WEBVTT - Why Inflation's Fallout Is Becoming Increasingly Global 0:00:06.480 --> 0:00:09.000 Hello, and welcome to Stephanomics, the podcast that brings the 0:00:09.000 --> 0:00:12.320 global economy to you. And the global economy today is 0:00:12.400 --> 0:00:15.440 not a happy place. The recession in the US was 0:00:15.480 --> 0:00:17.520 barely even on the radar just a few months ago. 0:00:18.000 --> 0:00:22.280 Now Bloomberg's economists reckoned there's a seventy chance the US 0:00:22.360 --> 0:00:24.880 will be in recession by the end of next year. 0:00:25.400 --> 0:00:29.120 Stock markets have been falling. US households say they feel 0:00:29.160 --> 0:00:31.479 gloomier about the economy now that at any time in 0:00:31.520 --> 0:00:34.879 the last forty years. This can't be good news for 0:00:34.920 --> 0:00:38.239 President Biden. When you think about the handful of one 0:00:38.360 --> 0:00:41.800 term US presidents in the past half century, Jimmy Carter 0:00:42.080 --> 0:00:44.800 or George H. W. Bush, the one thing they all 0:00:44.840 --> 0:00:47.360 had in common was that the economy was in recession 0:00:47.800 --> 0:00:50.600 during the second half of their time in office, and 0:00:50.680 --> 0:00:54.880 those recessions were usually caused by the Federal Reserve slamming 0:00:54.880 --> 0:00:58.080 on the economic breaks by raising interest rates, which it 0:00:58.160 --> 0:01:01.520 did this week. You're listening to this outside the US, 0:01:01.600 --> 0:01:04.800 you'll know others aren't doing so well either. In fact, 0:01:05.080 --> 0:01:08.280 as Bloomberg TVs. Lizzie Burden reminds us a bit later, 0:01:08.880 --> 0:01:13.160 the UK, in many ways has it even worse, the 0:01:13.200 --> 0:01:16.680 exporters in Asia who rely on all those now very 0:01:16.680 --> 0:01:21.440 gloomy Western consumers are already bracing themselves for a tough Christmas. 0:01:22.000 --> 0:01:25.480 Our chief economics correspondent for Asia end the Current, has 0:01:25.520 --> 0:01:28.480 spoken to some of those exporters in Hong Kong. And 0:01:28.520 --> 0:01:30.280 you want to stick around for the interview with the 0:01:30.280 --> 0:01:34.319 man who sells pop up swimming pools for docks. But 0:01:34.480 --> 0:01:37.880 first we have our chief economist, Tom Warlick to guide 0:01:37.920 --> 0:01:46.760 us through it all. Tom, thanks for being here. And 0:01:46.800 --> 0:01:50.200 I should say we're speaking on Wednesday, a few minutes 0:01:50.240 --> 0:01:52.960 after the Federal Reserve has raised interest rates by three 0:01:53.040 --> 0:01:56.720 quarters of a percentage point. That's the biggest single increase 0:01:57.120 --> 0:02:01.720 since Tom. We've talked about it a lot before. I mean, 0:02:01.720 --> 0:02:05.040 the Fed has got plenty wrong in the past year, 0:02:05.600 --> 0:02:09.320 especially the inflation forecasts. Have they now got this right? 0:02:10.680 --> 0:02:13.480 So I think the challenge, Stephanie, is that there really 0:02:13.600 --> 0:02:16.959 isn't a right response from central banks to the type 0:02:16.960 --> 0:02:20.960 of inflation which the world now faces. If you want 0:02:20.960 --> 0:02:25.480 to get inflation under control while minimizing the impact on growth, 0:02:25.639 --> 0:02:28.760 what you really need to do is get Saudi Arabia 0:02:28.800 --> 0:02:34.120 to increase oil production, get Russia to allow wheat out 0:02:34.160 --> 0:02:39.520 of Ukraine and get Taiwan to produce more semiconductors so 0:02:39.600 --> 0:02:42.919 we can get auto production back online. And the last 0:02:42.919 --> 0:02:46.400 time I checked, Chair Powell powerful though he is, doesn't 0:02:46.400 --> 0:02:49.519 have instruments to do any of those things. So a 0:02:49.560 --> 0:02:53.480 seventy five basis point rate hike is necessary to get 0:02:53.520 --> 0:02:56.480 inflation under control. But because it's not going to be 0:02:56.680 --> 0:03:01.000 actually dealing with the root causes of that inflation, unfortunately, 0:03:01.280 --> 0:03:05.120 the mechanism is going to be by destroying demand, putting 0:03:05.120 --> 0:03:08.240 more people out of a job, and potentially tipping the 0:03:08.320 --> 0:03:11.120 U s economy into a hard landing. Well, you're right 0:03:11.160 --> 0:03:13.720 that this time does feel different. I mean, we've got 0:03:13.880 --> 0:03:17.720 used to recessions and financial crisis, which I guess driven 0:03:17.760 --> 0:03:21.000 ultimately by what's in people's heads, so that their confidence 0:03:21.040 --> 0:03:23.239 in the future or or in the case of the 0:03:23.280 --> 0:03:25.760 financial crisis, their fear that banks might be about to 0:03:25.800 --> 0:03:29.520 go bust. And you can change the situation by just 0:03:29.720 --> 0:03:33.519 making people feel differently about those things, and the economy 0:03:33.520 --> 0:03:36.800 can pick up. But it is true that a big 0:03:36.800 --> 0:03:38.800 part of the problem today in the US is that 0:03:38.840 --> 0:03:41.400 there's too much demand, too much money washing around the 0:03:41.400 --> 0:03:44.920 economy sitting in bank accounts. But that excess demand is 0:03:45.000 --> 0:03:49.920 interacting with some real supply constraints, which, as you say, 0:03:49.960 --> 0:03:52.080 the FED can't do very much about. They can't get 0:03:52.120 --> 0:03:55.280 grain shipments going again out of the Black Sea, and 0:03:55.400 --> 0:03:58.080 they can't reach a deal with Iran, say that would 0:03:58.080 --> 0:04:01.280 get Iranian oil back into the globe market and maybe 0:04:01.320 --> 0:04:04.160 pushed down the price of it. But I guess Tom, 0:04:04.200 --> 0:04:07.720 amidst all this gloom, we should remember the other oddity, 0:04:07.760 --> 0:04:09.440 which is that the U S economy in many ways 0:04:09.520 --> 0:04:13.640 is in quite good shape. Households maybe feeling very downbeat, 0:04:13.680 --> 0:04:17.560 but there's still decent growth, and we've got unemployment at 0:04:17.640 --> 0:04:20.760 record low levels. Yeah, that's right, and I think that's 0:04:20.839 --> 0:04:25.040 why Powell and co. Have got some hope of negotiating 0:04:25.320 --> 0:04:29.720 a soft landing here. Household balance sheets are looking pretty robust. 0:04:29.800 --> 0:04:33.120 Many households still sitting on a bunch of savings from 0:04:33.120 --> 0:04:38.119 that pandemic period stimulus business profits. Business profits are looking 0:04:38.160 --> 0:04:42.279 pretty pretty healthy as well, so businesses can carry on hiring, 0:04:42.720 --> 0:04:47.680 carry on investing. Bloomboog economics. One of the things we've 0:04:47.720 --> 0:04:52.560 done is bundle together an unlucky thirteen set of indicators 0:04:53.080 --> 0:04:56.960 into a recession probability model, and what that model is 0:04:57.000 --> 0:05:01.040 telling us right now is that even with the aggressive 0:05:01.080 --> 0:05:05.839 FED tightening, because I thought household savings are strong, because 0:05:05.839 --> 0:05:09.680 business profits are strong, the chance of a recession this year, 0:05:09.960 --> 0:05:14.440 chancefer a recession in two is really quite low. That's 0:05:14.440 --> 0:05:17.040 some good news for Powell, some good news for Biden. 0:05:17.080 --> 0:05:21.240 Of course, as he approaches the midterm elections, the chances 0:05:21.279 --> 0:05:24.720 of a recession looking further out, though, get much higher. 0:05:25.040 --> 0:05:27.159 Our model is telling us that by the end of 0:05:27.160 --> 0:05:30.960 twenty three a recession is actually going to be pretty 0:05:31.000 --> 0:05:33.680 hard to avoid. Well, they used to say, when the 0:05:33.800 --> 0:05:36.719 U s sneezes, the rest of the world catches a cold, 0:05:36.880 --> 0:05:39.440 and funny we saw a bit of that this week 0:05:39.520 --> 0:05:43.080 with the European Central Bank coming out and worrying that 0:05:43.279 --> 0:05:46.600 financial conditions were tightening even faster in the Eurozone than 0:05:46.600 --> 0:05:49.800 in the US. Even though Europe's inflation problem isn't really 0:05:49.800 --> 0:05:53.000 on the same scale as America's, when it comes to 0:05:53.040 --> 0:05:57.080 the UK, you can't help thinking it really does look 0:05:57.080 --> 0:06:00.800 like it's in a much worse state than America any 0:06:00.839 --> 0:06:05.560 other major developed economy. So I think the UK is 0:06:05.600 --> 0:06:09.320 a place which is in a sort of uniquely disadvantageous 0:06:09.360 --> 0:06:14.479 position right now, Stephanie M. The UK, like Europe, are 0:06:14.560 --> 0:06:18.200 not energy producers, so they are seeing all the costs 0:06:18.240 --> 0:06:21.880 of high oil and gas prices and none of the benefits. 0:06:22.520 --> 0:06:27.200 The UK, like the US, has an overheated labor market 0:06:27.279 --> 0:06:32.440 which is adding to inflation repressure. In addition to those problems, 0:06:32.920 --> 0:06:37.200 the UK has a leadership which love them or loathe 0:06:37.240 --> 0:06:40.400 them right now, I think we could all agree are 0:06:40.440 --> 0:06:46.239 not unequivocably focused on economics as their number one priority. 0:06:47.160 --> 0:06:50.600 And of course there's the drag which comes from Brexit 0:06:50.800 --> 0:06:55.680 and the additional regulatory burdens and uncertainty that brings. UM. 0:06:56.000 --> 0:06:59.159 So we see recession risk for the United States heading 0:06:59.160 --> 0:07:02.200 into the end of twenty twenty three. In the UK 0:07:02.800 --> 0:07:05.640 the risk is actually a bit more front and center, 0:07:06.200 --> 0:07:08.560 and indeed we think the UK economy is already going 0:07:08.600 --> 0:07:12.320 to be contracting in the second quarter of this year. Well, 0:07:12.360 --> 0:07:15.800 we can hear more on that subject now from Lizzie Burden, 0:07:15.880 --> 0:07:18.400 who someone of you will remember from her days as 0:07:18.400 --> 0:07:21.760 a lowly economic reporter. She's now an economy and government 0:07:21.840 --> 0:07:27.520 correspondent for Bloomberg Television. The UK is sliding into a 0:07:27.520 --> 0:07:31.760 recession in all but name in two statistical quirks, like 0:07:31.880 --> 0:07:34.480 the extra bank holiday in June to celebrate Queen Elizabeth 0:07:34.520 --> 0:07:38.000 the second Platinum Jubilee. May mean that Britain avoids two 0:07:38.000 --> 0:07:42.280 consecutive quarters of contraction, but almost every other economic metric 0:07:42.480 --> 0:07:46.400 is screaming slow down. Consumer confidence, for example, is already 0:07:46.440 --> 0:07:49.520 below levels seen in any economic downturn since at least 0:07:49.560 --> 0:07:52.440 the nine seventies, and that's before the full effects of 0:07:52.480 --> 0:07:57.760 the fastest inflation in decades kicking. Meanwhile, the housing market, 0:07:57.800 --> 0:08:00.680 which of course the British are obsessing a there is 0:08:00.680 --> 0:08:04.200 showing some signs of cooling, with demand for mortgages dropping 0:08:04.280 --> 0:08:07.480 as interest rates rise. Here's Bank of England Deputy Governor 0:08:07.560 --> 0:08:10.880 John Cunliffe in an interview with I t V. We 0:08:10.960 --> 0:08:13.160 see evidence of slow down in the housing market. I 0:08:13.200 --> 0:08:15.160 think there are some some stores in the wind that 0:08:15.280 --> 0:08:18.560 the market is starting to turn. As you know, the 0:08:18.600 --> 0:08:22.000 bank expects the economy, it's that it's already slowing and 0:08:22.080 --> 0:08:25.680 we expected to slow further slow quite a lot over 0:08:25.720 --> 0:08:27.680 the next year or so. And I think yes, that 0:08:27.720 --> 0:08:30.480 will have an impact on the housing lorge. Now that 0:08:30.560 --> 0:08:34.200 leaves post pandemic Britain on course to underperform every other 0:08:34.360 --> 0:08:38.000 major leading economy next year, posing a severe headache for 0:08:38.040 --> 0:08:41.120 both Bank of England Governor Andrew Bailey and Prime Minister 0:08:41.200 --> 0:08:44.720 Boris Johnson. With inflation set to peak in double digits 0:08:44.720 --> 0:08:48.400 in October, five times the Bank of England's two percent target, 0:08:48.840 --> 0:08:51.800 Bailey and his colleagues have little option but to keep 0:08:51.880 --> 0:08:54.480 raising interest rates, even if it means making the cost 0:08:54.520 --> 0:08:57.800 of living crisis worse in the short run. For Johnson, 0:08:58.000 --> 0:09:02.199 whose own party almost toppled last week, rescuing the economy 0:09:02.400 --> 0:09:05.440 is vital if he's to survive much longer. In an 0:09:05.480 --> 0:09:09.640 interview with Bloomberg's Kitty Donaldson, even the characteristically tiggerish Prime 0:09:09.640 --> 0:09:13.079 Minister had to admit the government's limits. We're going to 0:09:13.200 --> 0:09:16.280 have a difficult period and we've got to be absolutely 0:09:16.280 --> 0:09:19.600 clear with people. It is going to be difficult, and 0:09:20.520 --> 0:09:25.199 the government cannot solve every problem and we can't cover 0:09:25.320 --> 0:09:29.679 everybody's extra cost. But what we can do is make 0:09:29.720 --> 0:09:33.000 sure that we deal with the underlying causes of inflation 0:09:33.280 --> 0:09:37.720 but also keep our economy strong and open to investment. 0:09:38.000 --> 0:09:41.800 We say we be strong, but usink we're headed towards recession. 0:09:42.240 --> 0:09:44.120 That's not necessarily at all. I think that there are 0:09:44.120 --> 0:09:48.080 ways forward for the UK that are incredibly exciting. So 0:09:48.120 --> 0:09:51.199 if we make sure that we have a proactive approach 0:09:51.240 --> 0:09:54.679 to talent from a broad order, control immigration but allow 0:09:54.720 --> 0:09:57.480 the talent that we need to come in, we fix 0:09:57.520 --> 0:10:02.000 our energy supply issue. Is we get we fix the 0:10:02.040 --> 0:10:04.520 issues in the UK labor market. I mean, one of 0:10:04.559 --> 0:10:08.080 the incredible things about the economy right now is that 0:10:08.800 --> 0:10:13.679 unemployment is at its lowest level since I was ten 0:10:13.880 --> 0:10:17.720 years old. Signs of the mounting pressure on households and 0:10:17.760 --> 0:10:21.120 businesses were revealed in data this week. On Monday, the 0:10:21.200 --> 0:10:25.520 latest GDP figures showed that the economy unexpectedly contracted in April. 0:10:25.960 --> 0:10:28.600 On Tuesday we learned that real wages fell the most 0:10:28.640 --> 0:10:31.600 and at least twenty one years, as pay rises were 0:10:31.640 --> 0:10:35.320 devoured by price growth, And on Friday, data are expected 0:10:35.360 --> 0:10:39.040 to show that retail sales also fell in May. Sandwich. 0:10:39.160 --> 0:10:42.120 Between those reports, the BOE on Thursday is expected to 0:10:42.160 --> 0:10:46.200 deliver an unprecedented fifth straight hike to take rates to 0:10:46.240 --> 0:10:54.400 their hyacinths two thousand and nine. What's clear is that 0:10:54.440 --> 0:10:56.720 the fragility of the economy as it emerges from the 0:10:56.760 --> 0:10:59.959 pandemic means that the UK is facing a long period 0:11:00.000 --> 0:11:03.720 in the dull rooms, hobbled by continued feeble productivity growth, 0:11:03.840 --> 0:11:07.560 rather than a short, sharp downturn. New legislation that would 0:11:07.600 --> 0:11:10.120 override the part of the Brexit deal pertaining to Northern 0:11:10.120 --> 0:11:13.480 Ireland could make things even worse if the European Union 0:11:13.640 --> 0:11:16.199 retaliates with the trade war. Take a listen to this 0:11:16.200 --> 0:11:20.120 warning from Stephen Kelly, chief executive of Manufacturing Northern Ireland, 0:11:20.120 --> 0:11:23.200 when he was on Bloomberg Radio. This is the one 0:11:23.240 --> 0:11:26.480 thing that many in the UK don't understand. The EU 0:11:26.679 --> 0:11:34.800 can within ours and produce particular controlled, particular aggravations do 0:11:34.920 --> 0:11:40.240 will directly impact UK industry, the UK economy and consumers. 0:11:41.240 --> 0:11:45.360 This isn't necessarily about applying the applying huge tariffs on 0:11:45.520 --> 0:11:49.320 British cheese or any other item. They could have a 0:11:49.320 --> 0:11:53.160 whole series of things that would cause almost instantaneous problems 0:11:53.160 --> 0:11:55.520 for the UK and that's a very dangerous thing to 0:11:55.559 --> 0:11:58.360 do in the midst of across the living crisis and 0:11:58.360 --> 0:12:01.600 across the down business crisis and the UK. Even before 0:12:01.600 --> 0:12:03.760 the build the Bank of England saw a major dropping 0:12:03.800 --> 0:12:06.240 output of around one percent in the final quarter of 0:12:06.280 --> 0:12:09.560 the year followed by a small contraction in Tree and 0:12:09.679 --> 0:12:15.400 stag nation in Similarly, the Organization for Economic Cooperation and 0:12:15.440 --> 0:12:18.520 Developments outlook for the UK next year is the worst 0:12:18.640 --> 0:12:22.440 among major nations. In an interview with Bloomberg Television, the 0:12:22.480 --> 0:12:25.400 o e c d is chief economist Lohens Boon explained 0:12:25.440 --> 0:12:29.400 why as here all reasons why and the UK has 0:12:29.600 --> 0:12:33.800 lower growth than whether to seven economies next year. One 0:12:33.880 --> 0:12:36.960 is the higher inflation, the other is tighter and faster, 0:12:37.760 --> 0:12:42.000 faster monitary policy tightening and also fights the fiscal consolidation. 0:12:42.080 --> 0:12:45.880 So what we're recommending to the UK is actually to 0:12:45.960 --> 0:12:49.960 consider the pace at which fiscal consolidations taking place if 0:12:50.360 --> 0:12:53.160 if it was was too slow as fast as what 0:12:53.320 --> 0:12:56.800 we're describing, So more tax cuts needed, says the a 0:12:56.920 --> 0:13:00.000 e c D. And a new fifteen billion pounds support 0:13:00.120 --> 0:13:04.480 package from Chancellor Rishi Sunac only offers temporary relief. Here's 0:13:04.520 --> 0:13:08.559 Rebecca McDonald, chief economist at the Joseph Rowntree Foundation, giving 0:13:08.600 --> 0:13:12.120 evidence to lawmakers of the Treasury Select Committee. Even before 0:13:12.120 --> 0:13:14.080 this period of inflation, there was a lot of people 0:13:14.120 --> 0:13:17.360 who were in debt, a lot of people experiencing poverty. 0:13:18.200 --> 0:13:21.920 It doesn't even start to kind of attack those longer 0:13:22.040 --> 0:13:25.600 term issues. It simply is a It isn't effective, but 0:13:25.640 --> 0:13:28.040 it's a kind of short term emergency in the package. 0:13:28.720 --> 0:13:31.520 So even if the technical definition of a recession isn't 0:13:31.520 --> 0:13:34.319 met all that adds up to one of the bleakest 0:13:34.360 --> 0:13:46.000 periods for the UK economy in decades. So Lizzie mentioned 0:13:46.000 --> 0:13:49.840 that this line about you know, it might seem like 0:13:49.880 --> 0:13:53.439 a recession even if it isn't formally a recession. We're 0:13:53.480 --> 0:13:57.920 certainly getting very poor growth forecast now for the UK 0:13:58.600 --> 0:14:02.000 this year and potentially next year. The UK economy may 0:14:02.040 --> 0:14:06.040 barely grow, but we might technically miss the definition of 0:14:06.040 --> 0:14:08.880 a recession. That's something that you've looked at, I know, 0:14:09.000 --> 0:14:11.800 particularly for the US, but also for some other countries, 0:14:11.880 --> 0:14:15.120 this idea that we even it may not be a recession, 0:14:15.200 --> 0:14:18.000 but it might actually feel worse than that for households 0:14:18.000 --> 0:14:20.120 because of the peculiar nature of this shot. Do you 0:14:20.160 --> 0:14:22.800 want to just tell us a bit more about that, Tom, So, 0:14:22.800 --> 0:14:26.800 it's kind of an oddity of economics that the macro 0:14:27.040 --> 0:14:31.840 picture often doesn't match up with the lived experience of 0:14:32.160 --> 0:14:36.440 many households, and I think that's especially true in the 0:14:36.440 --> 0:14:39.320 case of a recession. So if we think about a 0:14:39.400 --> 0:14:44.000 really severe recession in the United States, you'd see perhaps 0:14:44.080 --> 0:14:48.840 ten percent of workers unemployed. They're having a terrible time, 0:14:49.280 --> 0:14:54.360 but for nine of workers, the recession means their wages 0:14:54.440 --> 0:14:56.840 might go up a bit more slowly, but they still 0:14:56.880 --> 0:15:00.160 have a job and they're not having too terrible at time. 0:15:01.040 --> 0:15:04.040 Contrast that with the situation today, where we're not in 0:15:04.080 --> 0:15:08.520 a recession. Unemployment is very low, but inflation is super high. 0:15:08.960 --> 0:15:12.480 That's something which impacts a hundred percent of households. Whether 0:15:12.520 --> 0:15:16.360 you're unemployed, whether you have a job, you're experiencing the same, 0:15:16.600 --> 0:15:20.600 very very high increase in prices, which is eroding your 0:15:20.640 --> 0:15:23.680 spending power. So we're not in we're not in a 0:15:23.680 --> 0:15:26.680 recession right now in the United States, but for many 0:15:26.720 --> 0:15:29.560 households it's going to feel not just like we're in 0:15:29.600 --> 0:15:32.400 a recession, but in many ways worse than it would 0:15:32.400 --> 0:15:36.200 do if we're in a recession. Finally, Tom, if you 0:15:36.240 --> 0:15:38.480 can bear it, we should round this off and think 0:15:38.520 --> 0:15:41.520 about the global picture and especially the prospects for emerging 0:15:41.560 --> 0:15:45.360 market economies, because this this combination of rising interest rates 0:15:45.360 --> 0:15:49.920 in the US slowing Western demand. I mean, historically that 0:15:50.000 --> 0:15:53.680 has been very bad news for emerging market economies, and 0:15:53.720 --> 0:15:57.400 now you have China lockdowns weakening the picture for China too. 0:15:58.040 --> 0:16:00.000 Um in a few months time, do you think we're 0:16:00.000 --> 0:16:04.760 gonna be looking at a string of emerging market crisis. Yeah, 0:16:04.760 --> 0:16:07.320 I think that's right, Stephanie. I think there's there's two 0:16:07.360 --> 0:16:11.400 trends globally which you're having a negative impact on all 0:16:11.520 --> 0:16:16.160 emerging markets. So the first is the sharp slowdown in 0:16:16.200 --> 0:16:19.720 global growth. You mentioned the China lockdowns. That's a big 0:16:19.720 --> 0:16:25.160 blow to demand from China. Europe obviously slowing sharply, partly 0:16:25.160 --> 0:16:28.880 as a result of Russia's invasion of Ukraine. Global growth 0:16:29.240 --> 0:16:33.120 bad news for the emerging markets. At the same time, 0:16:33.320 --> 0:16:38.040 you've got the FED aggressively hiking rates seventy basis point 0:16:38.160 --> 0:16:42.320 rate hike at the June meeting. Global borrowing costs are 0:16:42.360 --> 0:16:46.360 going up, and that's bad news for emerging markets which 0:16:46.360 --> 0:16:50.880 are dependent on foreign capital to finance their operations. At 0:16:50.920 --> 0:16:52.880 the same time, you've got another crucial trend for the 0:16:52.880 --> 0:16:55.520 global economy right now which is going to be playing 0:16:55.680 --> 0:16:58.640 in a different way for different emerging markets, and that's 0:16:58.680 --> 0:17:03.520 the sharp increase in commodity prices. If you're a commodity importer, 0:17:04.240 --> 0:17:08.200 like Sri Lanka for example. All three of these trends 0:17:08.480 --> 0:17:12.119 we could global growth, higher global borrowing costs, and higher 0:17:12.119 --> 0:17:15.560 commodity prices are hitting you at exactly at the same time, 0:17:15.840 --> 0:17:19.280 and that's why Sri Lanka has slid into crisis. And 0:17:19.359 --> 0:17:23.000 that's a risk facing other emerging market commodity importers as well. 0:17:23.440 --> 0:17:27.000 If you're a commodity producer, though, like Brazil for example, 0:17:27.119 --> 0:17:31.160 big producer of iron ore and soybeans, the increasing commodity 0:17:31.160 --> 0:17:35.000 prices is actually a positive for you and it's offsetting 0:17:35.280 --> 0:17:38.000 some of the negative impact of weaker global growth and 0:17:38.080 --> 0:17:43.119 higher global borrowing costs. Well. Our chief Asia economics correspondent 0:17:43.240 --> 0:17:46.119 in the Current has gone to talk to some of 0:17:46.160 --> 0:17:49.800 the exporters who are bracing themselves in Hong Kong for 0:17:49.880 --> 0:17:55.919 declining demand in the West. Is his piece. We have 0:17:56.000 --> 0:18:00.440 a patent on this one. We'll opened up by this. Normally, 0:18:00.480 --> 0:18:03.720 for pool you need to put air by pumping air 0:18:03.840 --> 0:18:07.520 into the wall, and that is Sydney you. He's showing 0:18:07.560 --> 0:18:10.320 me how to use their pop up swimming pools for dogs. 0:18:10.800 --> 0:18:14.959 His company, Prime Success Enterprises makes all kinds of cooling 0:18:14.960 --> 0:18:17.680 products in China for pets to use in hot weather, 0:18:18.000 --> 0:18:20.639 you know, so that your dog would not be a 0:18:20.680 --> 0:18:26.000 hot dog. So so as long as you moists the 0:18:26.000 --> 0:18:28.120 pop up pool he's shown me now was their best 0:18:28.160 --> 0:18:32.199 seller during the pandemic. Demand for pet products rocketed over 0:18:32.240 --> 0:18:34.919 the last two years as people spend more time at 0:18:34.920 --> 0:18:39.480 home with their pets. Well, things are changing. Like other 0:18:39.520 --> 0:18:44.080 manufacturers across Asia, you is seeing signs that soaring inflation 0:18:44.240 --> 0:18:47.240 and rising interest rates in the West are starting to 0:18:47.320 --> 0:18:51.080 impact consumer demand for his full range of products that 0:18:51.119 --> 0:18:55.360 include children's play tents and other items for families. We 0:18:55.400 --> 0:18:58.280 have been expecting a better growth than what we have 0:18:58.400 --> 0:19:01.680 been seeing now because like a last two or three months, 0:19:01.680 --> 0:19:04.520 we see that the overseas market opening up, you know, 0:19:04.520 --> 0:19:08.440 a lot of restrictions are being lifted in Western countries. 0:19:09.640 --> 0:19:13.159 We were expecting a very like a stronger growth, you know, 0:19:13.240 --> 0:19:16.879 in terms of demand, but we did not see that 0:19:17.119 --> 0:19:19.959 trend clearly yet at the moment, you know, the business 0:19:19.960 --> 0:19:23.120 has been steady, but then we expect it to be stronger. 0:19:23.359 --> 0:19:26.239 This could be an important signal from Asia, known as 0:19:26.280 --> 0:19:29.959 the world's factory floor, for where the global economy is headed. 0:19:30.760 --> 0:19:34.440 Robust exports from Asia, especially China, have been a major 0:19:34.520 --> 0:19:37.560 dynamo in the recovery from the pandemic, but there are 0:19:37.600 --> 0:19:40.960 signs that that demand is fading as inflation hits consumer 0:19:41.040 --> 0:19:45.280 pockets and as consumers shift their spending from goods to services. 0:19:45.960 --> 0:19:50.120 Supply blockages stemming from China's COVID lockdowns and the Russia's 0:19:50.119 --> 0:19:53.840 invasion of Ukraine are also impacting. Steve Schwong is one 0:19:53.840 --> 0:19:56.280 of those who has noticed a shift. He runs a 0:19:56.280 --> 0:20:00.000 company called pro Vesta Group. Yes we are that are 0:20:00.000 --> 0:20:04.600 and d and manufacturing company with headquarters in Hong Kong, 0:20:04.880 --> 0:20:09.320 two factories in Donguan and one in Manila, the Philippines. 0:20:09.680 --> 0:20:13.200 Provis that makes products such as power systems for campervands 0:20:13.200 --> 0:20:17.600 and other recreational vehicles like Sydney. You Chung also saw 0:20:17.680 --> 0:20:20.920 his order book hit records during the pandemic as people 0:20:20.960 --> 0:20:24.360 were forced to vacation closer to home. So for me, 0:20:24.600 --> 0:20:29.359 actually during year twenty twenty and year one, we have 0:20:29.440 --> 0:20:34.200 a record high growth. UH during my twenty five years 0:20:34.200 --> 0:20:40.840 of business, basically thirty to increase every year. Chuan told 0:20:40.840 --> 0:20:44.080 me that overall demand remains are bust, but it doesn't 0:20:44.080 --> 0:20:47.240 think export orders will repeat the levels that did during 0:20:47.240 --> 0:20:50.520 the first years of the pandemic. Well, you know, you 0:20:50.560 --> 0:20:54.159 can feel the in freshion and also the very high 0:20:54.320 --> 0:20:58.880 interest rate. The spending power in our major markets, as 0:20:58.920 --> 0:21:03.359 I mentioned in 'sa in Europe is becoming very soft, 0:21:03.840 --> 0:21:08.040 so trail will still go, but it won't be as 0:21:08.200 --> 0:21:13.760 high as I mentioned in E one. Some manufacturers are 0:21:13.840 --> 0:21:16.520 even seeing weakening orders as far ahead as for the 0:21:16.600 --> 0:21:20.240 Christmas shopping season. Ens Jam is a sales manager for 0:21:20.280 --> 0:21:23.680 a Guang Joe based manufacturer. They make a wide variety 0:21:23.680 --> 0:21:27.280 of products from watering cans and tablecloths to Christmas themed 0:21:27.280 --> 0:21:32.600 storage bags for customers in the US and Western Europe. 0:21:32.640 --> 0:21:38.000 Well then they compared to last year, orders have declined 0:21:38.119 --> 0:21:42.320 quite a lot down on the same I think the 0:21:42.400 --> 0:21:45.400 inflation in the US and Europe has had a very 0:21:45.520 --> 0:21:49.320 big impact on our business. I manage our online orders 0:21:49.560 --> 0:21:52.320 and they have declined by more than half from last 0:21:52.400 --> 0:21:57.080 year that you banished. The slowdown isn't yet at the 0:21:57.119 --> 0:22:01.240 point of a trade recession. Both analysts and manufacturers say 0:22:01.400 --> 0:22:04.800 underlying demand remains solid and consumers have money to spend. 0:22:05.240 --> 0:22:09.280 Chinese exports have rebounded from lows hit during shanghai'st lockdown, 0:22:09.480 --> 0:22:14.280 suggesting they're still demand still this year's big inflation surge 0:22:14.359 --> 0:22:16.800 and the hawk is turned by central banks are going 0:22:16.880 --> 0:22:19.800 to show up and order sooner or later. That's according 0:22:19.800 --> 0:22:23.200 to Stanley Zito. Hi. I'm Stanley Zito, the executive chairman 0:22:23.280 --> 0:22:27.159 of leaver Style, a Hong Kong listed government apparel supply 0:22:27.280 --> 0:22:30.959 chain company. Details company makes high end garments for leading 0:22:31.040 --> 0:22:34.960 global brands. He told me up till now, shipments have 0:22:35.080 --> 0:22:38.800 remained strong because of the post COVID rebound, but he 0:22:38.840 --> 0:22:40.919 doesn't see it lasting. But I must admit that I 0:22:40.920 --> 0:22:44.120 don't see this continuing into deep into the second half, 0:22:44.240 --> 0:22:47.359 especially from Q four onwards. So we're seeing there is 0:22:47.400 --> 0:22:52.160 a perfect storm of several macro economic factors that are 0:22:52.160 --> 0:22:55.719 going to seriously dampen consumer demand. While policy makers are 0:22:55.760 --> 0:22:58.840 trying to calm investor fears about the hard landing and 0:22:58.880 --> 0:23:01.879 they say they're consumed have enough resilience to cope with 0:23:02.000 --> 0:23:06.560 rising interest rates, manufacturers like Zito remain to be convinced. Yeah, 0:23:06.640 --> 0:23:10.360 I think it's uh what what what happened last year 0:23:11.000 --> 0:23:14.439 when the FETE said, oh, inflation is only temporary, but 0:23:14.560 --> 0:23:18.680 it turned out to be very uh structural. Uh show 0:23:18.880 --> 0:23:21.160 showed us that even the FET you know, with all 0:23:21.200 --> 0:23:24.000 that's analytical powers and you know, all the data it has. 0:23:24.480 --> 0:23:28.080 UH is not a perfect forecaster. And so right now, 0:23:28.119 --> 0:23:31.400 whatever central bankers and governments say, you know, I hope 0:23:31.400 --> 0:23:34.160 that they are right, that the consumer can can take that, 0:23:34.560 --> 0:23:38.679 but you know I don't. I won't believe in it 0:23:38.800 --> 0:23:59.360 until I see it and the current Bloomberg News. That's 0:23:59.359 --> 0:24:01.520 it for this episode of Stephonomics will be back next 0:24:01.520 --> 0:24:04.919 week with, among other things, news from Sri Lanka and 0:24:05.000 --> 0:24:08.200 that debt crisis that Tom Aulick mentioned. In the meantime, 0:24:08.560 --> 0:24:10.480 do please rate the show if you like it, and 0:24:10.560 --> 0:24:13.399 check out the Bloomberg News website for more economic news 0:24:13.440 --> 0:24:16.240 and views on the global economy. You can also follow 0:24:16.280 --> 0:24:20.920 at economics on Twitter. This episode was produced by Magnus Henrikson, 0:24:21.040 --> 0:24:25.639 Summer Sadi and Elina Ganatra, with special thanks to Tom Alick, 0:24:25.920 --> 0:24:30.399 Lizzie Burden, You, Jane You, and Young Young. Mike Sasso 0:24:30.520 --> 0:24:33.200 is executive producer of Stephonomics and the head of Bloomberg 0:24:33.240 --> 0:24:35.040 Podcast is Francesca Leag