Speaker 1: Now that the dust is clearing from America's mid term elections,
Speaker 1: it's time to take a sober look at how the
Speaker 1: global economy is doing. By many measures, such as growth
Speaker 1: and unemployment, things are going quite well, and yet there
Speaker 1: are plenty of clouds hanging over the outlook. A trade war, brexit,
Speaker 1: emerging market turmoil, and federal reserve tightening, just to name
Speaker 1: a few. On this week's episode, one of the world's
Speaker 1: leading economists tells us what's going to be okay and
Speaker 1: what we should be worried about. Welcome to Benchmark. I'm
Speaker 1: Scott landman and economics editor with Bloomberg News in Washington.
Speaker 1: Joining me as guest co host is my colleague Peter Koy,
Speaker 1: who is the economics editor at Bloomberg Business Week magazine
Speaker 1: in New York. Peter, glad to have you on. Thanks
Speaker 1: for having me. Now this is a good time to
Speaker 1: take a break from politics and look at the global economy.
Speaker 1: We're fortunate to have someone with deep experience doing just that.
Speaker 1: Katherine Man, chief Global Economist for City Group, position she's
Speaker 1: held since February. Before that, she was chief economist at
Speaker 1: the Organization for Economic Cooperation and Development. She has also
Speaker 1: held positions at the Federal Reserve Board, Council of Economic Advisors,
Speaker 1: World Bank, and Peterson Institute for International Economics here in DC.
Speaker 1: She's in our New York studio with Peter right now. Catherine,
Speaker 1: thanks so much for joining us on Benchmark. I'm really
Speaker 1: pleased to be here with you, Scott and Peter. All right, well,
Speaker 1: let's start with the US now, just to get this
Speaker 1: out of the way. Did you make any adjustment to
Speaker 1: your outlook after the mid term elections? We haven't done
Speaker 1: that yet. Um. The schedule for our outlook actually goes
Speaker 1: into a twenty nineteen review, and there are a number
Speaker 1: of issues that need to be addressed that actually aren't
Speaker 1: related to the outcome of the mid terms. In particular,
Speaker 1: there is this question about the so called fiscal cliff
Speaker 1: that is actually in the data, but it becomes an
Speaker 1: issue in So what that's all about is that because
Speaker 1: of the budget rules, when the budget was originally passed
Speaker 1: in the early part of this year, there were some
Speaker 1: rules that with a certain number of votes that were cast,
Speaker 1: there had to be caps put on spending and those
Speaker 1: caps bind in. Now, what that means is that, according
Speaker 1: to our current projections, the US growth would be two
Speaker 1: point eight percent in and then would drop to one
Speaker 1: eight percent. That's why we call it a fiscal cliff.
Speaker 1: Now that's predicated on these caps binding. Now, one of
Speaker 1: the things that we've learned is is that on a
Speaker 1: bipartisan basis, when caps like this bind, both parties agree
Speaker 1: they don't think it's a good idea for them to
Speaker 1: bind in a presidential election year. So we are currently
Speaker 1: reevaluating the trajectory for US growth that goes for the
Speaker 1: rest of this year, of course, but also into and
Speaker 1: the trajectory could be different depending on whether or not
Speaker 1: we see the fiscal cliff binding, or whether we think
Speaker 1: the fiscal can will be kicked down the road related question,
Speaker 1: would you then think that the US is likely to
Speaker 1: be an engine of growth for the world economy in
Speaker 1: and and what about Well, the thing that in we
Speaker 1: of course still have quite a bit of the fiscal stimulus,
Speaker 1: both the tax cuts and the spending those are still
Speaker 1: playing a very important role in the driving US growth
Speaker 1: in and whether or not that becomes an engine for
Speaker 1: global growth depends a little bit on the configuration of
Speaker 1: trade policy. It also depends a little bit on what
Speaker 1: might be happening with financial markets and potential turbulence and
Speaker 1: financial markets coming from normalization of monetary policy. In other words,
Speaker 1: what the FED decides to do well. Then let me
Speaker 1: jump right to a FED question. Do you think the
Speaker 1: Fed will be able to keep the expansion going by
Speaker 1: preventing overheating without accidentally causing a recession. So there's a
Speaker 1: lot of fiscal stimulus in in the U. S. Economy
Speaker 1: next year, as I as I said, and so the
Speaker 1: risk of overheating is a little bit more than the
Speaker 1: risk of recession. And even if the Federal Reserve keeps
Speaker 1: on the path that we think that they're going to do,
Speaker 1: there's still plenty of momentum in the U. S. Economy.
Speaker 1: I think one of the things that's most important when
Speaker 1: thinking about the challenges that the Fed faces is that,
Speaker 1: on the one hand, UH, they need to move on
Speaker 1: the path of moving the policy rate, that's the so
Speaker 1: called Fed funds rate. It's uh, that's the thing that
Speaker 1: they more or less control. It's the thing that they
Speaker 1: talk about at each one of their meetings, and they
Speaker 1: need to increase that rate sufficiently to ensure that risk
Speaker 1: is properly priced in financial markets. Right now, when we
Speaker 1: look at the financial markets, we can see, for example,
Speaker 1: very risky investments UH that are that don't carry extra return.
Speaker 1: The way it's supposed to work is that if you're
Speaker 1: it's a risky investment, you get a little more return
Speaker 1: for it. And right now we just don't see that
Speaker 1: happening UM. And so the financial markets have not yet
Speaker 1: priced in UH the full range of policy moves that
Speaker 1: the Fevrual Reserve says that they're going to do in UH.
Speaker 1: There may be turbulence associated with the repricing of risk.
Speaker 1: That's also it could be in the equity markets, it
Speaker 1: could be in the high old bond markets, it could
Speaker 1: be in exchange rates. There are a number of different
Speaker 1: places where we might see a repricing of risk. But
Speaker 1: but that could cause financial turbulence. And what matters is
Speaker 1: from the standpoint of what the FED has to worry
Speaker 1: about is does that financial turbulence feedback into the real
Speaker 1: side of the economy. So so we've already seen some
Speaker 1: of that in the last few weeks. Is that do
Speaker 1: you do you think that's actually going to happen or
Speaker 1: do you see how much of a risk is it?
Speaker 1: So we've we've certainly seen some financial turbulence. That's absolutely true.
Speaker 1: And one of the things that that we look at
Speaker 1: very carefully is will that financial turbulence feedback into the
Speaker 1: decisions on the part of businesses to continue on their
Speaker 1: path of investment, and will consumers look at financial turbulence
Speaker 1: and say, Wow, I'm not sure I want to open
Speaker 1: my pocketbook for Christmas. So this, this response of real
Speaker 1: side business investment and consumer to decisions to financial turbulence,
Speaker 1: is a key element of something that the FED pays
Speaker 1: attention to. It's something that we're looking at, Now, what
Speaker 1: do we do and what have we seen? So what
Speaker 1: we've seen by looking at the data is that consumers
Speaker 1: by and large are ignoring what's happening on Wall Street.
Speaker 1: They don't most of us don't have large wealth portfolios,
Speaker 1: and so when you know, the stock market goes up,
Speaker 1: they don't feel richer. When the stock market falls, they
Speaker 1: don't feel poorer. So what they care about mostly is
Speaker 1: do they have a job. Are they getting a good wage?
Speaker 1: And of course we can argue about whether or not
Speaker 1: the wages are high enough, but certainly employment conditions are
Speaker 1: very good, and so consumers buy and large are feeling
Speaker 1: pretty good. Sentiment is pretty good, and they are spending
Speaker 1: business investment. We can also make some distinctions between firms
Speaker 1: that are domestically oriented and basically don't care about Wall
Speaker 1: Street because maybe they borrow from a bank, but that's
Speaker 1: about it. And those businesses are feeling better now than
Speaker 1: they have for a decade. UH. They see the demand
Speaker 1: around them, they see that they're having trouble hiring workers,
Speaker 1: so they're they're investing. They're investing in capital that either
Speaker 1: complements the workers that they hire or substitutes for the
Speaker 1: people that they can't hire. So that group of business
Speaker 1: is continuing to invest. The wild card, UH is the
Speaker 1: businesses that are globally engaged and so they're very worried
Speaker 1: about trade, and they're also financially market engaged, and so
Speaker 1: they're very worried about turbulence. And so watching that set
Speaker 1: of firms really carefully about do they pause their investment
Speaker 1: decisions or do they power through what is a turbulent
Speaker 1: external and financial environment. That's really the key for the
Speaker 1: prospects for the US economy going forward. Catherine, let's turn
Speaker 1: to the trade war. You mentioned it briefly. What's it
Speaker 1: doing to the U s economy and what's it doing
Speaker 1: to the Chinese economy. Let's talk about China first, because
Speaker 1: what we've observed is that the Chinese economy was slowing
Speaker 1: before the trade war started to heat up. Uh. Now,
Speaker 1: part of the slowing and the Chinese economy was expected.
Speaker 1: The policy makers there were undertaking a strategy of trying
Speaker 1: to clean up the financial system and to consolidate the
Speaker 1: state owed enterprises that consolidate them at least a little bit,
Speaker 1: and so we expected and they expected that h fixed
Speaker 1: investment would start to decelerate. What they had hoped was
Speaker 1: that the consumer would boy up the economy, So investment
Speaker 1: we decelerate, consumers would accelerate, and that that would rebalance
Speaker 1: the economy towards a more consumer oriented um economic growth rate,
Speaker 1: which is thing that they've been intending to do and
Speaker 1: wanting to do for a while. Unfortunately, what happened was
Speaker 1: that consumers started to look at their wealth portfolio, looking
Speaker 1: at real estate in particular, and they saw that real
Speaker 1: estate prices were coming down, so they said, I have
Speaker 1: a wealth shock. Secondly, the constraints in the monetary trying
Speaker 1: to control the monetary side of the economy was hurting
Speaker 1: small businesses relatively more than the state owned enterprises, and
Speaker 1: those small businesses were starting to shed workers, were starting
Speaker 1: to fire workers, and so consumers, rather than boiling up
Speaker 1: the economy, were concerned about employment, and they were concerned
Speaker 1: about their wealth, and so they decided to decelerate consumption.
Speaker 1: So instead of consumers buoiling up the economy, they also
Speaker 1: were decelerating. So you layer on top of a decelerating
Speaker 1: investment climate a decelerating consumer climate, you will are on
Speaker 1: top of that a trade war. And so Chinese economy
Speaker 1: has got problems. Now they have implemented a wide range
Speaker 1: of policies to address both the investment side as well
Speaker 1: as the consumer side, and some special policies to try
Speaker 1: to deal with the trade side as well. But it
Speaker 1: is the case that the economy is slowing and they
Speaker 1: are working hard to uh to change their trajectory to
Speaker 1: resume growth. And what about the U. S. Economy on
Speaker 1: the and the trade war? Right so on the on
Speaker 1: the trade war for the U. S. Economy, what we've
Speaker 1: seen is is that the impact on the growth rate
Speaker 1: in the U. S economy is not is really almost irrelevant.
Speaker 1: On the one hand, the there is some substitution. In
Speaker 1: other words, instead of buying an import, you buy a
Speaker 1: little bit more of on the domestic production. But on
Speaker 1: the other hand, you know, there has been trade retaliation
Speaker 1: as well, and so what that has done is has
Speaker 1: tended to unwind any benefits that might come from the
Speaker 1: from the trade war. It's also the case that frankly,
Speaker 1: the U S economy is much more of a closed
Speaker 1: economy buying and selling internally, and is much more services oriented,
Speaker 1: which primarily is locally produced. So on the sort of
Speaker 1: the GDP side of things, there's not a lot of
Speaker 1: evidence that the trade war has had much of impact.
Speaker 1: Now on the other hand, on the inflation side of things,
Speaker 1: we are seeing an impact of the tariffs coming through UH,
Speaker 1: particularly the intermediates. Remember there's a lot of tariff put
Speaker 1: on steel and on aluminum. We are starting to see
Speaker 1: some of the impact of some of the other tariffs
Speaker 1: that it were more recently put on the ten percent tariffs.
Speaker 1: With the prospects for the tariffs to be put on
Speaker 1: the two fifty billion dollars worth of Chinese imports, we
Speaker 1: are starting to see um some pressure coming up on inflation.
Speaker 1: And the question going into is how much of that
Speaker 1: bubbling up of inflation that we see coming up through
Speaker 1: the costs of production. When will that start to emerge
Speaker 1: on the top line in core inflation and headline inflation.
Speaker 1: And we think that coming into the first of the
Speaker 1: year that one of the important changes from eighteen to
Speaker 1: nineteen is that in companies had a tax windfall. They
Speaker 1: got this big tax cut and it wasn't expected, and
Speaker 1: they're able to use that tax windfall to protect their
Speaker 1: margins this year. Next year they'll have a lower tax rate,
Speaker 1: but they won't have a tax windfall, and so they'll
Speaker 1: have to start making a decision do I pass through
Speaker 1: these tariff increases, this tightness in the labor markets? Why
Speaker 1: passed that through? And they certainly have been talking about
Speaker 1: it a lot. You can read the Beige Book, earnings calls,
Speaker 1: UH surveys, there's a lot of talk that firms are
Speaker 1: testing the waters for do I have pricing power? Really
Speaker 1: tight market situation that they're facing. UH, that's one that
Speaker 1: is conducive to having pricing power. Katherine China. Going back
Speaker 1: to China, its currency keeps falling. Can China afford to
Speaker 1: let you want to appreciate you above seven to the dollar?
Speaker 1: In well, there are a couple of different ways of
Speaker 1: thinking about this that that I think is important. One
Speaker 1: is that a lot of the Chinese products are invoiced
Speaker 1: in dollars, the trade products there and the imports and
Speaker 1: the exports are both invoiced in dollars, So the red
Speaker 1: men B doesn't really affect that, okay, And the red
Speaker 1: men B two dollar is not the only exchange rate
Speaker 1: that the China should care about, because of course a
Speaker 1: major customer is the Euro area, and so when the
Speaker 1: r and B depreciates against the dollar appreciates against the euro.
Speaker 1: So there's a little bit of a of a wash there.
Speaker 1: And as they said that the invoicing also essentially offsets
Speaker 1: some of the exchange rate effect. The other thing to consider, though,
Speaker 1: uh and it's certainly irrelevant and probably more relevant question
Speaker 1: is how does the R and B dollar affect the
Speaker 1: financial side of the economy. The Chinese enterprises have borrowed
Speaker 1: a lot in dollars, and so when the RMB dollar changes,
Speaker 1: that is a direct hit on the financial side of
Speaker 1: the economy. And so if we think about the balance
Speaker 1: of risks to the Chinese economy, the risk coming from
Speaker 1: the financial side and the much more costly servicing of
Speaker 1: dollar debt in the face of a depreciation of the
Speaker 1: R and B that financial risk offsets whatever they might
Speaker 1: get on the trade side. So a lot of people
Speaker 1: think that seven you want to the dollar is sort
Speaker 1: of a red line? Is that so that that sort
Speaker 1: of has been put out there as an important watershed
Speaker 1: for many people the view of the our our folks
Speaker 1: in in in who are closest to the situation there
Speaker 1: is that, uh that not that shouldn't be thought of
Speaker 1: in so strong as terms. Yeah, all right, And then
Speaker 1: one other question again on China. You talked about how
Speaker 1: it's slowing down, but how much will it slow down?
Speaker 1: Will China's Chinese leaders put de leveraging on hold next
Speaker 1: year to keep growth from falling below six Well, they've
Speaker 1: already started to sort of dial back some of the
Speaker 1: things that they were doing directly associated with trying to
Speaker 1: clean up the financial sector. So that has already um
Speaker 1: kind of the trans lsstination on that one. So and
Speaker 1: they're and they're definitely trying to focus credit allocation more
Speaker 1: to the private owned enterprises, the ones that have been
Speaker 1: constrained the most by the policies that they had in
Speaker 1: place to try to again, the objective was to clean
Speaker 1: up the financial sector, so there's a little bit, there's
Speaker 1: definitely a dial back on that. And as I say,
Speaker 1: there's also a wide range of what ends up being
Speaker 1: fiscal policy. U tax cuts to promote consumption, and consumption
Speaker 1: support through various other types of taxes, and then some
Speaker 1: relaxation of constraints on bond issuance by local government. So
Speaker 1: these are all fiscal policy measures that are also being
Speaker 1: put into place. The view is is that these are
Speaker 1: going to be sufficient to offset the deceleration that's coming
Speaker 1: from investment and consumption. And we shall see, we shall see.
Speaker 1: They have a range of policies that they've been able
Speaker 1: to implement in the past. I think, I think we
Speaker 1: all I'll appreciate that the effectiveness of those policies tend
Speaker 1: to be less effective, as you know, as you use
Speaker 1: them over and over again, and so there is some
Speaker 1: concern about the effectiveness of the policies going forward. Would
Speaker 1: your estimate be that China will maintain growth of six
Speaker 1: percent or better in twenty nineteen, at least reported that's
Speaker 1: that's we certainly have, um, we certainly have better than
Speaker 1: six percent. Okay, Katherine, The US and China obviously the
Speaker 1: two biggest parts of the world economy, but I did
Speaker 1: want to try to hit a few other places before
Speaker 1: we wrap up on our podcast today. Quickly on Japan.
Speaker 1: It still is the third largest economy. Are they on
Speaker 1: the road to revival or are they going to be
Speaker 1: stuck in low growth, low inflation for the foreseeable future.
Speaker 1: So the economy has been doing better, they have achieved
Speaker 1: more positive rates of growth, they've achieved some positive inflation
Speaker 1: um sort of gotten out of the deflation slump. One
Speaker 1: of the important ingredients to getting to them at to
Speaker 1: getting to that point is the Olympics. The Olympics have
Speaker 1: been an important driver of business investment. Now we are
Speaker 1: hoping and and they are having in place the policies
Speaker 1: to make that catalytic, in other words, not just one
Speaker 1: off shot to to do investment for the Olympics, but
Speaker 1: to catalyze more generally positive rates of growth. Of course,
Speaker 1: face a big challenge associated with their desire to put
Speaker 1: their fiscal accounts on a sustainable trajectory. Of course, a
Speaker 1: component of that is the value added attacks increase. And
Speaker 1: now the plan is to put into place a variety
Speaker 1: of mechanisms and other fiscal policies that would um offset
Speaker 1: to some degree the consequences of the value added tax cut.
Speaker 1: But of course if you do that, then the sustainability
Speaker 1: of the fiscal trajectory is also put at risk or
Speaker 1: or not improved so much so they definitely face some
Speaker 1: problems going forward to achieve um a path out of
Speaker 1: their current fiscal situation. Staying in Asia, what do you
Speaker 1: make of the clash between Prime Minister Modi of India
Speaker 1: and the nation's central bank. The Indian Central Bank has
Speaker 1: really achieved quite a bit of independence over the years
Speaker 1: and that's been an important and are to support the
Speaker 1: growth in India. And the lessons that we've learned from
Speaker 1: a number of different episodes over the years is is
Speaker 1: that it's important to have a good relationship between the
Speaker 1: government and the central bank, one that respects each other's
Speaker 1: sets of policies, and that the independence of the central
Speaker 1: bank is it is an underpinning of a stable macroeconomic
Speaker 1: growth trajectory going forward. So you know, it's it's one
Speaker 1: thing for politicians to kind of comment on on central
Speaker 1: bank independence and central bank what the central bank is
Speaker 1: doing there? Should you know, communication is always reasonable, But
Speaker 1: but you don't want to undermine the independence of the
Speaker 1: central Bank. All right, Let's go from one hot spot
Speaker 1: to another, over to Europe. A couple of issues weighing
Speaker 1: on the European economy, Brexit and Italy. What you see
Speaker 1: as the percent chance of a Brexit that produces no deal? Uh,
Speaker 1: you know what's going on right now and what what
Speaker 1: kind of result do you see happening um for both
Speaker 1: the UK and the broader European economies. From day to
Speaker 1: day we get different pieces of information about what the
Speaker 1: prospects are for for bregsit. It's it's a little bit
Speaker 1: like watching glasgrow. So it might have even changed while
Speaker 1: we're while we're talking right now, Yeah, exactly. It's when
Speaker 1: I described the shape of the distribution of uncertainty about Brexit,
Speaker 1: it's a flat distribution. In other words, it's how do
Speaker 1: you make a bet because you have no idea exactly
Speaker 1: how it's going to end up. So it's a slow burn.
Speaker 1: It's a slow burn, and then there will be an outcome. Now,
Speaker 1: of course, the outcome might be we stop the clock
Speaker 1: at eleven fifty nine and allow for further consideration. And
Speaker 1: I think that there is definitely that possibility because nobody,
Speaker 1: I don't think anybody Frank really wants a hard Brexit
Speaker 1: and they want to have some resolution of what what
Speaker 1: a new relationship might look like, and that puts the
Speaker 1: higher probability on Italy. Italy and the European Commission are
Speaker 1: butting heads over Italy's budget deficit. Will there's two sides
Speaker 1: find a safe face saving way out of their conflict. Well,
Speaker 1: I think the the the avenue that provides the best
Speaker 1: opportunity for both saving face but also, of course, much
Speaker 1: more importantly, having Italy returned to some to return to growth,
Speaker 1: which of course is critical for them to achieve any
Speaker 1: kind of debt reduction. Is you have to have growth.
Speaker 1: It's the denominator and all the ratios that everybody cares
Speaker 1: about debt to GDP, deficit to GDP, So you have
Speaker 1: to have growth. So the way you get to both growth,
Speaker 1: which is the most important thing, but also saving face
Speaker 1: is to have a discussion about what's below the top line.
Speaker 1: In other words, the fight is about the top line,
Speaker 1: meaning the deficit to GDP ratio and um that number
Speaker 1: is not nearly as important as what are the policies
Speaker 1: that are below the top line, because some policies are
Speaker 1: going to be more effective in helping the economy grow
Speaker 1: than others, and I would like to see more discussion
Speaker 1: about those set of policies, the ones that will satisfy
Speaker 1: both some of the political issues but also will ultimately
Speaker 1: get the economy to grow, because no politicians going to
Speaker 1: win on an economy in recession. Catherine, let's go back
Speaker 1: across the Atlantic to Latin America. Two key economies in
Speaker 1: this hemisphere, Brazil and Mexico. They've both just elected new
Speaker 1: leaders in recent months. Mexico's is on the left, Brazil's
Speaker 1: is more on the right. What does that mean for
Speaker 1: the economic outlook in those countries. Well, I think we're
Speaker 1: still seeing how things are developing UH in terms of
Speaker 1: the approaches that these new leaders are taking in their economies.
Speaker 1: There is um somewhat of a the Mexico side of things,
Speaker 1: somewhat of positive in the in the sense that you know,
Speaker 1: next door to the United States, the United States doing
Speaker 1: relatively well, but there is some concern about the most
Speaker 1: recent initiatives to to roll back the construction of the
Speaker 1: airport UH and whether or not that might be viewed
Speaker 1: as a bell weather for some of the other policies
Speaker 1: that might be put into place there. So so there
Speaker 1: is more concern about about what might be the pathway
Speaker 1: for for growth for Mexico and in particularly how the
Speaker 1: financial markets might react to that and therefore that feedback
Speaker 1: into the domestic economy or GDP in the economy. UM.
Speaker 1: For Brazil, even less information really just you know, the
Speaker 1: government really just starting to be formed. Of course there's
Speaker 1: the honeymoon period. Um. Definitely some talk about making some
Speaker 1: some of the fundamental changes on the fiscal side that
Speaker 1: are necessary to have the fiscal side of the things
Speaker 1: being stable. I'm talking about the pension reforms or mini
Speaker 1: pension reform that have been well known across very even
Speaker 1: before the election that this was that was crucial for Brazil.
Speaker 1: So we're getting you know, we're getting some some initial
Speaker 1: thoughts about that coming from the administration, but it will
Speaker 1: depend on how things work out. I think with Latin
Speaker 1: America in general, not just those two countries, but also
Speaker 1: more broadly, different parts of the of the region are
Speaker 1: more associated with the United States, Others are more associated
Speaker 1: with the dynamics in China, and because there's so much
Speaker 1: of a divergence between what's happening on the top line
Speaker 1: GDP range of things for the US versus China. That
Speaker 1: that's going to create a divergence of growth rates in
Speaker 1: Latin America as well. At something to watch emerging markets.
Speaker 1: So we see falling currencies, surging interest rates, what is
Speaker 1: the outlook for the next twelve months for the emerging markets.
Speaker 1: I'm not a believer in aggregates. I think that's I
Speaker 1: sort of talk about the top top line versus what's
Speaker 1: underneath for the Italian budget. You know, divergence within the
Speaker 1: Latin America. And so the emerging markets are exactly the same.
Speaker 1: They cannot be bulked up into one unit. And and
Speaker 1: the problem is that they have. There's the ms C
Speaker 1: I M and so you know, somebody says, I want
Speaker 1: to take exposure to the emerging markets in my portfolio,
Speaker 1: and so they buy into the ms C I M
Speaker 1: and so that means all the money goes in and
Speaker 1: then all the money comes out. And what want is it?
Speaker 1: Just to be very specific in terms of thinking about
Speaker 1: how might the trade shock affect different countries in Asia, Well,
Speaker 1: it affects the different countries very differentially depending on how
Speaker 1: they are linked. Step to China through the global value chain.
Speaker 1: That's sort of the first way of looking at it.
Speaker 1: But then secondly, which countries might be a source of
Speaker 1: supply if buyers can't buy from China anymore. So that's
Speaker 1: a second round. And then a third is, of course,
Speaker 1: who's most exposed to dollar appreciation? Uh, it's a financial
Speaker 1: side of things. So so the emerging markets are really
Speaker 1: a heterogeneous group based on trade relationships, based on their
Speaker 1: exposure to principally dollars in terms of their obligations, and
Speaker 1: so it really warrants a much more, much more disaggregated
Speaker 1: view of countries in order to decide who's going to
Speaker 1: do relatively better than others. Katherine, we've covered a lot
Speaker 1: of ground here. What's the bottom line? Will be a
Speaker 1: good year or a bad year for the global economy?
Speaker 1: I think I know what your answer is going to be. Well,
Speaker 1: I've recently wrote a piece um that was titled some
Speaker 1: basis for optimism question mark. Yes, but the financial turbulence
Speaker 1: and the external accounts through trade remain the dominant narrative,
Speaker 1: and we do see sources of domestic resilience, particularly in
Speaker 1: the United States, sources of domestic demand. Those internally oriented firms,
Speaker 1: the ones that are really powered by a strong consumer,
Speaker 1: that's low unemployment rates, rising wages. That source of domestic
Speaker 1: demand we actually see replicated in a number of countries,
Speaker 1: uh In in Europe and and even and even in Japan.
Speaker 1: But you know what really matters, You know that that's
Speaker 1: if that's extremely important. Those are sources of optimism. But
Speaker 1: the trade turbulence and the financial turbulence do remain the
Speaker 1: dominant narrative into and so the prospects are um not
Speaker 1: as not as hopeful as as we might think. All right,
Speaker 1: Katherine Mann, chief Global economist at City Group, Thanks so
Speaker 1: much for being with us. It was a pleasure. Thanks
Speaker 1: very much. Benchmark will be back next week. Until then,
Speaker 1: you can find us on the Bloomberg terminal, Bloomberg dot com,
Speaker 1: our Bloomberg app, as well as podcast destinations such as
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Speaker 1: of Bloomberg Podcasts. Thanks for listening, See you next time.