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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. The Golden SAX Annual

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Speaker 1: Global micro Conference for Asia Pacific getting underway in Hong

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Speaker 1: Kong right now with more than two thousand investors, policymakers

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Speaker 1: and amlest gathering to really go over the economic outlook

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Speaker 1: for the year ahead. We're trying to correspond the mime

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Speaker 1: and Low is there with our next guest meme.

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Speaker 2: Thanks Heidi. Certainly what those Trump terry scheme for the

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Speaker 2: global economy is an important theme here at the Global

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Speaker 2: micro Conference. And the perfect guest to join us here

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Speaker 2: discussing this is Jan Hatzias, a chieved global economists at

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Speaker 2: Goldman Sex. So Jan, really great to have you here,

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Speaker 2: and I want to start with what's happening in the

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Speaker 2: US because obviously we're waiting for the inflation data. We

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Speaker 2: had a very strong jobs report on Friday, and we've

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Speaker 2: seen you spiking investors really stop pricing in anything more

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Speaker 2: than a full rate card. But your house view, though,

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Speaker 2: is still that the Fed will cut twice this year.

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Speaker 3: Why is there Basically because we think that inflation is

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Speaker 3: still on a normalizing path and right now we're at

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Speaker 3: two point eight percent for the core PCE measure that

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Speaker 3: the FED watches particularly closely. We think that's going to

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Speaker 3: go down to about two point four percent by the

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Speaker 3: end of the year. And even of that two point

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Speaker 3: four percent, about thirty basis points in our forecast comes

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Speaker 3: from tariffs. Tariffs are more of a one off effect,

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Speaker 3: it's a price level effect, so you might want to

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Speaker 3: sort of downweigh that thirty basis points. And the underlying

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Speaker 3: inflation rate in our forecast is two point one percent,

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Speaker 3: which is very close to the Fed's target. So in

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Speaker 3: that kind of environment, I still think you're likely to

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Speaker 3: get a couple of cuts, but clearly the FMC is

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Speaker 3: in no hurry, and therefore we think it's probably going

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Speaker 3: to take until later in Q two, maybe the June meeting,

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Speaker 3: for the first cut to be delivered.

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Speaker 2: As you said, inflation is actually still quite well, quite

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Speaker 2: well above that two percent target. Do you see any

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Speaker 2: risk of no cut at all? And underw scenario, I.

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Speaker 3: Think you can. Look, there's always a range of scenarios,

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Speaker 3: so it's hard to really rule anything out, especially when

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Speaker 3: it comes to monetary policy. Monetary policy has to be

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Speaker 3: very data dependent and respond to new information. So if

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Speaker 3: we were to see very sticky inflation closer to three

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Speaker 3: percent throughout the year. Yes, I think in that case

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Speaker 3: they might not not cut. That's a possibility. But again,

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Speaker 3: if I look at the adjustment that's occurring in the economy,

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Speaker 3: the trends in the most least noisy components of inflation.

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Speaker 3: If I look at the labor market rebalancing that we're

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Speaker 3: seeing even after the strong jobs report, in the slowdown

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Speaker 3: in wage growth, to me, that suggests there's still some

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Speaker 3: room for monetary policy toized. After all, the funds rates

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Speaker 3: still quite high at four and a quarter to four

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Speaker 3: and a half percent.

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Speaker 2: Okay, so you see the set cutting as a way

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Speaker 2: to normalize rates. But meantime, we actually have the news

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Speaker 2: today that Trump's economic team is looking at possibly a

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Speaker 2: gradual way of a gradual approach to those tariffs, hiking

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Speaker 2: maybe two to five percent per month. And to me,

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Speaker 2: this sounds like is just going to be a giant

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Speaker 2: headache for businesses. So what is your take on this

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Speaker 2: and how it's going to shape global trade in businesses?

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Speaker 3: First of all, I'd say there have been a lot

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Speaker 3: of different reports about tariffs. I mean, I think we

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Speaker 3: can have pretty high confidence that tariffs are coming in

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Speaker 3: some form. What form exactly they take, I think is

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Speaker 3: still a little bit open to debate. There is a

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Speaker 3: there are different approaches to rolling out tariffs. You could

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Speaker 3: do a ten percent tariff immediately, or you know, maybe

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Speaker 3: a twenty percent tariff on China. That's our baseline assumption,

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Speaker 3: but you could also roll this out more gradually.

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Speaker 2: You know.

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Speaker 3: I think which one is more damaging or less damaging

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Speaker 3: is a little bit of a judgment call, because if

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Speaker 3: you go more gradually, then obviously each increment is pretty small,

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Speaker 3: it's kind of predictable what happens next, but it also

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Speaker 3: lasts for a longer period of time and you don't

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Speaker 3: get it over with in some sense as quickly. So

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Speaker 3: I think those are ultimately probably a little bit more details.

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Speaker 3: The important point is that, yes, I think tariffs on

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Speaker 3: China and probably on auto imports from Europe are probably coming.

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Speaker 3: That is part of our baseline, and that is going

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Speaker 3: to have an impact on inflation and on growth, not

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Speaker 3: a huge impact. These these kinds of tariffs that we

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Speaker 3: have in our baseline, they don't negate that we still

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Speaker 3: have a pretty constructive inflation outlook and an above consensus

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Speaker 3: growth outlook. We're two and a half GDP growth for

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Speaker 3: two thousand and twenty five, which is still about half

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Speaker 3: a percentage point above the consensus.

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Speaker 2: Okay, and I want to talk about China here, because

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Speaker 2: your house view is that we could see the CSI

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Speaker 2: three hundred gains some twenty percent by the end of

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Speaker 2: the year, which I think is one of the most

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Speaker 2: optimistic ones out there at a time when investors are

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Speaker 2: pulling out of China, and in fact, you're thinking that

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Speaker 2: the CSI three hundred will outperform the SMP because your

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Speaker 2: outlook there is an eleven percent gain by the end

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Speaker 2: of the year. What is underpinning this very strong outlook

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Speaker 2: on Chinese equities?

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Speaker 3: It's really more a view on valuation and the fact

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Speaker 3: that quite a lot of bad news is already priced

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Speaker 3: in China, whereas a lot of good news is priced

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Speaker 3: in the US. From an economic perspective, we're above consensus

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Speaker 3: for the US is are just noted, and we're more

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Speaker 3: in line with consensus on China four and a half

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Speaker 3: percent growth. We do think there's going to be an

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Speaker 3: impact from the tariffs that we just discussed, although I

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Speaker 3: think a significant part of that is going to be

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Speaker 3: undone or cushioned by policy stimulus. But from an economic perspective,

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Speaker 3: you know, our forecast is deceleration from four point nine

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Speaker 3: percent last year to four point five percent now. But

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Speaker 3: that's not the only driver of equity market and financial

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Speaker 3: market performance, because the initial conditions and what investors already

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Speaker 3: discounting also plays a role.

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Speaker 2: Right. What is your expectations of the sort of stimulus

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Speaker 2: we could see from China.

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Speaker 3: We think it's going to be a broad range of measures,

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Speaker 3: you know, rolling out additional monetary easing, fiscal easing, and

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Speaker 3: support for the housing market. I'd also note that if

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Speaker 3: you look at the housing markets, obviously a very big

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Speaker 3: downturn that we've been seeing unfold over the last few

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Speaker 3: years that is still ongoing, but in certain regions at

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Speaker 3: least we are seeing some more positive developments on home sales.

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Speaker 3: I think housing will continue to be a headwind in

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Speaker 3: a bigger picture sense over the next several years, but

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Speaker 3: at the margin, in the higher frequency data, we are

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Speaker 3: getting a little bit of support, suggesting that the policy

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Speaker 3: easing is having some effect.

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Speaker 2: Okay, I want to touch on India because India had

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Speaker 2: been that bright spot last year and gaining importance as

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Speaker 2: concerns mount around China, but we do see India sort

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Speaker 2: of prrying back expectations of growth. We've seen a market

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Speaker 2: seller recently, the currency plunging. Are you still optimistic on

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Speaker 2: the India story?

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Speaker 3: Well, I think what we've seen in India has been

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Speaker 3: above trend growth and growth really at an unsustainable pace.

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Speaker 3: We think that the potential growth rate of the Indian

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Speaker 3: economy is closer to six percent, and we've been running

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Speaker 3: well above that. So that transition from a and above

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Speaker 3: t rend pace to more of a trend pace that

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Speaker 3: was always going to occur. And of course these transitions

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Speaker 3: can be you know, a little bit disruptive and investors,

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Speaker 3: you know, maybe disappointed as growth slows down. But in

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Speaker 3: my view, it's really an inevitable deceleration which we'll go

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Speaker 3: through now. But if I look at the longer term outlook,

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Speaker 3: you know, something in the six plus range, I think

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Speaker 3: it's very realistic for India for many years. And that's

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Speaker 3: a very rapid potential growth rate, even if it's not

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Speaker 3: quite as rapid as the numbers we've been printing in

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Speaker 3: the in the recent past.

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Speaker 2: All Right, thank you so much. Jan. That was Jan,

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Speaker 2: chief Global Economists at Goldman s