WEBVTT - Why Italy’s Workforce Crisis Is Likely to Get Worse 0:00:06.040 --> 0:00:08.479 Hello, and welcome to Stephanomics, the podcast that brings the 0:00:08.520 --> 0:00:11.440 global economy to you. And one feature of the global 0:00:11.440 --> 0:00:14.120 economy that's fairly new for anyone under the age of 0:00:14.160 --> 0:00:18.000 forty is inflation. I've been talking to the Italian economist 0:00:18.239 --> 0:00:22.439 Neurio Ribini, doctor Doom himself about the different forces that 0:00:22.480 --> 0:00:25.080 are driving price is higher in Europe and the US, 0:00:25.640 --> 0:00:28.479 and what the effort to control inflation will do to 0:00:28.520 --> 0:00:31.560 the global economy. You can hear that chat in just 0:00:31.640 --> 0:00:34.440 a few minutes. But first we're going to Italy, a 0:00:34.560 --> 0:00:38.120 country once again cropping up in conversations about a possible 0:00:38.159 --> 0:00:40.440 crisis in the Eurozone. Now you don't have to worry, 0:00:40.479 --> 0:00:42.960 it's not happening yet, but there is a fear that 0:00:43.040 --> 0:00:46.680 as interest rates go up across Europe that's still very 0:00:46.760 --> 0:00:50.239 debt laid in economy will find it increasingly difficult to 0:00:50.280 --> 0:00:53.040 make the sums add up. So it matters to all 0:00:53.080 --> 0:00:55.560 of us if Italy can't grow fast enough to stay 0:00:55.560 --> 0:00:58.120 on top of its accumulated debt in the years to come, 0:00:58.800 --> 0:01:00.760 it's not going to grow much at all if it 0:01:00.880 --> 0:01:04.679 can't coax more of its people back into work. Here 0:01:04.680 --> 0:01:24.600 has Bloomberg's economy reporter in Rome, Alsanda Miliaccio mort Italy's 0:01:24.680 --> 0:01:27.840 job market is currently very complex and it doesn't easily 0:01:27.840 --> 0:01:31.319 allow you to return to work once you've exited. This 0:01:31.400 --> 0:01:38.280 is very discouraging and really quite sad. That was bat 0:01:39.640 --> 0:01:42.000 She might sound harmless enough, but the Governor of the 0:01:42.040 --> 0:01:45.200 Bank of Italy believes she represents one of the biggest 0:01:45.240 --> 0:01:49.360 threats facing the Italian economy, an army of people who 0:01:49.400 --> 0:01:52.960 neither have a job nor are looking for one. In 0:01:53.000 --> 0:01:55.800 early March, speaking in front of the country's economically in 0:01:55.840 --> 0:01:58.320 the gold painted Shareholders Hall of the Bank of Italy, 0:01:58.720 --> 0:02:02.280 Governor in Natio Vis offered a long list of problems 0:02:02.320 --> 0:02:06.240 facing his country, but the most bleak was the two 0:02:06.320 --> 0:02:10.120 point six million people available for employment but not searching 0:02:10.120 --> 0:02:15.400 for jobs. That's more than the actual number of job seekers. 0:02:16.680 --> 0:02:21.959 Policies for planning immgrestion flows, training intuition are lacking. The 0:02:22.080 --> 0:02:26.480 labor market participation rate is among the lowest, especially in 0:02:26.639 --> 0:02:30.240 southern Italy. Those figures said Italy apart from all its 0:02:30.240 --> 0:02:34.040 European peers, even Spain, where there are more unemployed people 0:02:34.120 --> 0:02:37.799 but almost all of them are actively seeking work. That 0:02:37.880 --> 0:02:41.160 means there's huge potential in the economy that isn't being unlocked. 0:02:41.800 --> 0:02:45.440 It also means productivity could improve, especially in the country's 0:02:45.440 --> 0:02:48.639 southern regions, where unemployment figures are often double those on 0:02:48.720 --> 0:02:52.000 the rest of Italy. In that same speech, Governor Visco 0:02:52.080 --> 0:02:55.720 said the country needs to find solutions, particularly in light 0:02:55.760 --> 0:03:00.040 of a population that is both aging and shrinking of 0:03:00.120 --> 0:03:03.560 the phatoric train and overcoming the factors that in the 0:03:03.840 --> 0:03:09.480 prolutivity growth has become even more necessary given the demographic 0:03:09.760 --> 0:03:13.680 projections which point to a downward trend in the labor 0:03:13.800 --> 0:03:18.239 force that can only partly be counted by an improvement 0:03:18.400 --> 0:03:22.160 in the immigration balance and by an increase in labor 0:03:22.200 --> 0:03:28.920 market participation. Most present projections show that over the next 0:03:29.000 --> 0:03:34.000 fifteen years, the population aged fifteen to sixty four will 0:03:34.080 --> 0:03:39.640 fall by percent, or about five million people, half of 0:03:39.680 --> 0:03:45.440 wound in the south. Unlocking that job's potential trapped in 0:03:45.480 --> 0:03:48.839 the inertia of the Eurozone's third biggest economy is key 0:03:48.880 --> 0:03:52.720 to Italyast future prosperity. Some of the problems, the governor said, 0:03:52.840 --> 0:03:56.360 is schooling and a low skilled labor force. According to 0:03:56.440 --> 0:03:59.680 Andre Apprenticeship, professor of Innovation Management and rector of Lewis 0:03:59.760 --> 0:04:03.520 Universe City in Rome, many people have absolute skills and 0:04:03.560 --> 0:04:07.280 are not sure how to retrain themselves. He also believes 0:04:07.400 --> 0:04:10.760 young people often don't have the right mindset they need 0:04:10.840 --> 0:04:14.240 to learn how to learn in order to face a 0:04:14.320 --> 0:04:19.200 rapidly changing world. I mean this is not just the 0:04:19.400 --> 0:04:23.720 usual problem of market and demands, and also the idea 0:04:23.760 --> 0:04:28.680 of throwing money at the issue do not address it fully. 0:04:29.440 --> 0:04:32.359 So my understanding and fact my proposal will be to 0:04:32.640 --> 0:04:36.480 rethink the way we to education, because since they know 0:04:36.560 --> 0:04:39.760 the age of people will lengthen we need to make 0:04:39.800 --> 0:04:43.479 sure that students and the phone people we learn to 0:04:43.680 --> 0:04:48.960 learn new jobs. So a shift from content to methods 0:04:49.160 --> 0:04:52.400 to learn new jobs and invent new ones, or at 0:04:52.480 --> 0:04:56.360 least craft them. According to the Bagaries of the market. 0:04:56.520 --> 0:04:59.240 Adapting to the changing labor market has been a challenge 0:04:59.279 --> 0:05:02.600 for Beatrica, a forty nine year old who has struggled 0:05:02.640 --> 0:05:04.920 to find a job since losing hers at an insurance 0:05:04.920 --> 0:05:07.760 company in Rome during job cuts in two thousand eighteen. 0:05:08.920 --> 0:05:11.880 Currently helping a friend with childcare, she says she may 0:05:11.960 --> 0:05:14.640 try to return to the fray of seeking work later 0:05:14.720 --> 0:05:20.719 this year. After the pandemic struck, it got harder to 0:05:20.760 --> 0:05:23.160 find work at my skill level, and in the end 0:05:23.240 --> 0:05:25.360 I ended up helping out a friend with her kids, 0:05:25.520 --> 0:05:27.800 so I wasn't able to get back into the job market. 0:05:28.200 --> 0:05:30.600 It's a pity because I have other abilities and think 0:05:30.640 --> 0:05:33.320 it's a waste of both potential for me, because I 0:05:33.360 --> 0:05:42.279 have a great desire to work and for the country. 0:05:43.360 --> 0:05:45.560 Millions of people flocked to Italy at this time of 0:05:45.640 --> 0:05:50.160 year to enjoy la dolce vita, whether it's closed, the cars, 0:05:50.240 --> 0:05:53.440 the food. Probably no country has done a better job 0:05:53.480 --> 0:05:55.680 of exporting its culture to the rest of the world. 0:05:56.640 --> 0:05:58.719 But if it can't find a way to sell its 0:05:58.720 --> 0:06:01.839 economy to its own city, isn't the next few years 0:06:02.080 --> 0:06:06.839 are going to be bleak. Indeed, in Rome, I'm alissandremactual 0:06:07.040 --> 0:06:25.479 form News. We have a few minutes now to discuss 0:06:25.640 --> 0:06:31.599 Italy's plight with Rosam. She's an economist and lecturer in 0:06:31.720 --> 0:06:36.680 public policy at Rome's Louis University and an advisor to 0:06:37.080 --> 0:06:39.320 the O E c. D. Rosa, Maria, thank you very 0:06:39.360 --> 0:06:42.280 much for joining us, and we heard they're about the 0:06:42.400 --> 0:06:44.719 army of people in Italy who are of working age 0:06:44.760 --> 0:06:48.080 but are not looking for work. Now, as you know, 0:06:48.520 --> 0:06:51.080 there has been a lot of discussion in the US 0:06:51.200 --> 0:06:55.200 and in Europe about the so called Great Resignation. How 0:06:55.279 --> 0:06:59.320 much of this Italian problem is related to the COVID 0:06:59.320 --> 0:07:03.039 pandemic and how much is due to more homegrown issues 0:07:03.080 --> 0:07:06.480 in Italy. Thank you Stephanie for having me and for 0:07:06.560 --> 0:07:10.280 discussing that is very interesting topic. The Great resignation vary 0:07:10.400 --> 0:07:15.080 with something that's happening in Italy. But the problem of 0:07:15.560 --> 0:07:18.640 high in activity in the labor market is a longstanding 0:07:19.120 --> 0:07:22.760 problem and it's quite structural. But if you unpack this 0:07:23.080 --> 0:07:25.840 very large number in Italy is the most reason that 0:07:25.920 --> 0:07:29.920 I got from to thousand nineteen so well before COVID, 0:07:30.560 --> 0:07:34.080 and we noticed that the largest percentage, like thirty eight 0:07:34.080 --> 0:07:37.680 point three percent is people in education. And you will 0:07:37.800 --> 0:07:40.200 consis think that a lot of people study in Italy. 0:07:40.240 --> 0:07:43.280 But then if you then look at variables about tertiary 0:07:43.360 --> 0:07:48.280 education attainment or pizza results for high school, it's actually 0:07:48.280 --> 0:07:54.240 not the case. Italians don't obtain more degrees than other countries. 0:07:54.800 --> 0:07:57.200 It's just that it takes longer. One of the reason 0:07:57.320 --> 0:08:00.320 is that school ages later and you finish the legal 0:08:00.360 --> 0:08:05.560 age of studying after and also university the way structured 0:08:06.720 --> 0:08:11.840 encouraged staying more year in education, and so I think 0:08:11.840 --> 0:08:15.120 there is a structural problem with the education system. The 0:08:15.160 --> 0:08:18.640 second larger percentage of people who are not actively searching 0:08:18.680 --> 0:08:22.080 for a job in Italy, it's because of family reason 0:08:22.720 --> 0:08:26.440 and it's striking Italy. I think it's the lowest female 0:08:26.520 --> 0:08:31.480 labor market participation in Europe. And as a recent MoMA 0:08:32.200 --> 0:08:35.280 discussing with moms as well as a scholar, I realized 0:08:36.080 --> 0:08:39.320 very deeply that is strongly related to the fact that 0:08:40.040 --> 0:08:46.720 welfare in Italy strongly realized and privately family provided solutions 0:08:47.280 --> 0:08:51.360 one of the lowest provision of child care services. So 0:08:51.480 --> 0:08:53.520 getting a kid, especially if you live in the south 0:08:53.559 --> 0:08:57.240 of Italy, really kicks you out of the market. Italy 0:08:57.320 --> 0:09:00.640 is known for having an aging popular action and that 0:09:00.720 --> 0:09:04.000 obviously affects the workforce directly because you have lots of 0:09:04.040 --> 0:09:09.120 people retiring. But I guess there's also an indirect effect 0:09:09.120 --> 0:09:12.040 because there's a lot of old people to look after. Yes, 0:09:12.080 --> 0:09:15.840 there are more people to look after, so the elderly 0:09:15.880 --> 0:09:18.640 who used to help families still do it a lot 0:09:18.840 --> 0:09:22.800 in childcare now become part of the responsibilities of families 0:09:23.280 --> 0:09:27.200 and that means usually of women that have to require 0:09:27.280 --> 0:09:31.960 more flexible contracts and take less less our, bring less 0:09:32.000 --> 0:09:35.319 hour into the job market, and that usually makes it 0:09:35.400 --> 0:09:40.040 much harder for them to find the proper location and 0:09:40.080 --> 0:09:45.199 find the sustainable job. You and I have both even 0:09:45.240 --> 0:09:48.800 just to negotiate this this meeting, we've both had our 0:09:48.800 --> 0:09:52.840 family negage obligations to navigate. So we understand that pretty well. 0:09:53.080 --> 0:09:56.000 But does the government understand it? And people like the 0:09:56.000 --> 0:10:00.120 Governor of the Bank of Italy understand that how you 0:10:00.160 --> 0:10:04.240 could address this need for childcare? It sounds like more 0:10:04.280 --> 0:10:07.599 than anything, so Italy is lacking behind and provide and 0:10:07.720 --> 0:10:12.640 provision of childcare services. So and that's especially true in 0:10:12.679 --> 0:10:16.160 southern part of Italy. And this is for more, let's say, 0:10:16.160 --> 0:10:20.000 an adoptible discussion and some readings that by being a 0:10:20.040 --> 0:10:23.880 mom and talking with other moms and even when they 0:10:23.880 --> 0:10:28.120 can place their kids in childcare, which usually if public 0:10:29.040 --> 0:10:33.320 close at four pm, that requires them to get a 0:10:33.400 --> 0:10:36.719 part time or a quite flexible job. And that's not 0:10:37.160 --> 0:10:41.880 the hr culture in Italy getting flexible jobs and not 0:10:42.000 --> 0:10:44.319 I don't think even the COVID pandemic and all the 0:10:44.679 --> 0:10:49.720 work from home solution has changed that. And also it's 0:10:49.720 --> 0:10:53.000 a regulatory issue. We have a we are accountry with 0:10:53.440 --> 0:10:57.920 very high taxes on income. So for somebody who hires 0:10:59.040 --> 0:11:03.880 a person hiring a single person or two part time, 0:11:04.240 --> 0:11:08.800 it's very different. It's a rigid market with very small firms, 0:11:09.360 --> 0:11:14.319 so usually part time jobs are not offered very easily. 0:11:14.600 --> 0:11:18.280 Even though recent governments have tried to improve the all 0:11:18.400 --> 0:11:21.960 active labor market services with this cent ridicule. Loo comment 0:11:22.120 --> 0:11:25.640 to hiring people to help unemployed people to get jobs, 0:11:25.679 --> 0:11:31.960 the results are quite uh striking for their ineffectiveness. So 0:11:32.040 --> 0:11:34.760 I will tell you this. This job when I was younger, 0:11:34.960 --> 0:11:37.160 my dad so you should go and register to the 0:11:37.760 --> 0:11:41.440 unemployment office. And I was okay, I mean I don't 0:11:41.440 --> 0:11:43.720 really know why, but if you say this is something 0:11:43.760 --> 0:11:46.080 I just finished school, I should go there. I went 0:11:46.120 --> 0:11:49.440 there and I told them about myself. So what's your 0:11:49.520 --> 0:11:53.000 qualification and I said, well, I'm an economist and they 0:11:53.000 --> 0:11:56.120 were like, I don't know what to do with that. 0:11:56.120 --> 0:12:03.800 That was just right. That so that's something whatever I 0:12:03.880 --> 0:12:06.280 told them, Well you can see that they can make 0:12:06.320 --> 0:12:10.760 it if there's a job opening for like that. They're 0:12:10.840 --> 0:12:15.360 very very uneffective for these kind of jobs. Well, it 0:12:15.440 --> 0:12:18.280 sounds like you get a particular perspective as an economist 0:12:18.320 --> 0:12:21.200 from also living some of these situations. But I know 0:12:21.200 --> 0:12:22.880 we're going to run out of time because your own 0:12:22.920 --> 0:12:24.280 child is going to be coming back to the house. 0:12:24.280 --> 0:12:26.760 So let me just ask you for people listening. We 0:12:26.840 --> 0:12:29.360 often talk about because Italy has so much debt, and 0:12:29.520 --> 0:12:34.080 people are starting to talk about, well, maybe it'll be 0:12:34.960 --> 0:12:39.559 increasingly difficult for Italy to still service its debt pay 0:12:39.600 --> 0:12:42.320 the interest on its debt because interesting rates are going up. 0:12:42.400 --> 0:12:44.160 I don't want to get into all that, but if 0:12:44.200 --> 0:12:49.160 there's not enough people willing to work who are inactive 0:12:49.400 --> 0:12:54.440 in Italy, how does that hurt Italy's economic situation and 0:12:54.480 --> 0:12:58.920 potentially make it harder for the government to deal with 0:12:59.040 --> 0:13:02.040 higher interest rate? What's the cost for the economy and 0:13:02.080 --> 0:13:06.480 for growth. Well, I always think as a GDP as 0:13:06.520 --> 0:13:09.120 the income of a family or a very large family. 0:13:09.160 --> 0:13:13.560 If my income keeps shrinking, and of course I will 0:13:13.600 --> 0:13:17.320 not be able to repay my mortgage. So this is 0:13:17.320 --> 0:13:19.559 pretty much the situation in Italy. But I just want 0:13:19.600 --> 0:13:23.920 to make one point. I really don't think that Italian 0:13:23.960 --> 0:13:27.160 people who are inactive don't want to work. I think 0:13:27.160 --> 0:13:29.520 they are not in the position to work. I think 0:13:29.520 --> 0:13:33.840 the Italian economic system is not able to accommodate and 0:13:33.880 --> 0:13:38.040 give them a job, so they don't even botter registering 0:13:38.559 --> 0:13:42.440 to the unemployment office. So because they know that it's 0:13:42.440 --> 0:13:44.520 not going to be there, and they try informal ways 0:13:44.520 --> 0:13:47.800 that they don't get there. And this is not sustainable 0:13:47.840 --> 0:13:51.400 in the long term because basically you're taking off all 0:13:51.480 --> 0:13:55.360 these energy and creativity and ability and getting get stay 0:13:55.720 --> 0:13:58.120 stale and cold, and they're not going to be able 0:13:58.160 --> 0:14:02.880 to contribute to what this country needs to go back 0:14:02.920 --> 0:14:06.120 and to go back to a future of growth. And 0:14:06.160 --> 0:14:09.679 you know, Italy has been stagnating for decades now and 0:14:09.760 --> 0:14:12.840 the only solution is from the people. So we have 0:14:12.920 --> 0:14:15.680 to find a solution that I think that our political 0:14:15.760 --> 0:14:19.520 leaders need to find a way to understand what in 0:14:19.520 --> 0:14:25.800 our institutional framework is letting all these energy and creativity 0:14:25.920 --> 0:14:29.880 being chained and wasted instead of literally used. We mentioned 0:14:29.920 --> 0:14:32.360 at the end of the piece because it's an interesting 0:14:32.440 --> 0:14:34.200 puzzle for people in the rest of the world that 0:14:34.240 --> 0:14:38.000 if you look, there's so much about Italian culture and 0:14:38.200 --> 0:14:40.760 food that has taken over the world. You know, a 0:14:40.800 --> 0:14:45.880 cappuccinos and uh, we aspire to kind of Italian standards 0:14:45.880 --> 0:14:49.800 of design and the cars and adult vita and everyone 0:14:49.800 --> 0:14:52.960 wants to go there on holiday, and yet somehow the 0:14:53.040 --> 0:14:56.640 country has not managed to capture the benefits of that 0:14:56.840 --> 0:15:00.440 global success in all its ideas. Isn't out of There's 0:15:00.480 --> 0:15:04.840 also about companies seeing that potential that you're talking about, 0:15:04.840 --> 0:15:07.480 that sort of on the sidelines, not able to be 0:15:08.240 --> 0:15:11.240 playing an active part in the economation. Shouldn't some of 0:15:11.240 --> 0:15:14.880 these fantastic Italian companies be finding a way to employ 0:15:14.920 --> 0:15:19.239 these people. I think that there is definitely a weakness 0:15:19.520 --> 0:15:25.240 in the industrial structure of Italy and many firms are 0:15:25.320 --> 0:15:29.000 too small to be updated, usually family runs, so they 0:15:29.040 --> 0:15:35.240 don't have any managerial real managerial qualification, and that affects growth, 0:15:35.440 --> 0:15:38.960 of course. But then as policy alious, you have to 0:15:38.960 --> 0:15:44.160 step back and ask why Italian firms are not competing anymore, 0:15:44.320 --> 0:15:47.760 are not growing anymore like they used to do in 0:15:47.840 --> 0:15:51.520 the sixties and in the boom area. And as you 0:15:52.000 --> 0:15:53.880 as you might know, Italy is one of the few 0:15:53.920 --> 0:15:57.840 countries in which salaries are getting smaller instead of increasing 0:15:57.840 --> 0:16:02.000 over time. And this is not because each worker is 0:16:02.040 --> 0:16:05.680 paid less, just because Italian firm used to be on 0:16:05.800 --> 0:16:09.000 the edge of the frontier of international competition. Now they 0:16:09.000 --> 0:16:13.680 are shifting to business sectors that are less attractive, less innovative, 0:16:14.040 --> 0:16:18.480 and can provide lower wages. And so definitely I think 0:16:18.520 --> 0:16:22.680 there's a lacking of entrepreneurial and managerial current and ability 0:16:22.720 --> 0:16:26.000 to grow. You're making the example of the cappuccino, but 0:16:26.080 --> 0:16:29.640 the Italian style coffee has been made very popular in 0:16:29.680 --> 0:16:33.200 the world by Starbucks, not by an Italian company who 0:16:33.240 --> 0:16:36.360 then went back to meet to Milan and built a 0:16:36.480 --> 0:16:40.120 museum of coffee. But that's pretty much it. Tall is 0:16:40.240 --> 0:16:43.040 very beautiful to be in vacational. It seems like I 0:16:43.120 --> 0:16:45.880 cannot be working on their owner. Thank you so much, 0:16:45.960 --> 0:16:57.960 Rosa Maria. That's been wonderful. Now, something else that Italy 0:16:58.040 --> 0:16:59.920 has been quite good at exporting to the rest of 0:17:00.040 --> 0:17:04.600 world is economist Mario Drug was an export that went home. 0:17:05.800 --> 0:17:09.240 Rabini still roams the world and is probably almost as 0:17:09.320 --> 0:17:13.080 famous for his gloomy but often preseent analysis of what's 0:17:13.119 --> 0:17:15.399 going on in the world. I had a conversation with 0:17:15.480 --> 0:17:20.080 New Real at the catar Economic Forum the other day. 0:17:20.440 --> 0:17:24.840 Here are the highlights we are seeing and experiencing something 0:17:24.880 --> 0:17:29.120 we haven't experienced at least in many of the developed 0:17:29.119 --> 0:17:34.080 economies for a long time inflation, significant inflation, and we're 0:17:34.200 --> 0:17:37.080 using a phrase or a word that we haven't used 0:17:37.280 --> 0:17:41.520 also for a long time stag inflation. So new Rabini. 0:17:43.200 --> 0:17:46.520 You're not always known for your optimism about the global economy, 0:17:46.760 --> 0:17:49.439 but listening to an interview you gave this morning, you 0:17:49.560 --> 0:17:53.240 seem not just long term gloomy but short term gloomy. 0:17:53.280 --> 0:17:56.760 You think we're headed inevitably for a recession. So I 0:17:56.800 --> 0:18:00.640 guess my first question to you is is a hard 0:18:00.720 --> 0:18:05.159 landing now inevitable? And if so, when did we go 0:18:05.320 --> 0:18:08.200 past the point of no return? When did you think, oh, 0:18:08.240 --> 0:18:12.640 this isn't going to end well. Well, people and myself 0:18:12.800 --> 0:18:16.840 were old enough remember than d in seventies when you 0:18:16.920 --> 0:18:20.680 had two major all sharks. They were in seventy three 0:18:20.720 --> 0:18:24.520 between Israel and Arab States, and then in seventy these 0:18:24.600 --> 0:18:28.480 labing revolution in Iran. They led to oil embargo, spike 0:18:28.520 --> 0:18:32.800 in all prices, high inflation, and recession. And I think, 0:18:32.880 --> 0:18:37.480 unfortunately this time around, we have both the man factors 0:18:37.480 --> 0:18:41.720 and supply factors that are causing stagflation and high inflation. 0:18:42.119 --> 0:18:44.280 On the the men side, of course, we had loose 0:18:44.359 --> 0:18:48.639 monitor and physical policies during COVID with excess savings are 0:18:48.680 --> 0:18:51.320 now leading to pend up demand, But there were a 0:18:51.320 --> 0:18:56.600 series of negative supply shocks, first impact of COVID lockdown, 0:18:56.880 --> 0:19:00.600 the inductual supply of labor plobal supply chain prob limbs, 0:19:00.600 --> 0:19:04.000 but easy with also to other negative supply sharks, the 0:19:04.080 --> 0:19:09.800 brutal Russian invasion of Ukraine, rising energy prices, food fertilizers, 0:19:09.840 --> 0:19:13.359 and industrial metals. And now the zero COVID policy of 0:19:13.800 --> 0:19:17.200 China's leading to slow down growth of China and further 0:19:17.280 --> 0:19:20.359 bottlenecks on the global supply. So we have a situation 0:19:20.480 --> 0:19:24.160 similar to the seven is excessive agree demand and negative 0:19:24.200 --> 0:19:27.720 supply sharks. Now, central banks hope that they can raise 0:19:27.840 --> 0:19:31.840 rates just enough to slow down economy to bring back 0:19:31.880 --> 0:19:35.800 inflation to but the history of the last forty years 0:19:36.119 --> 0:19:39.560 suggests that whenever at least in the US inflation is 0:19:40.000 --> 0:19:43.000 above five percent and right now is eight and a half, 0:19:43.480 --> 0:19:46.720 and when unemployment is below five percent right now is 0:19:46.720 --> 0:19:49.320 three and a half, any attempt by the Fed to 0:19:49.600 --> 0:19:53.240 essentially raise rates to fight inflation causes a hard landing 0:19:53.640 --> 0:19:57.200 rather than a soft landing. That's why my baseline scenario 0:19:57.359 --> 0:20:00.320 right now is of hard landing for the US for 0:20:00.359 --> 0:20:03.520 the Eurozone, for the UK and most advanced economies. Well, 0:20:03.520 --> 0:20:05.080 I was going to ask you quickly about that. So 0:20:05.119 --> 0:20:07.200 as far as your concern, the recession that we would 0:20:07.200 --> 0:20:12.119 see in the US will inevitably be followed by or 0:20:12.320 --> 0:20:16.679 come with the recession elsewhere. Well, it's gonna be followed 0:20:16.680 --> 0:20:20.600 by recession elsewhere for two series of reasons. First of all, 0:20:20.760 --> 0:20:22.480 when the US needs is the rest of the world 0:20:22.480 --> 0:20:25.240 that gets it, called US is large enough that what 0:20:25.359 --> 0:20:28.960 happens economically, as in terms of financial markets in US 0:20:29.000 --> 0:20:32.560 that affects the global economy to the same factors that 0:20:32.600 --> 0:20:37.680 are leading to recession US are occurring also in the Eurozone, Europe, 0:20:37.840 --> 0:20:40.840 and the United Kingdom. If anything, Actually, I would say 0:20:41.080 --> 0:20:44.920 Europe is more exposed to Russia in terms of energy. 0:20:45.320 --> 0:20:47.840 Europe is more exposed to the slow that of China, 0:20:48.160 --> 0:20:51.639 given trade with China, the US falling in value and 0:20:51.680 --> 0:20:55.199 that inflationary and the recovery of Europe was more annavy 0:20:55.280 --> 0:20:59.119 than the United States. So in some sense, Europe, Eurozone 0:20:59.119 --> 0:21:02.800 and UK has fragile, if not more fragile then the 0:21:02.880 --> 0:21:05.720 United States. We have some understanding about what the FED 0:21:05.800 --> 0:21:10.360 is going to do. But would you say that Europe 0:21:10.600 --> 0:21:13.960 potentially has more or less room in terms of the 0:21:14.080 --> 0:21:16.520 central bank response. I mean they don't face the same 0:21:16.560 --> 0:21:20.159 kind of demand issue. Well. In terms of levels of 0:21:20.320 --> 0:21:24.640 inflation rates, the levels in the Eurozone right now are 0:21:24.640 --> 0:21:29.000 as eyes the United States. Um in the UK is 0:21:29.040 --> 0:21:32.080 even worse than that. Among advanced economy is the only 0:21:32.119 --> 0:21:35.879 one that has much lower inflation is still Japan. That 0:21:36.040 --> 0:21:40.080 explains why the BOJ policy is very different. And it's 0:21:40.119 --> 0:21:42.600 true that the nature of inflation and Europe may be 0:21:43.040 --> 0:21:49.480 slightly different. More exposure to energy and Russia more of 0:21:49.560 --> 0:21:53.560 headline inflation rather than core because of that, slightly less 0:21:53.600 --> 0:22:01.080 strong wage dynamics, more supply shocks rather than aggregate am shocks. 0:22:01.119 --> 0:22:04.320 But in a world where you have this stack fraationary shock, 0:22:04.840 --> 0:22:07.800 whether you're the Fed, d c B, the b O A, 0:22:07.880 --> 0:22:10.679 SMB R, r b A, you name it, you're in 0:22:10.760 --> 0:22:15.520 trouble because whenever you have the stacflationary shocks, inflation is higher, 0:22:15.880 --> 0:22:19.440 growth is lower. If you care about inflation and not 0:22:19.560 --> 0:22:24.280 the anchoring inflation expectation, you have to exit and normalize 0:22:24.280 --> 0:22:26.919 sooner and faster. But that increases the risk of a 0:22:26.960 --> 0:22:30.600 hard learning and if instead you care also, but economic 0:22:30.680 --> 0:22:34.800 growth and you'll normalize more slowly. Then the risk is 0:22:34.800 --> 0:22:38.520 that you're gonna have the anchoring of inflation expectation, and 0:22:38.560 --> 0:22:41.159 whether the shock is supply or the man, in some 0:22:41.320 --> 0:22:43.760 sense it doesn't matter even in the presence of a 0:22:43.800 --> 0:22:46.760 supply shock, like we learned from the seventies, if you 0:22:46.800 --> 0:22:51.240 don't fight inflation, inflation expectation getting the anchored, and you 0:22:51.320 --> 0:22:54.960 end up with stackflation, not just with inflation but also recession. 0:22:55.600 --> 0:22:58.479 And I would say U D C B is as 0:22:58.560 --> 0:23:01.560 much in a pickle as the FED given the exposure 0:23:01.600 --> 0:23:04.679 to Rush, are given exposure to China, given the more 0:23:04.720 --> 0:23:08.200 an emic recovery, given that the US falling in value, 0:23:08.200 --> 0:23:11.359 and therefor you're gonna have more important inflation. So the 0:23:11.440 --> 0:23:14.880 problems are similar. And when you think about the sort 0:23:14.880 --> 0:23:17.080 of global knock on effects of this, or we would 0:23:17.119 --> 0:23:20.000 call it the spillovers we had years after the global 0:23:20.000 --> 0:23:22.520 financial crisis where we talked about currency wars, and the 0:23:22.520 --> 0:23:25.720 game in currency wars to was to depreciate your currency 0:23:26.080 --> 0:23:29.120 and try and import some inflation because inflation was too low. 0:23:29.800 --> 0:23:31.959 What's the risk now or how much are we already 0:23:31.960 --> 0:23:35.920 seeing the reverse of that? The stronger the US in 0:23:36.000 --> 0:23:40.119 effect trying to export inflation through a stronger dollar. Yeah, 0:23:40.200 --> 0:23:44.160 as stronger dollar implies that inflation is higher in Europe, 0:23:44.280 --> 0:23:48.080 is the inflation is higher in other advanced economies. More importantly, 0:23:48.520 --> 0:23:52.479 inflation is also much higher in emerging markets. We're spoken 0:23:52.520 --> 0:23:56.040 about advanced economies about in some sense the situation of 0:23:56.080 --> 0:23:58.919 emerging market is more difficult. Of course, you have to 0:23:58.960 --> 0:24:01.800 make a caveat there are some emerging markets that are 0:24:02.280 --> 0:24:06.760 energy and or commodity exporters. Those are doing well, like 0:24:06.880 --> 0:24:09.600 in the region that there are some emerging markets that 0:24:09.640 --> 0:24:14.520 have stronger macroeconomic fundamentals with lower inflation. But you know, 0:24:14.600 --> 0:24:18.360 the typical em that is net commoted importer. Now it's 0:24:18.400 --> 0:24:22.439 facing raising rates in the United States with weakening of 0:24:22.480 --> 0:24:25.520 their currencies. That lead is too higher inflation and with 0:24:25.680 --> 0:24:29.040 higher borrowing costs. It has in terms of trade shock 0:24:29.359 --> 0:24:33.080 because especially in Asia, but also in many other emerging markets, 0:24:33.160 --> 0:24:36.760 there are net commodity importers, and for them, the rise 0:24:36.840 --> 0:24:40.000 in energy, food fertilized and that the metal is a 0:24:40.040 --> 0:24:43.359 major economic shock. Of course, if you're in very poor countries, 0:24:43.640 --> 0:24:45.080 you get to the point in which they have to 0:24:45.119 --> 0:24:48.960 worry about hunger, if not famines like in Sub Saudan Africa. 0:24:49.280 --> 0:24:52.119 And the third shock for emerging market is the slow 0:24:52.160 --> 0:24:56.120 down of China that is now significantly also affecting negatively 0:24:56.440 --> 0:24:59.720 especial economic growth in Asia that is connected to the 0:24:59.760 --> 0:25:02.320 glo sub black chains of of China. So you got 0:25:02.480 --> 0:25:06.160 the fat shock, you get the dollar shock, you get 0:25:06.160 --> 0:25:08.520 the terms of straight shock, you get the China shock. 0:25:08.920 --> 0:25:11.520 So that's why folks at the World Bank of the 0:25:11.640 --> 0:25:14.800 MF say, for many emergent markets of poor country this 0:25:14.880 --> 0:25:18.679 is not a COVID recession, is a near depression that 0:25:18.720 --> 0:25:20.760 they have to worry about. I knew we're going to 0:25:20.840 --> 0:25:22.399 run out of time, but you have spoken quite a 0:25:22.400 --> 0:25:25.440 lot about crypto in the past, and I was interested 0:25:25.520 --> 0:25:29.840 given it's been a pretty turbulent ride for a lot 0:25:29.880 --> 0:25:32.440 of the crypto occurrencies in the last few months. How 0:25:32.600 --> 0:25:35.000 how are you looking at the the future? Was it 0:25:35.040 --> 0:25:37.399 a fat or is it the future? Or are you 0:25:37.480 --> 0:25:41.560 changing your view? Well, from the peak of the last November, 0:25:42.320 --> 0:25:48.000 Bitcoin has lost about of its value. Other cryptocurrency have 0:25:48.080 --> 0:25:51.920 lost eight of them. You know that study suggest that 0:25:53.400 --> 0:25:55.240