WEBVTT - Regional Inflation Update Amid Price Wars, Tariffs 0:00:01.000 --> 0:00:03.600 One of the big questions this year is how Trump's 0:00:03.600 --> 0:00:07.920 tariffs will impact prices at home and abroad, especially in Asia, 0:00:08.200 --> 0:00:12.040 a region highly dependent on trade with the US. Tariffs 0:00:12.080 --> 0:00:14.800 are likely to be inflationary in the US, and they're 0:00:14.880 --> 0:00:19.000 usually disinflationary for other countries, weakening growth and demand. 0:00:19.760 --> 0:00:22.200 That impact will be felt at a time when much 0:00:22.280 --> 0:00:25.640 of the region was already preparing for more interest rate 0:00:25.680 --> 0:00:30.080 cuts as inflation eases. China has been mind with deflationary 0:00:30.080 --> 0:00:34.760 pressure for years. Meanwhile, Japan is trying to reinflate prices 0:00:34.800 --> 0:00:36.000 after the lost decades. 0:00:37.080 --> 0:00:40.239 You're listening to Asia Centric from Bloomberg Intelligence. I'm Kye 0:00:40.280 --> 0:00:41.520 Tidmytriva on Hong Kong. 0:00:41.840 --> 0:00:44.519 I'm John Lee also in Hong Kong, and today. 0:00:44.200 --> 0:00:47.600 We're looking at the landscape for inflation across Asia. Joining 0:00:47.680 --> 0:00:50.960 us is Gareth Leather, Senior Asia economist a Capital Economics. 0:00:51.320 --> 0:00:52.360 Thanks for joining us today. 0:00:52.560 --> 0:00:54.200 It's a pleasure to be here. Thank you for having 0:00:54.240 --> 0:00:54.520 me on. 0:00:55.400 --> 0:00:58.880 So maybe we should get started with a very big economy. 0:00:59.160 --> 0:01:02.520 We're talking about all the inflation today. While China is 0:01:02.560 --> 0:01:05.480 in deflation, it's been in that position for a few 0:01:05.560 --> 0:01:08.520 years now. You said in the past that it's largely 0:01:08.640 --> 0:01:12.360 due to over capacity in a certain sector. So you 0:01:12.400 --> 0:01:16.040 know over two hundred EV companies, more than one hundred 0:01:16.080 --> 0:01:19.600 AI large language models. Can you just walk us through 0:01:19.840 --> 0:01:23.560 why China has so much overcapacity and overproduction, like how 0:01:23.600 --> 0:01:24.240 we got here? 0:01:25.200 --> 0:01:29.479 Yeah, So China's deflation problem is a symptom of both 0:01:29.880 --> 0:01:34.280 very strong supply and very weak demand. I think in 0:01:34.360 --> 0:01:36.640 terms of the demand side, the government really hasn't been 0:01:36.840 --> 0:01:41.040 doing enough to try and get consumers to spend, whereas 0:01:41.040 --> 0:01:44.560 on the supply sign there's just been this glut of production, 0:01:44.680 --> 0:01:48.720 which is partly related to what happened during the pandemic 0:01:48.840 --> 0:01:53.320 that Chinese companies increased investments triun cater for strong Western 0:01:53.400 --> 0:01:55.880 demand for consumers when they were locked down. But also 0:01:55.920 --> 0:01:58.960 as well, it's kind of government, kind of local governments 0:01:58.960 --> 0:02:03.640 putting pressure on their kind of favored industry champions to 0:02:03.760 --> 0:02:07.680 try to be the next Tesla, to be the next Apple, 0:02:08.040 --> 0:02:11.520 and so you've seen this splurgeon production for companies trying 0:02:11.560 --> 0:02:14.400 to basically become the next kind of global champion, and 0:02:14.440 --> 0:02:17.080 that's led to this huge increase in supply which the 0:02:17.120 --> 0:02:20.240 domestic market hasn't been able to soak up. And so 0:02:20.400 --> 0:02:23.320 they've been engaged in quite vicious price walls, which is 0:02:23.360 --> 0:02:27.160 causing basically prices across the board to four. You mentioned 0:02:27.160 --> 0:02:29.520 in particular automotives, and that's worn. I think there's only 0:02:29.560 --> 0:02:32.160 a couple of automotive companies in China actually making money 0:02:32.560 --> 0:02:35.919 at the moment, but it's across the board solar panels 0:02:35.919 --> 0:02:39.320 as another one, electronics too, but it's a widespread problem. 0:02:39.480 --> 0:02:41.720 I've got interesting statistic for you if you wanted it. It 0:02:41.760 --> 0:02:44.639 was that about a decade ago, ten percent of manufacturing 0:02:44.639 --> 0:02:47.280 companies in China were losing money, whereas now it's around 0:02:47.320 --> 0:02:49.920 a third. So it just kind of goes to impress 0:02:49.960 --> 0:02:53.560 upon you the amount of capacity and that that companies 0:02:53.720 --> 0:02:56.640 are producing with very little financial reward. 0:02:57.000 --> 0:03:01.120 Why isn't there consolidation If all these companies are losing money, 0:03:01.240 --> 0:03:03.480 shouldn't they go out of business? And they shouldn't they 0:03:03.520 --> 0:03:04.920 be mergers and acquisitions. 0:03:06.080 --> 0:03:08.880 I think that's what you'd expect in a normal economy, 0:03:09.000 --> 0:03:12.160 that if companies are making sustained losses, they'd struggle and 0:03:12.200 --> 0:03:14.120 go out of business. I think the problem is in 0:03:14.200 --> 0:03:17.480 China that they're quite often backed by local governments who 0:03:17.680 --> 0:03:20.120 are kind of trying to champion these companies as the 0:03:20.160 --> 0:03:22.560 next you know, as I said, the next Tesla or whatever, 0:03:23.320 --> 0:03:25.440 and they're worried that if they did pull the plug 0:03:25.480 --> 0:03:28.079 on these companies, you get a big rise in unemployment 0:03:28.120 --> 0:03:30.919 and the shops slow down and economic growth. So, although 0:03:30.960 --> 0:03:33.560 they're being put under some pressure by the central government 0:03:33.600 --> 0:03:36.720 to try to do more to consolidate, it's very difficult 0:03:36.760 --> 0:03:40.240 just because they are champions of local governments and so 0:03:40.400 --> 0:03:42.280 it's proving a very difficult process. 0:03:43.200 --> 0:03:46.680 Doesn't that mean, though, that the Chinese government needs to 0:03:46.720 --> 0:03:51.720 rethink how they treat not just the private sector, but 0:03:51.920 --> 0:03:54.240 industry in general. I mean, there seems like a problem 0:03:54.280 --> 0:03:57.160 that's entrenched in the system itself. 0:03:58.680 --> 0:04:01.240 Yeah. I think it's basically a symptom of a very 0:04:01.280 --> 0:04:04.920 strong industrial policy that you've got in China, where the 0:04:04.960 --> 0:04:09.080 central government has been putting kind of or making targets 0:04:09.200 --> 0:04:12.000 for China to be the next industry leader in various 0:04:12.120 --> 0:04:16.599 different sectors. Local governments have responded by putting out subsidies, 0:04:17.080 --> 0:04:19.560 and that you've had this the emergence of so many 0:04:19.560 --> 0:04:23.680 different industries and so many different companies trying to do that, 0:04:23.760 --> 0:04:26.360 and it's finally it very difficult to work its way out. Ideally, 0:04:26.680 --> 0:04:28.760 you would have in a market economy that the companies 0:04:28.760 --> 0:04:31.600 that are losing money either out of business or consolidate 0:04:31.600 --> 0:04:35.040 emerged with stronger ones. But that hasn't happened in China. 0:04:35.160 --> 0:04:38.640 The government seems to be tackling this issue. You know, 0:04:38.640 --> 0:04:42.599 the government is pushing for this anti involution push, which 0:04:42.640 --> 0:04:46.160 is trying to restrict the aggressive pricing policies of many 0:04:46.200 --> 0:04:48.080 of these companies. Do you think it's going to. 0:04:48.040 --> 0:04:50.960 Work, Well, it's not working so far. The other side 0:04:51.000 --> 0:04:53.760 of this coin, of course, is stronger demand. If they 0:04:53.760 --> 0:04:57.479 can't focus enough or cramply down enough on strong supply, 0:04:57.560 --> 0:05:00.680 they need to do more to boost con sumption or 0:05:00.720 --> 0:05:04.040 alternatively export more. I think on consumption. You know, the 0:05:04.080 --> 0:05:07.400 government may argue that it's actually running a large budget deficit, 0:05:07.480 --> 0:05:09.840 so it's doing as much as it can to boost demand. 0:05:10.200 --> 0:05:11.640 I think the problem is that in China there are 0:05:11.640 --> 0:05:14.599 a lot of this extra demand. Extra government spending is 0:05:14.600 --> 0:05:19.000 going towards investment rather than consumption. And it's just the 0:05:19.000 --> 0:05:22.200 way that the Chinese government operates as they're very reluctant 0:05:22.560 --> 0:05:25.080 to do more to boost consumption because they don't see 0:05:25.160 --> 0:05:27.120 or they find it quite difficult to know where do 0:05:27.160 --> 0:05:29.200 you get the payback, where's the money going to come 0:05:29.200 --> 0:05:31.520 from to pay back these loans, whereas with investment you 0:05:31.560 --> 0:05:33.320 can at least see if the company makes a profit, 0:05:33.680 --> 0:05:35.960 they can then pay back the loan, So that would 0:05:36.000 --> 0:05:39.240 be I think the alternative is much stronger demand. The 0:05:39.320 --> 0:05:42.039 other side, of course, is that China can export, and 0:05:42.040 --> 0:05:46.040 that has been exporting its domestic surplus onto third markets, 0:05:46.080 --> 0:05:48.400 but that of course is running into problems itself. You've 0:05:48.400 --> 0:05:51.839 seen the big tariffs that the US is introduced against China, 0:05:51.920 --> 0:05:54.599 that the EU as well as fighting back, and there 0:05:54.640 --> 0:05:57.640 is also signed that some emerging economies are also fighting 0:05:57.680 --> 0:06:00.840 back against some big surge in Chinese exports too, because 0:06:00.839 --> 0:06:04.039 it's hurting their domestic manufacturing sectors as well. So there's 0:06:04.040 --> 0:06:06.920 a kind of an international side to all this too. 0:06:07.960 --> 0:06:14.839 Are there signs that it's causing a disinflationary impulse across Asia? 0:06:14.960 --> 0:06:15.239 Yet? 0:06:15.880 --> 0:06:18.800 Like are we seeing that in the data? And how 0:06:18.880 --> 0:06:21.000 much deflation is China going to export? 0:06:22.520 --> 0:06:25.120 Well, yeah, this is the concern, isn't it like kind 0:06:25.120 --> 0:06:26.919 of ten years ago that China is now kind of 0:06:27.240 --> 0:06:31.480 a deflationary force for the global economy. I'm not sure 0:06:31.520 --> 0:06:35.159 we're there yet, and certainly for Asian economies that data 0:06:35.360 --> 0:06:37.760 don't back that up quite yet, but you can certainly 0:06:37.800 --> 0:06:40.320 see a scenario that over the next kind of two 0:06:40.400 --> 0:06:43.800 or three years that if this continues, then then it 0:06:43.880 --> 0:06:46.320 could be one. Yes. But if you look at the 0:06:46.440 --> 0:06:50.800 Asian data at the moment, certainly that the headline figures 0:06:50.839 --> 0:06:54.440 are very very weak, below one percent we had in 0:06:54.480 --> 0:06:58.520 the Philippines this week. Thailand is in deflation, Taiwan's only 0:06:58.560 --> 0:07:01.720 one and a half percent. Inflation is weak across the board, 0:07:01.760 --> 0:07:03.760 but a lot of this at the moment at least 0:07:03.800 --> 0:07:07.200 is due to temporary factors. So fuel price inflation is 0:07:07.320 --> 0:07:10.080 very low. Food price inflation has come right down as well, 0:07:10.080 --> 0:07:13.200 but core inflation, which is a better measure of underlying 0:07:13.240 --> 0:07:16.480 price pressure in the economy, is still relatively high. So 0:07:16.520 --> 0:07:19.160 there's no sign a bit there yet at least. 0:07:20.320 --> 0:07:23.600 Asia Centric is produced by Bloomberg Intelligence, where more than 0:07:23.640 --> 0:07:27.520 five hundred experienced analysts and strategists work around the clock 0:07:27.560 --> 0:07:31.080 to bring you timely, world class research. 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So, Gareth, do you think China is entering 0:07:50.240 --> 0:07:55.320 or is in a deflationary spiral ARKA similar to what 0:07:55.360 --> 0:07:57.360 he was like in Japan for many years. 0:07:58.800 --> 0:08:01.520 Well, that's certainly our forecast for the next couple of years. 0:08:01.520 --> 0:08:03.520 So the Junia headline data that we got it showed 0:08:03.520 --> 0:08:06.840 a very small increase in the inflation rates, so positive inflation, 0:08:07.320 --> 0:08:10.080 but it's likely that was very temporary and that for 0:08:10.120 --> 0:08:12.160 the next year or two at least, we'll see prices 0:08:12.240 --> 0:08:16.120 continuing to decline. I think the difference between China and 0:08:16.200 --> 0:08:20.840 Japan is that in Japan's case is due almost exclusively 0:08:20.880 --> 0:08:24.520 to very weak domestic demand and for a crash in 0:08:24.560 --> 0:08:28.960 the economy, whereas China it's mostly supply driven. So the 0:08:29.000 --> 0:08:32.040 solutions to the two are going to be very very different. 0:08:32.080 --> 0:08:35.400 But certainly we see China's remaining in deflation for the 0:08:35.400 --> 0:08:36.760 next couple of years, just because we don't think the 0:08:36.800 --> 0:08:39.320 government is doing enough to clamp down on supply and 0:08:39.320 --> 0:08:40.360 boost demand enough. 0:08:40.920 --> 0:08:43.960 On that point, like this deflutionary spial there's this idea 0:08:43.960 --> 0:08:47.560 that at some point it just becomes nearly impossible to 0:08:47.640 --> 0:08:51.760 get out of that spiral. Do you see this happening? 0:08:51.840 --> 0:08:55.920 And what signs would you be looking for to track that? 0:08:56.120 --> 0:08:59.760 Is it? You know, a certain reading on price data? 0:09:00.200 --> 0:09:00.480 Is it? 0:09:00.800 --> 0:09:04.360 You know, the economy failing to shift towards the consumer, Like, 0:09:04.800 --> 0:09:08.240 I guess how dangerous is it? Because right now, at 0:09:08.320 --> 0:09:11.120 least as a consumer in China, you're probably like, great, 0:09:11.760 --> 0:09:14.600 the prices aren't going up. This is okay, as long 0:09:14.640 --> 0:09:15.880 as you don't lose your job, of course. 0:09:16.480 --> 0:09:19.160 Yeah. So in the kind of very near term, consumers 0:09:19.200 --> 0:09:21.000 are benefit in them this because there's a big price 0:09:21.040 --> 0:09:23.480 war going on, which means they can buy you know, 0:09:23.600 --> 0:09:27.439 electric vehicles or mobile telephones for very low prices. And 0:09:27.520 --> 0:09:30.240 initially that was the government's response, that you know, deflation 0:09:30.360 --> 0:09:33.160 is good for consumers, why is it necessarily a bad thing? 0:09:33.200 --> 0:09:35.560 But as we saw for example, that with Japan's case 0:09:35.559 --> 0:09:38.440 for the past almost the past twenty years, that deflation 0:09:38.559 --> 0:09:41.760 wants it becomes ingrained can be very damaging for the 0:09:41.800 --> 0:09:44.959 economy and also as well importantly for policy makers, very 0:09:44.960 --> 0:09:47.360 difficult to get out of. You have long periods of 0:09:47.400 --> 0:09:50.920 negative interust rates that hasn't done enough or it didn't 0:09:50.960 --> 0:09:53.960 do enough in Japan's case to get the country out 0:09:53.960 --> 0:09:56.960 of deflation. And there's a concern that China is in 0:09:57.000 --> 0:09:59.000 deflation at the moment. But rather than kind of temporary 0:09:59.000 --> 0:10:01.840 from becomes perm and in terms of where to look 0:10:01.840 --> 0:10:06.000 at in the data, I'd suggest looking at wages. That 0:10:06.120 --> 0:10:10.400 if businesses have enough power, consumers don't feel as if 0:10:10.400 --> 0:10:13.880 they've got enough pricing power that they can't demand strong 0:10:13.920 --> 0:10:16.920 wage increases, then it becomes a kind of self fulfilling 0:10:17.000 --> 0:10:20.040 propercy almost that the wages remain low, so costs remain low, 0:10:20.120 --> 0:10:22.280 so they don't need to increase prices. So I think 0:10:22.280 --> 0:10:23.880 that would be the one area that i'd look for 0:10:24.200 --> 0:10:26.319 to see if this is becoming ingrained. 0:10:26.720 --> 0:10:29.680 And consumption is all about confidence, and a lot of 0:10:29.760 --> 0:10:33.600 Chinese households have lost some wealth due to the weak 0:10:33.800 --> 0:10:37.560 property market. How important is a property market and the 0:10:37.720 --> 0:10:40.400 potential rebound for consumption going forward. 0:10:41.559 --> 0:10:43.280 I think that there's two ways, isn't there, So there's 0:10:43.280 --> 0:10:46.040 the kind of wealth effect. If prices decline, then consumers 0:10:46.640 --> 0:10:50.280 feel porous and don't spend as much. Also, but also 0:10:50.320 --> 0:10:53.480 when people move houses, you know, they typically byload of 0:10:53.480 --> 0:10:56.240 consumer goods as well to kind of refurnish their property too. 0:10:56.360 --> 0:10:58.800 So I think that the downtown the property market is 0:10:58.800 --> 0:11:01.680 probably having an impact on the consumer market too. Yeah. 0:11:01.720 --> 0:11:03.920 One of the things we had talked about was, of 0:11:03.960 --> 0:11:06.920 course the issue is not just domestic. There's a possibility 0:11:06.960 --> 0:11:11.599 of exporting this impulse across the region. And one of 0:11:11.640 --> 0:11:14.120 the other things globally impacting prices in the region is 0:11:14.160 --> 0:11:17.480 of course tariffs. So we now have a bit more 0:11:17.600 --> 0:11:20.800 certainty on what teriff levels will be globally with the 0:11:20.800 --> 0:11:23.520 lists we got on August first, they're in forced now. 0:11:24.080 --> 0:11:27.400 So how do you think of tariffs first of all globally? 0:11:27.520 --> 0:11:29.320 You know, do you see inflation in the US as 0:11:29.360 --> 0:11:33.080 a result? Do you see disinflation elsewhere as a result? 0:11:33.080 --> 0:11:34.880 How do you kind of think about it in the 0:11:34.920 --> 0:11:36.840 whole price realm. 0:11:38.160 --> 0:11:41.360 Yeah, so the main impact of these tests was probably 0:11:41.360 --> 0:11:44.400 going to be felt on the US. If you look 0:11:44.440 --> 0:11:47.640 kind of historically, it's either the consumers or businesses in 0:11:47.679 --> 0:11:50.000 the US that will pay for these I think what's 0:11:50.000 --> 0:11:51.679 been interesting so far is that the data in the 0:11:51.760 --> 0:11:56.400 US hasn't shown a big increase in inflation, and our 0:11:56.559 --> 0:11:59.520 sense is that that's because there's still a bit of 0:11:59.600 --> 0:12:03.560 uncertain about what's going to happen with final tariff rates, 0:12:03.559 --> 0:12:07.160 so businesses have been reluctant to pass on the increase. 0:12:07.840 --> 0:12:10.080 Also the fact that they've been able to run down 0:12:10.160 --> 0:12:12.960 in ventories too, so they haven't had the need to 0:12:13.000 --> 0:12:16.520 increase prices. But you know, with these tariffs now becoming 0:12:16.720 --> 0:12:20.200 seemingly permanent, that's unlikely to last forever, so we do 0:12:20.280 --> 0:12:25.520 see prices inflation in the US increasing. In terms of 0:12:25.679 --> 0:12:28.480 the rest of the region, obviously, it's a big exporter 0:12:28.600 --> 0:12:31.120 to the US, the most trade dependent part of the 0:12:31.160 --> 0:12:35.520 global economy, and so tariffs will have an impact, but 0:12:35.679 --> 0:12:39.000 I'd caution that they may not be as severe as 0:12:39.000 --> 0:12:41.839 some people seem to think. I think the first point 0:12:41.840 --> 0:12:44.240 to make is that that certainly most of Southeast Asia 0:12:44.240 --> 0:12:46.400 and Northeast Asia has been hit by a blanket tariff 0:12:46.960 --> 0:12:50.320 of around about twenty percent, so they haven't experienced a 0:12:50.360 --> 0:12:55.360 loss of competitiveness compared with other non US producers. So Vietnam, 0:12:55.400 --> 0:12:57.319 for example, has been hit with the same tariff as 0:12:57.320 --> 0:12:59.800 the Philippines, Thailand, and so act, it doesn't experience a 0:12:59.800 --> 0:13:03.560 big loss of competitiveness compared to those countries, so that's 0:13:03.640 --> 0:13:06.680 the first point to make. Also as well, that countries 0:13:06.800 --> 0:13:10.120 very significantly in how exposed they are to the US economy. 0:13:10.160 --> 0:13:12.760 So Vietnam, for example, is by head and shoulders in 0:13:12.800 --> 0:13:15.319 Asia the country most dependent on US demand, and with 0:13:15.480 --> 0:13:19.040 car growth forecast for Vietnam for this year and next 0:13:19.080 --> 0:13:22.840 year to reflect that. But for countries such as for example, Indonesia, 0:13:22.840 --> 0:13:26.880 the Philippines, they're not especially externally driven economy, so they 0:13:26.880 --> 0:13:30.280 should be able to withstand tariffs much better, we suspect. 0:13:30.679 --> 0:13:34.160 So Gareth, just to summarize your points, global tariffs will 0:13:34.200 --> 0:13:37.800 be inflationary in the US and you think you'll start 0:13:37.880 --> 0:13:41.200 seeing possibly the CPI start to rise over the next 0:13:41.240 --> 0:13:44.840 few months, But outside the US it will be deflationary. 0:13:45.000 --> 0:13:49.600 Is that correct? The US tariffs that Trump has introduce, 0:13:49.640 --> 0:13:53.360 they won't have any direct impact on Asia themselves. The 0:13:53.360 --> 0:13:57.040 way that they could still impact is if Asia decided 0:13:57.440 --> 0:14:00.880 to retaliate itself so it increased tariff on US imports, 0:14:00.880 --> 0:14:03.480 but it hasn't done that. The other ways, of course, 0:14:03.559 --> 0:14:06.640 is that they could cause growth across Asia to slow, 0:14:06.760 --> 0:14:10.240 so the economy's weakest. There's less price pressures that way, 0:14:10.800 --> 0:14:14.640 and that the final channel will be through the exchange rates. 0:14:14.640 --> 0:14:18.080 Auasian currencies have generally appreciated against the US dollar, so 0:14:18.080 --> 0:14:20.120 that's going to mean the price of imports is a 0:14:20.120 --> 0:14:23.600 bit weaker, so that it could affect prices that way. 0:14:23.720 --> 0:14:25.880 To the extent that it does have an impact on prices, 0:14:25.880 --> 0:14:29.520 it's likely to be mildly deflationary, but not by very much. 0:14:31.000 --> 0:14:34.320 So you're saying that basically you do expect over time 0:14:34.560 --> 0:14:37.160 that inflation is going to go up in the US 0:14:37.200 --> 0:14:39.680 as a result of these tariffs. We haven't really seen 0:14:39.680 --> 0:14:42.760 that yet in CPI, but I guess the natural question is, well, 0:14:42.800 --> 0:14:45.160 what are the implications for the FED, because of course 0:14:45.200 --> 0:14:48.840 central banks in Asia can ease. I mean they have 0:14:48.920 --> 0:14:52.200 been easing, even though the FED hasn't. But what are 0:14:52.240 --> 0:14:54.280 sort of the implications for the rest of the year 0:14:54.400 --> 0:14:59.160 if the FED cuts once, if they choose not to 0:14:59.200 --> 0:15:01.960 cut because it's not coming through into the data as 0:15:02.040 --> 0:15:04.160 much as they expected, what are sort of the implications 0:15:04.160 --> 0:15:05.640 for Asia central banks? 0:15:06.480 --> 0:15:08.600 Yeah, we'll start with a FED. I think it's in 0:15:08.640 --> 0:15:10.640 a bit of a bind at the moment that it's 0:15:11.080 --> 0:15:14.680 concerned about the potential inflationary impacts, even though it hasn't 0:15:14.680 --> 0:15:17.880 seen a big spike yet, but also as well, they're 0:15:17.880 --> 0:15:20.320 concerned about the impact on growth that we saw from 0:15:20.360 --> 0:15:23.560 the US jobs report that there are signs that it's 0:15:23.640 --> 0:15:26.760 starting to have an impact on confidence and possibly the 0:15:26.800 --> 0:15:31.080 broader economy. So against that backdrop of potentially higher prices 0:15:31.080 --> 0:15:34.200 but also weaker growth, what does the FED do? I 0:15:34.240 --> 0:15:38.840 think the expectations certainly since the jobs have shifted towards easing, 0:15:39.000 --> 0:15:41.760 but I suspect they will do so very gradually until 0:15:41.800 --> 0:15:44.160 they can get if they do so at all, until 0:15:44.160 --> 0:15:47.640 they can get greater clarity on what the implications are 0:15:47.680 --> 0:15:52.320 for inflation. In terms of the rest of the region, 0:15:52.760 --> 0:15:55.920 I think they're looking mainly at the impact on growth. 0:15:55.920 --> 0:15:59.640 We said that they'll be very minimal implications for inflation, 0:15:59.720 --> 0:16:02.480 so they're all looking what this means for growth, and 0:16:02.600 --> 0:16:05.080 by and large they're going to be negative. There'll be 0:16:05.080 --> 0:16:07.360 a much bigger impact for the very open economies such 0:16:07.360 --> 0:16:12.120 as for example, Vietnam, Thailand later they're probably the most 0:16:12.160 --> 0:16:15.960 exposed ones, much less of an impact save for Indonesia 0:16:16.440 --> 0:16:19.640 the Philippines. But you know, nesting all of this out, 0:16:19.720 --> 0:16:23.760 I suspect it generally means more inter strate cuts and 0:16:23.800 --> 0:16:26.680 probably coming a little bit sooner than maybe we'd expect 0:16:26.800 --> 0:16:28.800 as well as a kind of insurance policy, they want 0:16:28.840 --> 0:16:30.800 to bring this easing forward. And that is by and 0:16:30.880 --> 0:16:32.840 large what we've seen over the past year that if 0:16:32.840 --> 0:16:34.880 you look at the Central Bank statements, very close to 0:16:34.920 --> 0:16:38.160 the tariffs are a big concern for them, and that 0:16:38.400 --> 0:16:41.120 the easing has generally coming maybe a little bit sooner 0:16:41.160 --> 0:16:43.040 than we'd been expected as well. 0:16:43.920 --> 0:16:48.200 So, Gareth, in this environment, which Asian countries do you think, 0:16:48.280 --> 0:16:52.400 you know, will perform better and worse, you know, across 0:16:52.400 --> 0:16:55.480 the board economically into the GDP growth. 0:16:56.040 --> 0:16:59.000 Well, I think probably in terms of what we were 0:16:59.080 --> 0:17:02.200 kind of concerned about on you know, early April, on 0:17:02.280 --> 0:17:06.320 Liberation Day, when Trump announced these large scale tariffs, that 0:17:06.400 --> 0:17:08.800 Vietnam was going to initially hit hit by forty six 0:17:08.880 --> 0:17:12.200 percent tariffs, and just given how much of its economy 0:17:12.280 --> 0:17:14.960 is dependent on US demand, we were kind of in 0:17:14.960 --> 0:17:19.080 the process of writing down GDP growth forecasts by quite 0:17:19.119 --> 0:17:22.000 significant mounts, maybe kind of two percentage points or so. 0:17:22.040 --> 0:17:24.479 Then they had the ninety day reprieve, and since then 0:17:24.520 --> 0:17:26.600 we've had the trade deal with Vietnam, which gives it 0:17:26.640 --> 0:17:28.959 a twenty percent tariff, which is more or less in 0:17:28.960 --> 0:17:31.640 line with other countries. So I think in terms of 0:17:31.720 --> 0:17:35.600 which countries come best out of these negotiations, it's probably 0:17:35.760 --> 0:17:38.200 Vietnam because it's now being hit with the same tariff 0:17:38.600 --> 0:17:41.560 as everyone else. In terms of the countries that are 0:17:41.560 --> 0:17:44.520 going to be kind of hit hardest and that have 0:17:44.600 --> 0:17:46.920 done least well out of these negotiations, I think you'd 0:17:46.960 --> 0:17:49.920 have to say India that at the start of the process, 0:17:50.160 --> 0:17:53.520 you know, they were seen as being a strong US allies. 0:17:53.600 --> 0:17:55.280 There was reasons why the US might want to go 0:17:55.359 --> 0:17:57.919 soft on them. Everyone thought that the trade deal with 0:17:57.960 --> 0:18:00.919 them might be quite straightforward. Is now looking as if 0:18:00.920 --> 0:18:02.920 they're going to have fifty percent tasks, which should be 0:18:03.000 --> 0:18:06.399 higher than what we're expecting on China as well. So 0:18:06.760 --> 0:18:09.919 I think India has done very badly out of these negotiations. 0:18:09.960 --> 0:18:12.399 And I guess the kind of one saving grace for 0:18:12.440 --> 0:18:16.080 India at least is that it's not especially trade dependent economy, 0:18:16.119 --> 0:18:19.119 so the hit will be manageable. But in terms of 0:18:19.320 --> 0:18:21.400 you know, all the kind of China plus one talk 0:18:21.440 --> 0:18:24.040 and India doing doing well and being a kind of 0:18:24.040 --> 0:18:26.520 friendshuring destination and stuff like that, that's looking a lot 0:18:26.600 --> 0:18:29.119 less rosy now than the kind of predictions from a 0:18:29.119 --> 0:18:31.080 month or two ago, do. 0:18:31.080 --> 0:18:35.040 You think we will end the year at about these 0:18:35.119 --> 0:18:38.240 tariff levels? Like, I'm curious as an economist, you're looking 0:18:38.280 --> 0:18:41.960 out across this trade landscape. There's a lot going on, 0:18:42.359 --> 0:18:44.439 you know, every minute of every day. But I wonder 0:18:44.600 --> 0:18:47.800 when you look towards let's say we're sitting here in December, 0:18:47.880 --> 0:18:51.560 end of December, what kind of rates do you expect 0:18:51.560 --> 0:18:53.800 we'll be in this ballpark as well? Like should we 0:18:53.880 --> 0:18:57.800 take solace in the list we saw on August first? 0:18:58.560 --> 0:19:00.440 I think we've got a little bit more certain now 0:19:00.480 --> 0:19:04.119 than we did, for example, have on April or second 0:19:04.119 --> 0:19:06.640 on Liberation Day. I think for most countries we can 0:19:06.680 --> 0:19:10.800 be relatively sure the tariffs of about twenty percent on 0:19:10.920 --> 0:19:13.760 most of their goods will be what we can expect. 0:19:14.119 --> 0:19:17.080 I think there will be certain negotiations for carve out 0:19:17.119 --> 0:19:20.160 on certain sectors. For example, it doesn't make much sense 0:19:20.200 --> 0:19:23.840 for the US to be imposing big tariffs on products 0:19:23.840 --> 0:19:28.720 that it can't provide domestically, especially commodities, so Malaysia and 0:19:28.800 --> 0:19:32.400 Indonesia may be able to negotiate carve outs. I think 0:19:32.440 --> 0:19:35.119 there's still quite a bit of uncertainty about what India 0:19:35.320 --> 0:19:39.080 will be facing in December. You know, this fifty percent 0:19:39.119 --> 0:19:42.520 tariff that Trumpers announced twenty five plus twenty five. They've 0:19:42.520 --> 0:19:44.760 got until the end of the month to agree some 0:19:44.880 --> 0:19:47.720 kind of deal. It's possible that if you get a 0:19:47.800 --> 0:19:50.760 peace agreement in Ukraine, then he won't obviously need to 0:19:51.000 --> 0:19:53.720 clamp down on countries that are buying Russian oil. So 0:19:53.800 --> 0:19:56.880 there's a possibility that India won't be facing such high tariffs. 0:19:57.119 --> 0:20:01.120 I think the big uncertainty as though regardless electronics and semiconductors. 0:20:01.119 --> 0:20:04.119 We can have heard the latest threats today of one 0:20:04.160 --> 0:20:08.359 hundred percent tariffs on semiconductors. Does he go ahead with 0:20:08.400 --> 0:20:11.840 those which countries will be able to negotiate calves out 0:20:11.840 --> 0:20:15.280 Taiwan seems pretty confident that TSMC won't be hit by 0:20:15.320 --> 0:20:17.959 these tariffs, and is it just going to be semiconductors 0:20:18.040 --> 0:20:20.960 or electronics More broadly, I think that's for Asia where 0:20:20.960 --> 0:20:26.600 the big kind of uncertainty lies. So by December maybe 0:20:26.680 --> 0:20:29.359 something around what we're getting. But the big uncertainly is 0:20:29.400 --> 0:20:32.640 in dear and electronics and. 0:20:32.640 --> 0:20:35.520 Gareth, what are the potential big risks both on the 0:20:35.600 --> 0:20:38.760 upside and the downside. You know, potential blackswans you see 0:20:38.920 --> 0:20:41.320 coming over the next say, six or twelve months. 0:20:42.040 --> 0:20:44.520 Well, I guess the first one will be electronics. That 0:20:44.560 --> 0:20:46.800 if Trump really did decide to clamp down not just 0:20:46.840 --> 0:20:50.680 on semiconductors, but electronics more broadly, so you know, kind 0:20:50.680 --> 0:20:54.159 of computers, tablets, iPads, that kind of stuff, then that 0:20:54.200 --> 0:20:57.359 would really hit Asia quite hard. I think Taiwan's the 0:20:57.400 --> 0:20:59.840 most exposed in that respect, but it's kind of you know, 0:21:00.000 --> 0:21:02.960 countries across the board will be hit quite drastically by that. 0:21:03.359 --> 0:21:05.720 I think the second one maybe concerns the kind of 0:21:05.720 --> 0:21:08.840 outlook for interest rates in the US that if you 0:21:08.920 --> 0:21:12.440 do get I think most people are now expecting rate 0:21:12.560 --> 0:21:15.360 cuts over the next few months, but if you do 0:21:15.440 --> 0:21:19.080