 8: hiked minimum wage by seventeen percent, So there's still hope
Speaker 8: for the lower income household who could see you know,
Speaker 8: ten to twenty percent jump in their wages.
Speaker 2: March retail sales data out on Monday, and our thanks
Speaker 2: to Anawong Bloomberg Chief US economist, coming up on Bloomberg
Speaker 2: day Break weekend. Why Germany's chancellor is heading to China.
Speaker 2: I'm Tom Busby and this is Bloomberg. This is Bloomberg
Speaker 2: day Break weekend, our global look ahead at the top
Speaker 2: stories for investors in the coming week. I'm Tom Busby
Speaker 2: in New York. Up later in our program a look
Speaker 2: at some key economic data come out of China. But first,
Speaker 2: as China's economy struggles to recover, diplomatic relations become more
Speaker 2: crucial on the heels of US Treasury Secretary Janet Yellen's
Speaker 2: visit to Beijing last week. German Chancellor Olaf Schultz set
Speaker 2: to visit the region in the coming days. For more,
Speaker 2: Let's go to London and bring in Bloomberg Daybreak Europe
Speaker 2: Banker Stephen.
Speaker 3: Carroll Tom Janet Yellen went to China with the message
Speaker 3: that Beijing's manufacturing drive is a threat to other economies.
Speaker 3: Her comments at times strongly worded, we're respectfully received by
Speaker 3: her hosts, but aren't likely to result in a policy shift.
Speaker 3: So as Germany's Chancellor Olaf Schultz makes the trip to Beijing,
Speaker 3: can he hope for any more? European countries have taken
Speaker 3: a different approach to their relationship with China versus what
Speaker 3: the United States is doing. EU commissioned President our Slavanderlin
Speaker 3: has described the strategy as de risking rather than decoupling.
Speaker 3: That hasn't stopped the EU launching a competition investigation into
Speaker 3: Chinese subsidies for green industries. Olaf Schultz will be conscious
Speaker 3: that German companies are a major exporter to China, so
Speaker 3: he must be cautious. A recent survey by the German
Speaker 3: Chamber of Commerce in China highlighted the challenges that many
Speaker 3: Western firms have mentioned before. Two thirds of those operating
Speaker 3: in the country say they face unfair competition in the market,
Speaker 3: a problem that threatens to push up their costs and
Speaker 3: a road profit margins. Schultz's discussions in China will also
Speaker 3: be set against a backdrop of geopolitical unrest. Continue. Tensions
Speaker 3: in the Middle East and Russia's invasion of Ukraine are
Speaker 3: set to feature heavily during the upcoming G seven Foreign
Speaker 3: Ministers meeting in Italy. I've been discussing the implication of
Speaker 3: Schultz's visit to China and that meeting with Bloomberg's EMEA
Speaker 3: and THES director Rosalind Matheson. I started by asking her
Speaker 3: how different Scholtz's time in China will be to that
Speaker 3: of the trip by US Treasury Secretary Janet Yellen.
Speaker 1: Well, it'll be similar, but also a bit different, as
Speaker 1: you say, because the relationship between China and Germany is
Speaker 1: a bit different to the relationship between China and the US,
Speaker 1: although there are similarities in terms of the challenges around
Speaker 1: the business environment, and so you can expect that the
Speaker 1: German Chancellor Olive Schultz will be echoing some of what
Speaker 1: Janet Yellen was saying on her recent trip, the challenges
Speaker 1: for German companies operating their clarity around that business environment,
Speaker 1: certain tier around supply chains specifically, though for him, the
Speaker 1: issue of electric vehicles will probably come up again, and
Speaker 1: the tensions over Chinese support for their companies and the
Speaker 1: broader EU probe that's going on into that support. So
Speaker 1: there'll be some similarities around the messaging that's going to
Speaker 1: come from Olive Schultz, but also Germany's tended to take
Speaker 1: a slightly more careful line about the overall relationship. The
Speaker 1: US has been willing to criticize China more overtly on
Speaker 1: the human rights front, for example, and over what they
Speaker 1: see is its militarization of areas like the South China
Speaker 1: Sea with Taiwan. That doesn't mean that Olave Schultz won't
Speaker 1: bring those things up, but Germany is traditionally has just
Speaker 1: been a bit more cautious about some of their rhetoric
Speaker 1: because they really need the economic relationship with China to work.
Speaker 3: Yeah, I mean, the President of the European Commissioners used
Speaker 3: this expression de risking, not decoupling when it comes to
Speaker 3: the relationship with China is I'll love Schultz likely to
Speaker 3: step outside of that in his comments as he's muting officials.
Speaker 1: Well, so far, he's really maintained by and large the
Speaker 1: sort of the tone taken by his predecessor, Angela Merkle,
Speaker 1: and she was very much about, you know, similarly with
Speaker 1: other countries like Russia, I would add, keeping the dialogue going,
Speaker 1: keeping the conversation going, preserving the economic and trade relationship
Speaker 1: out of the view that if you bind yourselves economically
Speaker 1: and through investment and trade, then you're more likely to
Speaker 1: be able to behave better with each.
Speaker 9: Other on the political side.
Speaker 1: And that's very much the sort of the tone and
Speaker 1: philosophy adopted by Olaf Schultz since he came to power,
Speaker 1: and of course as someone who is very much part
Speaker 1: of the Merkele era himself, he has gotten a bit harder,
Speaker 1: i would say, than Angelo Merkele did on the political front.
Speaker 1: But that's also because Germany is under pressure within Europe
Speaker 1: to take that harder ligne.
Speaker 9: You see France, you see the UK, you see the
Speaker 9: EU as a.
Speaker 1: Whole, pressing China quite heavily on its behavior over trade,
Speaker 1: over market access, over its tech companies, and over its
Speaker 1: behavior around things like human rights, and Germany has been
Speaker 1: seen as a bit of an outlier, so he's been
Speaker 1: pushed quite heavily by his French counterpart Emmanual Macron to
Speaker 1: do that.
Speaker 9: So you might see that slightly harder.
Speaker 1: Tone, but generally he's been consistent with his predecessor's policy.
Speaker 3: Because part of this trip will involve a love Schultz
Speaker 3: also visiting German companies that operate in China, survey from
Speaker 3: the German Chamber of Commerce and China found that two
Speaker 3: thirds of German companies that operate in the country, so
Speaker 3: they face unfair competition in the market. I mean, realistically,
Speaker 3: does Olof Schultz have any leverage attack or something like that,
Speaker 3: given the you know, even Janet Yellen seemed of difficulty
Speaker 3: in getting any actual movement.
Speaker 9: Very unlikely.
Speaker 1: If Johanet Yellen can't succeed, I wouldn't imagine that all
Speaker 1: Love Schultz will. I mean, those surveys that show that companies,
Speaker 1: you know, German companies or British companies or American companies
Speaker 1: are complaining about the environment in China are very very common,
Speaker 1: and that sort of figure is not surprising because those
Speaker 1: concerns are longstanding about the ability to have clarity around
Speaker 1: market access and Chinese support for their own industry and
Speaker 1: so on. So that's not going to I think affect
Speaker 1: ol Love Schultz on his trip, although it does sort
Speaker 1: of show again the need to really be showing that
Speaker 1: he's listening to those concerns. But as a Chinese leadership
Speaker 1: going to take their cues from Germany, probably not. What
Speaker 1: they are interested potentially doing is bifurcating a bit, because
Speaker 1: China's quite good at trying to play countries a bit
Speaker 1: against each other. And what they might do is, you know,
Speaker 1: they'll have a certain tone with Germany that they won't
Speaker 1: have with the US for exams. They'll be keen to
Speaker 1: keep Germany probably closer in the tent right now, because
Speaker 1: that's to their advantage to have that kind of sense
Speaker 1: of potential disunity in Europe over a China policy. So
Speaker 1: it's all about playing those kind of games really, and
Speaker 1: so they're not going to change their policy simply because
Speaker 1: Olave Scholtz asks them to. They certainly wouldn't do it
Speaker 1: even if Janet Yellen asks them to, because they're really
Speaker 1: playing their own game there. It'll be interesting to see, how,
Speaker 1: you know, whether they try and keep Germany peeled off
Speaker 1: from the rest of the pack, because.
Speaker 3: I mean, there is something in common that China and
Speaker 3: Germany have is weakness in their economies as well for
Speaker 3: slightly different reasons. Are there matters of common ground that
Speaker 3: we could see sort of flagship announcements or issues where
Speaker 3: they emerge at some positive cooperation.
Speaker 9: Well, certainly it's not just a one way street.
Speaker 1: And that's a really important point that you make I mean,
Speaker 1: obviously Germany in the US need China economically and for business,
Speaker 1: but China also needs them for business. The Chinese economy
Speaker 1: has been quite weak of late. It's showing a few
Speaker 1: green shoots at the moment, but certainly it's nowhere on
Speaker 1: the level that it was some years ago pre pandemic,
Speaker 1: and Cgping is very consciously aware of that. He does
Speaker 1: need his economy to be stable, and so there are
Speaker 1: some mutual interests there. You can imagine there'll be lots
Speaker 1: of positive rhetoric in a way like there was with
Speaker 1: Janet Yellen, also about the relationship about being open for business,
Speaker 1: about China being ready to engage with these companies that obviously,
Speaker 1: you know, doesn't necessarily reflect reality, but there'll be that
Speaker 1: rhetoric and that sense of mutual need. You can also
Speaker 1: imagine there'll be conversations around areas of mutual interest globally
Speaker 1: between Germany and China. And one key one there obviously
Speaker 1: is Russia's actions in Ukraine with the war there. You
Speaker 1: can imagine there big conversation around that. There'll beg conversation
Speaker 1: around the Middle East and the war in Gaza, There'll
Speaker 1: be conversations around disruptions to shipping and global supply chains.
Speaker 1: So some of those broader topics will definite they come up.
Speaker 3: Of course, and some of those issues are also going
Speaker 3: to feature with the other big geopolitical event in the
Speaker 3: coming days, which is the G seven Foreign Minister's meeting
Speaker 3: that's happening in Italy. What are we likely to hear
Speaker 3: on things like Russia Ukraine at that meeting.
Speaker 1: We'll certainly going to expect general expressions of support for Ukraine,
Speaker 1: of unity because the G seven has been very unified
Speaker 1: in general around the need to keep supporting Ukraine, and
Speaker 1: what you may see, of course is disagreements over in
Speaker 1: what way to keep supporting Ukraine, because of course the
Speaker 1: US is sitting on a very very big aid package
Speaker 1: for months that's unlikely to be unlocked anytime soon, in
Speaker 1: a sense that maybe Europe is left holding the can
Speaker 1: more than they did previously for military and financial support
Speaker 1: for Ukraine. So that's definitely going to be one topic
Speaker 1: for conversation, is that they all need to be pulling
Speaker 1: their weight when it comes to that. There'll probably be
Speaker 1: conversations with Ukraine on the table in terms of the
Speaker 1: future of the war. Is there a need at some
Speaker 1: point to crack open the door to negotiations with Russia.
Speaker 1: Does there have to be some sense of getting a
Speaker 1: deal as this war goes on and Ukraine certainly is
Speaker 1: on the back foot a bit at least on the
Speaker 1: ground inside Ukraine itself, So that will probably be the
Speaker 1: two major topics when it comes to Ukraine. And then
Speaker 1: that broord a conversation around how Europe can beef up
Speaker 1: its own defense and its own defense spending.
Speaker 3: That's our EMEA News director Roslind Mathieson knows Roz was
Speaker 3: telling us geopolitical tensions high on the agenda at the
Speaker 3: G seven meeting. The wars in Ukraine and Gaza led
Speaker 3: to calls for countries to increase defense spending, and Bloomberg
Speaker 3: Economics recently estimated that an increase to four percent of
Speaker 3: GDP soort by some would cost governments of G seven
Speaker 3: countries more than ten million dollars per year over the
Speaker 3: next decade. Global economist to Bargabi Schuchtoweale joined us on
Speaker 3: Bloomberg Daybreak Europe to discuss their forecasts.
Speaker 10: We looked at two specific scenarios for defense spending, one
Speaker 10: in the US and has partners spent at least two
Speaker 10: percent of their day of their GDP on defense, and
Speaker 10: then we lost at a more extreme scenario which emulates
Speaker 10: the Cold War levels. So if they raise defense spending
Speaker 10: to four percent, for countries like Germany and Canada with
Speaker 10: relatively low levels of forecast to debt and physcal headroom
Speaker 10: is higher, spending may be painful, but it's actually feasible.
Speaker 10: But for a lot of governments, especially Japan, Italy and
Speaker 10: maybe even France, it's they kind of struggle a lot
Speaker 10: to increase defense spending substantially without there being additional spending
Speaker 10: cuts somewhere higher taxes, additional debt, or some combination of
Speaker 10: the lot. France, Italy and Spain would be particularly exposed
Speaker 10: if if the extra funding spending is funded by borrowing,
Speaker 10: which Italy is public debt jumping to one hundred and
Speaker 10: seventy nine percent of output by twenty thirty four f
Speaker 10: one hundred and forty four percent this year. For the US,
Speaker 10: which is already spending three point three percent on defense,
Speaker 10: debt could still increase to one hundred and thirty one
Speaker 10: percent from ninety nine percent this year over the next decade.
Speaker 10: If we pushed up military spending to four percent. That's
Speaker 10: where we get potentrally indolar numbers from the US and
Speaker 10: major allies together. If they were to reach such levels,
Speaker 10: that's going to be a large number.
Speaker 11: Is an increase of defense spending to two percent, which
Speaker 11: is the sort of NATI goal. Would that be enough
Speaker 11: to meet the challenges? What's the sort of thinking behind that?
Speaker 10: In Europe, there's been this particularly in this need to
Speaker 10: catch up because the industry has been shrinking at the
Speaker 10: years of low spending on defense, particularly like we've been
Speaker 10: see seeing these new style of wars in Ukraine with
Speaker 10: a lot more focus on air defense, and allies will
Speaker 10: need to invest in more on that in air defense
Speaker 10: and ammunition. And there's also these plants for NATTER to
Speaker 10: put as many as three hundred thousand troops on higher readiness,
Speaker 10: and all of that is going to cost a lot
Speaker 10: of money. And there's also promise of aid to keep
Speaker 10: which needs to happen. And some officials are pointing to
Speaker 10: Cold War levels where native allies spent about three to
Speaker 10: four percent on defense as what may be needed to deal.
Speaker 8: With these sets.
Speaker 3: That was global economist at Bloomberg Economics Pargavi shops Well,
Speaker 3: speaking to myself and Caroline Hepger. I'm Stephen Carroll in London.
Speaker 3: You can catch us every weekday morning here for bloom
Speaker 3: day Break. Here at begetting at six am in London
Speaker 3: and one am on Wall Streets. Tom, Thank you, Steven,
Speaker 3: and coming up on Bloomberg day Break weekend to look
Speaker 3: ahead at some key economic data in China. Could there
Speaker 3: be signs of recovery for the slumping Chinese economy? I'm
Speaker 3: Tom Busby and this is Bloomberg.
Speaker 2: I'm Tom Busby in New York with your global look
Speaker 2: ahead at the top stories for investors. In the coming week.
Speaker 2: We'll be getting a slow of economic data out of
Speaker 2: China this week, including GDP, industrial production and retail sales data.
Speaker 2: Let's get to Bloomberg Daybreak Asia hosts Brian Curtis and
Speaker 2: Doug Krisner as we look for signs of recovery in
Speaker 2: the Chinese economy.
Speaker 4: Tom, China may be close to turning the corner on
Speaker 4: its economic recovery, but the jury is still out. Manufacturing
Speaker 4: picked up in March and risk assets have seen a
Speaker 4: bounce of late, but consumer activity has lagged.
Speaker 12: And in the coming week we'll get retail sales numbers
Speaker 12: along with data on home prices that would be both
Speaker 12: new and used. These data could give us some insight
Speaker 12: into the health of the Chinese consumer.
Speaker 4: Can consumers emerge from the doldrums and get the economy
Speaker 4: going again? We put that question to Mark Conan at AIA.
Speaker 13: Coming out of the pandemic and then uncertainty around policy,
Speaker 13: the confusion around geopolitics, the weakness on the currency, the deflation,
Speaker 13: the cut in rates, all of these have compounded upon sentiment,
Speaker 13: and I think it's going to take a little bit
Speaker 13: longer for people to recover from that and for us
Speaker 13: to see a significant improvement within consumption. That's at an
Speaker 13: aggregate level. But of course within that picture there are
Speaker 13: those that are prospering, that are able to offer a
Speaker 13: relative advantage and are continuing to make progress well.
Speaker 4: Joining us now to discuss the plight of the Chinese
Speaker 4: consumer is Eric ju Bloomberg economists covering China and Hong Kong,
Speaker 4: and Jenny Marsh, team leader for a Greater China Eco Goz.
Speaker 12: Welcome to you both. We're glad you can help us
Speaker 12: take a look at what's happening with the Chinese domestic economy.
Speaker 12: A moment ago Markcnin mentioned that there have been some
Speaker 12: winners of late. Two areas of the economy seeing a
Speaker 12: pickup are manufacturing and exports.
Speaker 13: Exports so far this year have surprised on the upside
Speaker 13: for China. As we've say in the rest of the
Speaker 13: world has perhaps continued to grow more vigorously than was expected.
Speaker 13: China has benefited from that, but that transition towards more
Speaker 13: of a domestic focus for the economy is certainly a
Speaker 13: long term policy.
Speaker 4: That's Mark Conan at AIA talking about both internal and
Speaker 4: external inputs into Chinese growth. We thought for the discussion
Speaker 4: today that we would focus a little bit more on
Speaker 4: domestic consumption and what it takes to get consumers going again. Jenny,
Speaker 4: how important is it for the Chinese economy to see
Speaker 4: some sort of turn up in consumption and is it coming.
Speaker 14: It's absolutely crucial that they see turn up and upswinging
Speaker 14: consumption because they cannot rely on the factory floor alone
Speaker 14: to sort of turn the economy around. This year, there
Speaker 14: have been some green shoots, you know, over the recent
Speaker 14: Chingan holiday, torres spent more per trip than any time
Speaker 14: since twenty nineteen, so you know that was encouraging, but
Speaker 14: you know, outside these sort of big holiday events where
Speaker 14: pent up demand is being released, there's still a lot
Speaker 14: of pressures on people and the sort of the general household.
Speaker 9: You know, the property crisis is.
Speaker 14: Still weighing on confidence, you know, and you can see
Speaker 14: that the CPI is sort of a reflection of that
Speaker 14: week demand. You know that people are not buying enough
Speaker 14: and there before prices are continuing to sort of feel
Speaker 14: these deflationary pressures at the moment.
Speaker 12: Eric, the service's economy is a very broad category.
Speaker 1: We know that.
Speaker 12: But when you look at the sentiment vis A VIV,
Speaker 12: the official PMI data, what do we know about business
Speaker 12: centiment in the services industries?
Speaker 7: I think if you look to in my you know,
Speaker 7: services in earlier this year, I think it's generally sure
Speaker 7: that they're doing well. They'reing the holiday, but if you
Speaker 7: look at peers outside of a holiday, you know, those consumption,
Speaker 7: those high frequently data actually is show that people are
Speaker 7: not really spending much except for the holiday. And even
Speaker 7: if you look at holiday data, we just got the
Speaker 7: early April holiday and the per day you know, the
Speaker 7: capital spending was still not as strong as before, right,
Speaker 7: so you see, yeah, lots of people are traveling, but
Speaker 7: they're not really spending as much. So some part of
Speaker 7: it can be, you know, some culture shift, right young people,
Speaker 7: they no longer spend lots of money on shopping around.
Speaker 7: They did more value experience, you know, in the travels.
Speaker 7: And we also see similar patterns even in overseas tourism.
Speaker 7: If we look at data from a visitor from China
Speaker 7: in Hong Kong, in Japan, we did some anasis and
Speaker 7: see it's a very similar story. People coming back to
Speaker 7: those tourists vidits, but they're not already spending on the
Speaker 7: mntrets before.
Speaker 4: It seems like housing is at the root of a
Speaker 4: lot of the spending issues. That people just don't feel
Speaker 4: so confident with their overall wealth and about their security
Speaker 4: economically going forward, and so we need to see some
Speaker 4: improvement there. And Eric, let me put a question to
Speaker 4: you that's tied to policy making. And we did see
Speaker 4: a few newspapers talking about this just in the past
Speaker 4: couple of days, about cities removing some of the lower
Speaker 4: limits for mortgage rates on first time home buying and
Speaker 4: generally just loosening the strings a little bit on housing policies.
Speaker 4: Is that going to work?
Speaker 7: I have to say, those incremental, those small steps. It
Speaker 7: has proved that it's not working very well so far.
Speaker 7: I think since the second half of last year, we've
Speaker 7: seeing lots of you know, easing steps from local governments
Speaker 7: and losing mortgage rates and you know, relaxing some home
Speaker 7: purchaser rules. But it's all step steps, small loosening, and
Speaker 7: we haven't seen any you know, big impacts from those policies.
Speaker 7: So that's that suggests you probably need more aggressive, you know,
Speaker 7: more proactive eating steps. Someone would suggest that you should
Speaker 7: have relaxed, removed, just like Hong Kong, remove all the
Speaker 7: home purchasing, you know, relaxed the restrictions especialty in the
Speaker 7: Tier one cities in China.
Speaker 12: Jenny. Last year, I think the government unveiled a plan
Speaker 12: to boost household spending on everything from electric appliances to
Speaker 12: furniture things like that. How is that working. Is it
Speaker 12: been an effective prescription to try to revitalize a bit
Speaker 12: of spending.
Speaker 8: Not so far.
Speaker 14: So this is the sort of cash for clunkers program
Speaker 14: they rolled out, and it's really the government sort of
Speaker 14: big swing at trying to boost consumer spending, essentially raising
Speaker 14: the standards for electronics across a broad range of sectors,
Speaker 14: forcing people to sort of hand in their old goods
Speaker 14: and buy new ones.
Speaker 9: It's very I think that it's going to.
Speaker 14: Be rolled out sort of in a piecemeal way, province
Speaker 14: by province, and we've been monitoring closely to sort of
Speaker 14: watch for the beginning of this program, and we haven't
Speaker 14: yet seen signs that it has sort of been put
Speaker 14: into effect. But you know, the rollout has been quite
Speaker 14: slow so far, so we're not going to see the
Speaker 14: effects of it yet. It was a note this week
Speaker 14: saying it could raise GDP by zero point nine percent
Speaker 14: when you look at the industrial impact of everything that
Speaker 14: would need to be manufactured for the program, so it
Speaker 14: could be significant. But it's going to be rolled out
Speaker 14: over a series of years and it hasn't yet come
Speaker 14: into effect.
Speaker 4: Recently, in a discussion about the latest CPI and PPI data,
Speaker 4: we caught up with way Yaw, chief economist for the
Speaker 4: Asia specific at stop Gen and it was kind of
Speaker 4: interesting because you know, it was a mixed bag. You
Speaker 4: had very negative PPI, but everybody expected that, and it
Speaker 4: was in line consumer prices. As you mentioned earlier, Jenny,
Speaker 4: they did advance, but only just just zero point one percent.
Speaker 4: So what was interesting was I I mentioned to Wai yea, well,
Speaker 4: at least that's a little bit of positive news, and
Speaker 4: we can listen to her answer here. She also started
Speaker 4: to bring in policy in China.
Speaker 15: Maybe it's just a wee bit of good news, but
Speaker 15: I think structurally things haven't really changed much. If you
Speaker 15: look at economic situation in China, it continued to be
Speaker 15: a challenge of not enough do miss the demand and
Speaker 15: a lot of supply so and a policy on the
Speaker 15: policy front, there is not much significant to address this issue.
Speaker 4: So, Jenny, if we were looking at policy, if we had,
Speaker 4: you know, a wish list of things that we thought
Speaker 4: would be necessary to be done by the policy makers
Speaker 4: to get consumers moving, what would be high on your list?
Speaker 14: I think there are no quick fixes. I mean, they
Speaker 14: could offer consumers sort of direct stimulus, I sort of
Speaker 14: give them cash handouts to be spending. But you know,
Speaker 14: if you do that, the underlyinging structural problems still remain right,
Speaker 14: so you'll still have the property crisis, which is really
Speaker 14: underpending household wealth and sort of the root of a
Speaker 14: lot of the problems. You know, when Janet Yellen came
Speaker 14: to Beijing last week, and she basically advocated sort of
Speaker 14: a rethink of the Chinese economic policy in order to
Speaker 14: boost consumption and rebalance the economy. And the things that
Speaker 14: she was proposing were not short term suggestions. You know,
Speaker 14: she was saying, improve pension security, make education more affordable,
Speaker 14: you know, things that make people feel like they don't
Speaker 14: need to keep saving. Because of this high household saving
Speaker 14: rate in China, the social security net isn't there. If
Speaker 14: something happens and you feel very ill, you know you're
Speaker 14: going to have to pay for your medical care. You
Speaker 14: know you need to say for your retirement because there
Speaker 14: isn't a good state funded pension program. So this is
Speaker 14: all part of the broader framework and there's no easy fix,
Speaker 14: in my opinion, for getting people spending again. Obviously, if
Speaker 14: things improve in the economy looks better, people will feel
Speaker 14: more boyd. But you know, there's some big problems there,
Speaker 14: and these are sort of deep seated spending habits.
Speaker 12: So playing off that, Eric, I'm wondering, if you're a
Speaker 12: policy maker, would you necessarily push banks into reducing deposit
Speaker 12: rates as a way of discouraging savings and maybe forcing
Speaker 12: some more money, more liquidity into the economy.
Speaker 7: That could be helped. But I think the fundamental problem,
Speaker 7: the Postumaker neutral address is the acceptation of the household
Speaker 7: and the business.
Speaker 8: Right.
Speaker 7: So in the past, it's everybody is expecting that economy
Speaker 7: is booming, right, the product market is booming, so I'm
Speaker 7: going to you know, make more money and my property
Speaker 7: is going to work more in the future, so it's
Speaker 7: it's okay for me to you know, spend more now.
Speaker 7: But I think now the expectation is kind of you
Speaker 7: know reverse, right, So everybody was expecting, they're having probably
Speaker 7: a harder time looking forward, especially you know, giving you
Speaker 7: see lots of news about you know, some some financial
Speaker 7: sector they're cutting salaries, right, They're cutting you know, payments.
Speaker 7: So I think that the people's acceptation is not very
Speaker 7: high at this moment with economy slow in with lots
Speaker 7: of restrictive kind of regulation trying to you know, contain
Speaker 7: the income growth, and that's put more pressure on you know,
Speaker 7: people feeling if really my life is going to get better,
Speaker 7: you know, looking forward, so I would probably you know,
Speaker 7: spend save more and now just to prepare for words days.
Speaker 4: There are some technical reasons too, sometimes where people don't spend.
Speaker 4: For instance, the government just asked hotels to accept foreign
Speaker 4: credit cards for people traveling. Could could the Chinese authorities
Speaker 4: do more to to try to really stimulate domestic tourism,
Speaker 4: light a fire there and even encourage people to go
Speaker 4: to maccount.
Speaker 7: I think people are really going there, but I'm not
Speaker 7: sure if they're really spending to the casinos, because they
Speaker 7: really they they're not as you know, as willing to
Speaker 7: spend as before. So it's not only on spending money
Speaker 7: I'm putting in good. It's also applied to, you know,
Speaker 7: spending money around gambling.
Speaker 12: Jenny, I'm curious about out the degree to which the
Speaker 12: story on weak domestic demand is tied to a labor
Speaker 12: market that may be struggling, particularly where young people are concerned.
Speaker 12: Is that a part of the narrative here.
Speaker 14: Yeah. You know, you've got very strong youth unemployment, and
Speaker 14: even the overall employment rate last month erased all the
Speaker 14: gains that had made since the previous six months, so
Speaker 14: you're seeing declined and employment rates overall. So you have
Speaker 14: this weak labor market. So the overall landscape for the
Speaker 14: Chinese consumer is pretty poor. I do think on the
Speaker 14: sort of the sentiment side, the flip of it is
Speaker 14: after three years of COVID, there is pent up demand
Speaker 14: for experiences and people are sort of excited about traveling.
Speaker 14: We're seeing that in the numbers, but they're changing how
Speaker 14: they're spending, so they're preferring to go to third and
Speaker 14: fourth tier cities. It's not as high value spending as before.
Speaker 4: We'll have to leave it there, Jenny, thanks so much
Speaker 4: for joining us. Jenny Marsh, team leader for Greater China
Speaker 4: ecogov at Bloomberg, and Eric ju Bloomberg economists covering China
Speaker 4: and Hong Kong. I'm Brian Curtis here in Hong Kong
Speaker 4: along with Doug Krisner. You can catch us every weekday
Speaker 4: for Bloomberg Daybreak Asia, beginning at eight am in Hong
Speaker 4: Kong and eight pm on Wall Street. Tom.
Speaker 2: Thank you Brian, and thank you Doug. And that does
Speaker 2: it for this edition of Bloomberg day Break Weekend. Join
Speaker 2: us again Monday morning at five am Wall Street time
Speaker 2: for the latest on the market's overseas and the news
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