WEBVTT - The Global Economic Outlook 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business app. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.160 us live on YouTube. 0:00:27.400 --> 0:00:29.440 We're going to start with a quick good view here 0:00:29.480 --> 0:00:30.520 to get to June. 0:00:30.280 --> 0:00:34.240 Thirtieth onn On for the next six months from ing. 0:00:35.280 --> 0:00:39.120 Anikatrian joined US Global out of Private Banking and Wealth 0:00:39.159 --> 0:00:43.280 with their workout of the London School of Economics. Anika, 0:00:43.360 --> 0:00:45.920 have you written a midiar review or do you in 0:00:45.960 --> 0:00:48.519 the Netherlands have to rewrite it given the news. 0:00:48.320 --> 0:00:54.760 Flow a midiar review? What you mean by a midia review? 0:00:55.120 --> 0:00:55.840 In America? 0:00:56.160 --> 0:00:59.400 Everybody in banking has to write a June thirty twelve. 0:01:00.160 --> 0:01:04.080 Oh it is dead July fifteenth. That's the way it ruled. 0:01:04.400 --> 0:01:06.559 If you've written a minsiorry reviewer, are. 0:01:06.440 --> 0:01:09.080 You people smarter than this and you don't even do 0:01:09.200 --> 0:01:12.200 a midgir review, Well. 0:01:12.000 --> 0:01:15.960 We're not doing a long memo like that. No, we're fortunates. 0:01:15.959 --> 0:01:19.160 I would say, son, what's the conversation you're having with 0:01:19.240 --> 0:01:22.240 your clients these days? I mean you know, there's you know, 0:01:22.280 --> 0:01:26.000 the uncertainty surrounding the geopolitics over in Iran, not to 0:01:26.040 --> 0:01:29.560 mention Ukraine. What are your conversations like with your clients. 0:01:30.640 --> 0:01:33.160 Yeah, I think it's I mean, it's a sad it's 0:01:33.160 --> 0:01:35.200 a sad thing, I would say, because of all the 0:01:35.319 --> 0:01:38.160 human sort of tragedies going on around the world. But 0:01:38.240 --> 0:01:41.680 it feels like volatility is becoming increasingly normalized. And that's 0:01:41.680 --> 0:01:44.520 exactly what we see with our conversation with clients. And 0:01:44.560 --> 0:01:46.480 I mean practically you see it in markets, but we 0:01:46.520 --> 0:01:49.320 see it in parallel and clients' behavior. So you know, 0:01:49.440 --> 0:01:52.520 post a COVID you saw a market reaction minus thirty percent, 0:01:52.680 --> 0:01:57.160 post Ukraine minus twenty, post liberation Day minus fifteen, and 0:01:57.240 --> 0:02:01.600 post the recent Middle Eastern conflict minus ten. So you 0:02:01.760 --> 0:02:07.800 see that clients are just increasingly resilient and steadfast with 0:02:08.160 --> 0:02:11.559 what they're doing, why they're doing it, and sticking to convictions. 0:02:12.320 --> 0:02:15.160 So what is the conviction. One of the trades that 0:02:15.200 --> 0:02:19.560 we saw when you know, the teriffs were initially put 0:02:19.639 --> 0:02:23.320 out last year was some asset flows out of the 0:02:23.520 --> 0:02:26.840 US into other parts of the world, including in big 0:02:26.880 --> 0:02:30.560 way Europe. Is that still the sentiment out there or 0:02:30.600 --> 0:02:32.040 is that reversed a little bit in your mind. 0:02:33.440 --> 0:02:35.960 Well, it's really interesting. So I think two things. First 0:02:35.960 --> 0:02:38.880 of all, indeed, that that happened, and I think Europeans 0:02:38.880 --> 0:02:42.360 were very excited because it's been a long time coming. 0:02:42.760 --> 0:02:46.760 We've been talking about systematic valuation mismatches between Europe, US, etc. 0:02:47.520 --> 0:02:50.080 But then something happened. And what happened was, of course 0:02:50.120 --> 0:02:55.200 we've had this amazing earnings bonanza and that's especially driven 0:02:55.240 --> 0:02:59.880 by the US US companies, US equities again year today, 0:03:00.000 --> 0:03:03.119 it's been an amazing quarterly earning season, and I think 0:03:03.200 --> 0:03:08.520 that is just reforged the notion that European companies are 0:03:08.600 --> 0:03:11.400 just not able to grow at the speed of US companies. 0:03:11.840 --> 0:03:14.920 So I mean twenty percent earnings growth for US equities 0:03:14.919 --> 0:03:18.720 this year is expected ten max fifteen for Europe. So 0:03:18.760 --> 0:03:21.800 I think that makes things tricky. On the other hand, 0:03:21.960 --> 0:03:25.600 what's interesting if you talk about Europeans and how Europeans 0:03:25.680 --> 0:03:28.560 are deploying their capital. Number one, we're seeing a lot 0:03:28.600 --> 0:03:31.240 more Europeans start to actually invest, and this is a 0:03:31.360 --> 0:03:34.520 really important thing. And number two, you do see quite 0:03:34.520 --> 0:03:36.880 a home bias. You do see that Europeans like to 0:03:36.880 --> 0:03:39.480 buy europe We do notice this also this year. 0:03:41.360 --> 0:03:44.360 I think this is a brilliant, brilliant statement. And in America, 0:03:44.480 --> 0:03:49.440 our understanding is that Europe believes in American technology, Europe 0:03:49.480 --> 0:03:54.200 believes in American initiative, innovation and the rest. 0:03:54.600 --> 0:03:57.000 What's the first derivative of that right now? 0:03:57.320 --> 0:04:02.320 Is Europe leaning into America in twenty twenty seven? 0:04:03.480 --> 0:04:06.200 I think Europe. I think there's two things. First of all, 0:04:06.920 --> 0:04:09.600 we've waited for a long time for the continent of 0:04:09.640 --> 0:04:13.600 Europe to basically lean I call it leaning in into capitalism, right, 0:04:14.160 --> 0:04:17.880 really putting capital to work. We have trillions lying in deposits, 0:04:18.240 --> 0:04:20.320 and the US versus Europe is a very different story. 0:04:20.440 --> 0:04:23.280 Right The average European household has less than a third 0:04:23.320 --> 0:04:26.440 of the wealth invested, the average US household more than half. 0:04:27.360 --> 0:04:31.159 So number one, you're seeing that Europeans are really starting 0:04:31.279 --> 0:04:33.000 to invest. We don't have the four oh one K 0:04:33.200 --> 0:04:35.440 system that you have in the US, so these are 0:04:35.440 --> 0:04:39.280 deliberate choices that are being increasingly made, also by younger populations, 0:04:39.279 --> 0:04:43.120 which is great. The feeling towards the US from Europe 0:04:43.240 --> 0:04:46.599 is talking about earnings growth. I think what's happening is 0:04:46.640 --> 0:04:49.040 we're in a world where you know, we used to 0:04:49.080 --> 0:04:51.640 be very demand driven in the last decade, and I 0:04:51.680 --> 0:04:54.880 think what's happening now supply is the new demand, right. 0:04:54.920 --> 0:04:59.080 So all these enormous supply constraints, the need for computes, 0:04:59.120 --> 0:05:02.040 the need for data set towers, etc. All the AI 0:05:02.160 --> 0:05:05.720 technology you see, there are just these US champions and 0:05:06.080 --> 0:05:08.080 Europe is just keen to get involved and keen to 0:05:08.120 --> 0:05:10.840 deploy capital in that way. So I think Europeans are 0:05:10.920 --> 0:05:13.680 very pro US constructive on growth that comes out of 0:05:13.839 --> 0:05:17.360 US companies, but they don't want to neglect their own continents. 0:05:17.920 --> 0:05:20.400 And again one final question, I want to dive back 0:05:20.440 --> 0:05:23.200 to the economic history of the London School of economics. 0:05:24.040 --> 0:05:26.440 The model is a war ends. 0:05:26.680 --> 0:05:29.320 And there's like celebration and all that, as there should 0:05:29.320 --> 0:05:32.080 be with any ending war, and then there's a vector 0:05:32.120 --> 0:05:35.680 of disinflation and at times outright deflation. 0:05:36.279 --> 0:05:39.880 Should we expect given the headlines that with an end 0:05:39.880 --> 0:05:43.480 of this Middle War in Iran within the Eastern Mediterranean, 0:05:43.960 --> 0:05:47.039 that we're going to be surprised by some form of 0:05:47.160 --> 0:05:48.560 tone of disinflation. 0:05:50.960 --> 0:05:54.560 You know, it's interesting because we've indeed been walking a 0:05:54.600 --> 0:05:58.680 disinflation path. Then this conflict spiked up pricing, etc. We've 0:05:58.720 --> 0:06:01.360 even seen the ECB have to just rates in a response. 0:06:01.880 --> 0:06:04.080 But indeed, you know, if things are settling down, which 0:06:04.080 --> 0:06:06.240 they seem to be, that can bring us back to 0:06:06.279 --> 0:06:11.159 the path. What is interesting though, AI, which we I 0:06:11.160 --> 0:06:14.120 think we all believe will be a disinflationary force, it 0:06:14.160 --> 0:06:18.240 does feel like it's going to be inflationary before deflationary. 0:06:18.600 --> 0:06:21.320 And back to what I was saying earlier, there is 0:06:21.360 --> 0:06:26.720 a radical issue when it concerns supply shortages, shortage of power, 0:06:26.839 --> 0:06:30.400 shortage of compute, shortage of labor, you know in a 0:06:30.480 --> 0:06:34.520 less of a globalized labor mobility world, etc. And this 0:06:34.720 --> 0:06:39.680 supply shortage I do still think has an inflationary edge 0:06:39.680 --> 0:06:39.919 to it. 0:06:40.920 --> 0:06:43.320 And you can thank you so much, really really appreciate it. 0:06:43.400 --> 0:06:46.719 This morning with IG and this special edition of Bloomberg 0:06:46.760 --> 0:06:49.960 Surveillance from Queen Victoria Street in London. 0:06:50.000 --> 0:06:50.800 To stay with us. 0:06:51.040 --> 0:06:54.279 More from Bloomberg Surveillance coming up after this. 0:07:01.520 --> 0:07:05.119 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:07:05.160 --> 0:07:08.320 weekday afternoons from seven to ten am Eastern Listen on 0:07:08.400 --> 0:07:12.080 Applecarplay and Android Otto with the Bloomberg Business app, or 0:07:12.240 --> 0:07:13.679 watch us live on YouTube. 0:07:13.880 --> 0:07:17.800 We continue to be fortunate with Janet Henry, global chief 0:07:17.840 --> 0:07:22.040 Economist at HSBC and truly a wonderful student of the 0:07:22.080 --> 0:07:24.920 linkage of the United States with a continent. 0:07:25.600 --> 0:07:27.920 In all of these events. 0:07:27.680 --> 0:07:32.560 Jennet, you've got to rewrite your global economics overview unfinished Business, 0:07:32.600 --> 0:07:36.160 get James Palmerroy to work. How do you rewrite the 0:07:36.360 --> 0:07:39.679 HSBC midyear review. 0:07:40.840 --> 0:07:43.920 Well, like a lot of central banks, Tom, we have 0:07:44.080 --> 0:07:48.520 been thinking about the world with different scenarios, and for 0:07:48.640 --> 0:07:52.640 our base case scenario, i'd say we actually have a 0:07:52.760 --> 0:07:55.840 higher degree of confidence than we did just just a 0:07:55.880 --> 0:07:58.960 month ago because we've been working on the basis that 0:07:59.040 --> 0:08:02.560 the Strait would start to reopen in the course of June. 0:08:03.480 --> 0:08:06.040 We were getting nervous that that might not happen, that 0:08:06.080 --> 0:08:11.320 we would be in our bad or our uglier scenarios. So, yes, 0:08:11.680 --> 0:08:15.120 we still talk about scenarios, but the news could have 0:08:15.200 --> 0:08:17.200 could have been a lot worse. There's still a love 0:08:17.280 --> 0:08:20.000 that can go wrong, But at least we can look 0:08:20.280 --> 0:08:25.000 towards some kind of gradual reopening at the moment during 0:08:25.000 --> 0:08:28.360 this sixty day cease fire, and hope that during that 0:08:28.480 --> 0:08:32.000 time some progress has made towards some kind. 0:08:31.840 --> 0:08:32.320 Of a deal. 0:08:32.480 --> 0:08:35.680 So we'll still be fallout from it. But yes, we're 0:08:35.720 --> 0:08:38.480 still in a scenario overlay, but a little bit more 0:08:38.480 --> 0:08:39.160 confident on that. 0:08:39.679 --> 0:08:42.160 What's amazing about this part. I think we're staggering to 0:08:42.280 --> 0:08:46.280 day fifty nine, the first day of the sixty day ceasefire. 0:08:46.440 --> 0:08:48.240 Yes, and the news has changed three times. 0:08:48.360 --> 0:08:50.520 It has changed three times here. I'm not sure where 0:08:50.559 --> 0:08:53.480 we are, but so Jennet, given you know some of 0:08:53.480 --> 0:08:58.120 the crosswinds that Tom highlights here, how are central banks reacting? 0:08:58.160 --> 0:09:00.000 We heard from our Feeder Reserve on our new feederies 0:09:00.240 --> 0:09:03.440 chief this week, but it seems like they're staying put, 0:09:03.600 --> 0:09:06.760 but they might be thinking about raising rates at some point. 0:09:06.800 --> 0:09:07.360 How do you see that? 0:09:08.880 --> 0:09:11.760 I think that's absolutely fair. You know, if we go 0:09:11.840 --> 0:09:14.200 back to even January of this year, or even late 0:09:14.320 --> 0:09:17.600 last year, we certainly never expected the FED to cut again. 0:09:18.080 --> 0:09:20.320 We thought there'd be seventy five basis points of easing 0:09:20.360 --> 0:09:23.760 and that would be it. The US economy is pretty robust, 0:09:24.520 --> 0:09:28.360 and obviously we've got the tax cuts already, and relative 0:09:28.440 --> 0:09:31.360 to the rest of the world, and I do talk relative, 0:09:31.640 --> 0:09:36.160 it's relative winners and relatives losers, and the US obviously 0:09:36.240 --> 0:09:40.439 an energy exporter and absolutely at the forefront of this 0:09:40.520 --> 0:09:45.600 whole AI boom that is underway globally, so is a 0:09:45.720 --> 0:09:49.120 relative winner, and no central bank at the moment is 0:09:49.160 --> 0:09:52.920 going to give any hint that they are not prepared 0:09:52.960 --> 0:09:55.079 to take the kind of action that they might need 0:09:55.120 --> 0:09:58.200 to take, because even in a positive environment, we haven't 0:09:58.280 --> 0:10:01.480 seen the lasting impact of it. At best, we're going 0:10:01.480 --> 0:10:03.280 to see a peek in inflation, but then get a 0:10:03.360 --> 0:10:06.840 hump for some time. They've got to keep all expectations 0:10:06.960 --> 0:10:07.520 very anchored. 0:10:07.720 --> 0:10:10.119 Jenn and I've got to go to the stunning elections 0:10:10.160 --> 0:10:12.840 that we've seen, a set of elections of the United Kingdom, 0:10:13.200 --> 0:10:18.439 the HSBC collapse of real GDP four percent United Kingdom 0:10:19.040 --> 0:10:21.319 zero point four percent. 0:10:21.080 --> 0:10:23.479 United Kingdom, maybe one. 0:10:23.240 --> 0:10:26.640 Point four percent out there in an inflation that goes 0:10:26.640 --> 0:10:31.120 from nine percent down to three percent is well, what 0:10:31.240 --> 0:10:35.960 kind of economy will the next Prime minister, whether Starmer 0:10:36.120 --> 0:10:38.920 or Burnham, what kind of economy will they have? 0:10:41.520 --> 0:10:41.840 Well? 0:10:42.000 --> 0:10:44.120 I think if we start the year looking back on 0:10:44.160 --> 0:10:47.240 the UK, things were finally getting to a slightly better 0:10:47.280 --> 0:10:49.880 At least we had a fairly robust start to the year, 0:10:50.200 --> 0:10:53.000 without a doubt, without the spike in oil prices, we 0:10:53.040 --> 0:10:56.000 would have seen inflation below two percent as soon as April. 0:10:56.720 --> 0:10:59.280 We were certainly looking for some pretty big read cuts 0:10:59.400 --> 0:11:02.320 in the course of this year. So, unlike for the US, 0:11:02.880 --> 0:11:06.079 the outlook has changed considerably in the UK. 0:11:06.880 --> 0:11:09.240 So it's not an easy. 0:11:09.720 --> 0:11:12.880 Palette of choices that face has faced any of our 0:11:13.080 --> 0:11:15.680 recent prime ministers in the UK, and we've had quite 0:11:15.679 --> 0:11:20.040 a few in recent years. The fiscal dynamics are not easy. 0:11:20.080 --> 0:11:23.320 Difficult political choices are going to have to be taken, 0:11:23.800 --> 0:11:26.800 and you know, any prime minister is going to have 0:11:26.880 --> 0:11:30.599 to get people on board with making those necessary political 0:11:30.760 --> 0:11:35.560 decisions and to restore global confidence in the outlook for 0:11:35.679 --> 0:11:38.360 the UK. But actually we now think that the Bank 0:11:38.400 --> 0:11:42.040 of England won't actually have to raise interest rates, even 0:11:42.080 --> 0:11:44.200 if they can't tell anyone that anytime soon. 0:11:44.520 --> 0:11:47.960 HSBC has such a grasp before an exchange. What's your 0:11:48.080 --> 0:11:50.480 year old call here? Do we have weaker euro from 0:11:50.480 --> 0:11:52.360 a one to fourteen to sixty three? 0:11:54.200 --> 0:11:54.560 Yes? 0:11:54.640 --> 0:11:58.959 Actually we do now look for a slightly weaker dollar. Obviously, 0:11:59.000 --> 0:12:02.000 since the beginning of the war, the dollars have the 0:12:02.120 --> 0:12:04.920 upper hand. It's been moving with the oil prices, and 0:12:04.920 --> 0:12:08.000 while some of the oil exporting currencies have actually weakened 0:12:08.000 --> 0:12:12.480 a little bit, especially the likes of Norway and others. Actually, 0:12:12.520 --> 0:12:15.440 the US dollar has remained pretty firm on that whole 0:12:15.760 --> 0:12:20.520 AI exceptionalism story. So we look for a broad based 0:12:20.960 --> 0:12:24.080 Firmer dollar, and that does include a slightly weaker Euro, 0:12:24.800 --> 0:12:25.920 even from these kind. 0:12:25.800 --> 0:12:28.800 Of levels, Doctor Henry. Thank you so much, Janet Henry. 0:12:29.640 --> 0:12:32.080 I have to say it. She knows they hate when 0:12:32.120 --> 0:12:36.000 I say this. The Hong Kong and Shanghai Banking Corporation. 0:12:36.200 --> 0:12:37.600 There you go, it's so romantic. 0:12:37.640 --> 0:12:40.720 I mean, you got to say it. HSBC. Thank you 0:12:40.760 --> 0:12:42.640 so much, Janet Henry. 0:12:42.960 --> 0:12:43.680 Stay with us. 0:12:43.920 --> 0:12:47.160 More from Bloomberg Surveillance coming up after this. 0:12:54.400 --> 0:12:57.960 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:12:58.040 --> 0:13:02.040 weekday afternoons from seven to Tenstern. Listen on Apple Karplay 0:13:02.080 --> 0:13:05.320 and Android Otto with the Bloomberg Business app, or watch 0:13:05.400 --> 0:13:06.719 us live on YouTube. 0:13:07.160 --> 0:13:10.040 Joining us now, last time she was on spectacular. Vanya 0:13:10.080 --> 0:13:13.560 Stavrakova joins us here from the London Business School with 0:13:13.600 --> 0:13:17.520 all sorts of other good affiliations behind. It is prodigious 0:13:17.520 --> 0:13:22.440 mathematics from Franklin and Marshall. I want to talk Vanya about, 0:13:22.600 --> 0:13:26.160 as you say, of you from sixty thousand feet an. 0:13:25.960 --> 0:13:32.840 Inflation persistence, slowing growth, geopolitics. The fact is looking backwards, Vanya. 0:13:33.559 --> 0:13:37.360 I have a central bank regime, particularly the FED, at 0:13:37.360 --> 0:13:43.160 a three percent range, nowhere near a supposed two percent range. 0:13:43.480 --> 0:13:46.880 Are we in an era where we're losing two percent 0:13:47.240 --> 0:13:50.199 and we're going to a higher inflation regime. 0:13:52.480 --> 0:13:54.640 So thank you so much for having me, and it's 0:13:54.720 --> 0:13:57.480 lovely to join it from the London office. I do 0:13:57.559 --> 0:14:01.600 believe Kevin Walsh is laying out a completely different playbook 0:14:01.720 --> 0:14:03.880 for the Federal Reserve, which in many ways I do 0:14:03.960 --> 0:14:07.160 believe is a positive change. So we are in the 0:14:07.200 --> 0:14:10.959 beginning of a regime change that acknowledges that effectively the 0:14:11.000 --> 0:14:14.559 fact has to regain control over inflation because it needs 0:14:14.600 --> 0:14:17.320 to be prepared for fiscal dominance regime. And I believe 0:14:17.400 --> 0:14:21.400 that his first speech that we witnessed just a couple 0:14:21.400 --> 0:14:24.560 of days ago was precisely about that. Now the job 0:14:24.640 --> 0:14:27.360 is not going to be easy because even though he 0:14:27.440 --> 0:14:30.320 emphasizes the importance of regaining control over the broad money 0:14:30.360 --> 0:14:33.000 supply so effectively, the balance sheet of the central bank, 0:14:33.040 --> 0:14:36.360 which is front and center in his view of how 0:14:36.720 --> 0:14:39.720 central banks should conduct montary policy. One thing that he 0:14:39.840 --> 0:14:43.920 kept mentioning during that speech is that at the moment, 0:14:44.520 --> 0:14:47.160 the fact that we have such high stock valuations is 0:14:47.200 --> 0:14:50.440 probably an important driver of the inflation that we're seeing. Right, 0:14:50.440 --> 0:14:53.120 we have a key shape growth in the US economy. 0:14:53.240 --> 0:14:56.760 So the stock market is the more demand there is 0:14:56.800 --> 0:15:00.359 by the high income consumers that also hold the stock market. 0:15:00.680 --> 0:15:02.920 And even if you hike interest rates to the extent 0:15:02.920 --> 0:15:05.360 that the stock market is driven by this AI boom, 0:15:05.840 --> 0:15:08.080 you might need to hike by a lot in order 0:15:08.120 --> 0:15:10.600 to put a dent in stock market valuations, which we 0:15:10.840 --> 0:15:13.600 in turn put a lot of pressure on housing markets 0:15:13.640 --> 0:15:15.600 clearly the cost of borrowing for government. So it is 0:15:15.640 --> 0:15:20.560 a very difficult situation he finds himself in, given that 0:15:21.400 --> 0:15:24.120 getting the stock market under control is not something that 0:15:24.760 --> 0:15:26.600 is easy to do or he might be willing to do. 0:15:26.640 --> 0:15:28.520 But it's an important driver. But this wolf effects an 0:15:28.520 --> 0:15:30.160 important driver of the inflation that we see in the 0:15:30.280 --> 0:15:30.640 US at. 0:15:30.600 --> 0:15:34.960 The moment, Professor, we know you have some political issues there. 0:15:35.200 --> 0:15:39.280 The Prime Minister does with the election earlier or yesterday, 0:15:39.360 --> 0:15:42.840 and up at Birmingham talked to us about the divergence 0:15:42.880 --> 0:15:46.040 between kind of the past of economic growth in the 0:15:46.200 --> 0:15:49.240 US versus the UK. What is it all AI or 0:15:49.280 --> 0:15:50.080 what else is going on? 0:15:51.840 --> 0:15:55.560 Well, sadly, the UK has been hit by a number 0:15:55.640 --> 0:15:58.760 of negative productivity growth shocks. So first of all, the 0:15:58.760 --> 0:16:02.160 global financial crisis in acted London and the UK much 0:16:02.160 --> 0:16:04.920 more and much more negatively than the US. Granted that 0:16:05.000 --> 0:16:07.840 the financial sector was the main driver of growth in 0:16:08.160 --> 0:16:10.680 the United Kingdom, whenever recovered from that. And you can 0:16:10.720 --> 0:16:12.720 see it from the pound right, the pound is a 0:16:12.760 --> 0:16:15.920 very good parameter of the state of the economy. And 0:16:16.040 --> 0:16:18.640 after the pound depreciated with the onset of the global 0:16:18.640 --> 0:16:21.480 financial crisis, it never really recovered against the door and 0:16:21.520 --> 0:16:24.240 the second big shot whose breaks it. So essentially the 0:16:24.360 --> 0:16:27.120 UK hasn't really had much of a growth since the 0:16:27.120 --> 0:16:30.480 global financial crisis. The US is a very different story. 0:16:31.760 --> 0:16:35.000 We have, of course, the high taxation, the high tax burden, 0:16:35.000 --> 0:16:39.680 which doesn't help with innovation, creating new job pretention of companies, startups, 0:16:39.800 --> 0:16:43.640 attracting high talent individuals. So yeah, the UK is no 0:16:43.720 --> 0:16:46.200 much more challenging position than the US in that sense. 0:16:46.920 --> 0:16:49.000 So here one of the other phenomena over the last 0:16:49.160 --> 0:16:52.640 several years has just been the decline of globalization, the 0:16:52.720 --> 0:16:56.200 on shoring, maybe the French shoring and some concerns that 0:16:56.200 --> 0:16:59.680 that structurally will push global inflation higher. 0:17:00.120 --> 0:17:01.000 You describe to that. 0:17:00.920 --> 0:17:06.840 Thought, Well, what's interesting is that, yes, we have seen 0:17:07.160 --> 0:17:09.760 inflation being higher, and probably a big chunk of that 0:17:09.800 --> 0:17:14.000 inflation is because of the globalization, if you wish. But 0:17:14.040 --> 0:17:16.960 also what surprising is that the global economy has remained 0:17:17.000 --> 0:17:21.280 quite resilient. It is possible that a lot has been 0:17:21.320 --> 0:17:26.240 absorbed by firms lowering markups in sectors and industries that 0:17:26.280 --> 0:17:31.600 are essentially more competitive, But I'm not seeing the main 0:17:31.760 --> 0:17:35.760 issue with inflation around the globalization, at least as of yet, 0:17:35.840 --> 0:17:39.520 because the facto tarifrates are not as high yet and 0:17:39.600 --> 0:17:40.399 hopefully it will not be. 0:17:40.840 --> 0:17:44.960 Van I'm sure at Franklin and Marsha you crushed your 0:17:45.000 --> 0:17:49.960 first exam on dynamics stochastic general equilibrium theory. 0:17:49.960 --> 0:17:53.040 Clarita told me that said Vinue is down at Franklin 0:17:53.040 --> 0:17:55.280 and Marshall is just killing it. Vanian. 0:17:55.320 --> 0:17:58.040 When you look at the mathematics of all this is 0:17:58.080 --> 0:18:02.120 the worst FED going to be is post after the 0:18:02.160 --> 0:18:05.760 fact is the power FED is. The bottom line is 0:18:05.760 --> 0:18:07.159 you're just going to have to wait to see what 0:18:07.240 --> 0:18:10.439 the data is like. Mere mortals they put their pants 0:18:10.480 --> 0:18:11.679 on one leg at a time. 0:18:14.280 --> 0:18:15.720 I mean, they will look at the data, but I 0:18:15.760 --> 0:18:17.640 think they will try to use completely a new set 0:18:17.680 --> 0:18:20.960 of tools. They will try to push unconventional MONTI policy 0:18:21.040 --> 0:18:22.719 to completely a new level. I'm not talking about for 0:18:22.760 --> 0:18:25.600 what guidance quantity visiing. This is old news at the moment. 0:18:26.000 --> 0:18:28.720 I do believe he is going to try all kinds 0:18:28.720 --> 0:18:32.520 of new instruments. And you know, it's no surprise that 0:18:32.560 --> 0:18:34.919 he favors the old regime where we had to required 0:18:34.960 --> 0:18:38.119 reservations that could be used to manipulate the manupply, et cetera. 0:18:38.920 --> 0:18:42.760 You know, he's a fan of essentially regaining control of 0:18:42.800 --> 0:18:47.000 the BROADGMA is supply. So in principle is that useful. Yes, 0:18:47.119 --> 0:18:48.919 the more tools you have, you don't have to use 0:18:48.960 --> 0:18:52.160 a single blunt instrument. Having said that, it's not easy 0:18:52.200 --> 0:18:54.680 to achieve. So we'll have to wait and see. And 0:18:54.720 --> 0:18:56.760 it's one thing to say I want inflation to go 0:18:56.800 --> 0:18:58.800 down to two percent. It's another thing to deliver and 0:18:58.880 --> 0:19:01.680 you would have to show some actions behind that, any. 0:19:01.760 --> 0:19:04.439 Right, Doctor Servakava, thank you so much for joining us 0:19:04.480 --> 0:19:05.960 today from London Business School. 0:19:06.000 --> 0:19:09.000 Really I appreciate it. Stay with us. 0:19:09.240 --> 0:19:12.480 More from Bloomberg Surveillance coming up after this. 0:19:19.720 --> 0:19:23.280 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:19:23.359 --> 0:19:26.520 weekday afternoons from seven to ten am Eastern Listen on 0:19:26.600 --> 0:19:30.280 Applecarplay and Android Otto with the Bloomberg Business app, or 0:19:30.440 --> 0:19:31.840 watch us live on YouTube. 0:19:31.880 --> 0:19:35.280 We are honored to bring you now a gentleman who, 0:19:35.359 --> 0:19:39.840 perhaps more than any American, spans Robert D. Kaplan's The 0:19:39.880 --> 0:19:45.119 Loom of Time from Morocco over to Persia. Ambassador Puoni 0:19:45.280 --> 0:19:48.960 Tower is the United was former United States Ambassador to 0:19:49.119 --> 0:19:54.000 Morocco and is directly involved with many negotiations with an ambassador. 0:19:54.160 --> 0:19:56.520 Thank you so much for joining Bloomberg this morning. 0:19:57.200 --> 0:19:59.600 It's great to be with you both. Ambassador. 0:19:59.640 --> 0:20:01.960 I look at this moment at hand, and I want 0:20:01.960 --> 0:20:04.240 you to take it back to Albert Harani and his 0:20:04.359 --> 0:20:08.840 definitive one volume on the history of the Arab people 0:20:09.440 --> 0:20:12.879 is the Arab World from your Morocco to yur Iran. 0:20:13.400 --> 0:20:14.280 Is it blown up? 0:20:16.560 --> 0:20:20.840 The Middle East has been in a period of incredible 0:20:20.960 --> 0:20:26.480 turmoil for at least a century, especially following the collapse 0:20:26.920 --> 0:20:31.639 of the Ottoman Empire. So what we're seeing today is 0:20:31.680 --> 0:20:35.560 really a continuation of this cycle that has been going 0:20:35.600 --> 0:20:41.399 on for many decades. Now it's intensified, it's quite for 0:20:41.480 --> 0:20:44.800 periods of time, but it has been largely in this 0:20:44.920 --> 0:20:49.160 period of disquiet and unrest for a long period of time. 0:20:49.600 --> 0:20:52.479 And of course, as you know, Persia is not Arab, 0:20:53.160 --> 0:20:57.240 but they have a significant influence on parts of the 0:20:57.280 --> 0:21:02.480 Arab world, especially through their ties to the Shia communities 0:21:02.480 --> 0:21:08.960 and their support under this ideological Iranian regime for non 0:21:08.960 --> 0:21:13.960 state actors like Hamas hasbalah so, including non Shia groups. 0:21:14.320 --> 0:21:15.240 When you look. 0:21:15.040 --> 0:21:17.359 At Iran and you take it from the span of 0:21:17.400 --> 0:21:20.320 the seventy nine revolution to the horrific War of the 0:21:20.440 --> 0:21:25.720 Rock and the balance between the theocracy and maybe a 0:21:25.800 --> 0:21:29.280 middle class in Iran, where does the theocracy of Iran 0:21:29.440 --> 0:21:33.680 place right now versus the military that seems so dominant. 0:21:35.200 --> 0:21:38.800 That's a great question and that still has to shake 0:21:38.840 --> 0:21:42.840 out a little bit. Prior to this war, the Islamic 0:21:42.920 --> 0:21:47.480 Revolutionary Guard Corps, the Defenders of the Revolution, if you will, 0:21:48.320 --> 0:21:52.520 have had the upper hand in the Iranian decision making process, 0:21:53.200 --> 0:21:55.439 and that has only been strengthened through this war. The 0:21:55.480 --> 0:21:59.560 campaign of assassinations, the taking out of the Supreme Leader 0:22:00.119 --> 0:22:04.320 who's a theocrat. The theocrat if you will, in Iran 0:22:04.760 --> 0:22:08.120 has been replaced now by his son, who's still untested. 0:22:08.720 --> 0:22:11.240 And what we've seen is that the ir GC is 0:22:11.240 --> 0:22:14.400 in a more dominant position. So the hardliners have been 0:22:14.400 --> 0:22:17.480 strengthened through this war, and we have to see how 0:22:17.520 --> 0:22:21.639 this shakes out and whether the theocracy and the clerics 0:22:21.680 --> 0:22:26.640 will actually take more of a not a backseat, but 0:22:26.720 --> 0:22:29.640 maybe not having as dominant a position as they once 0:22:29.680 --> 0:22:30.560 did in the past. 0:22:31.160 --> 0:22:34.800 Ambassardor can you give us an assessment of the memorandum 0:22:34.800 --> 0:22:36.120 of understanding? What's your view? 0:22:37.520 --> 0:22:41.280 Sure, I think it's not a very good deal, but 0:22:41.359 --> 0:22:45.320 I think it reflects a reality, a reality of a 0:22:45.359 --> 0:22:49.800 war that was started on faulty assumptions, the assumption that 0:22:49.880 --> 0:22:53.639 Iran was so weak following those massive protests which killed 0:22:53.920 --> 0:22:59.680 thousands of innocent protesters, that a quick military operation could 0:23:00.040 --> 0:23:03.680 essentially either topple the government or force it to capitulate. 0:23:04.040 --> 0:23:06.600 And neither of those things happen. So war that started 0:23:06.640 --> 0:23:09.720 on that premise actually has resulted in an Iran that 0:23:09.840 --> 0:23:14.719