Speaker 1: mm hmm.
Speaker 2: Welcome
Speaker 1: to Kobe times, final episode
Speaker 2: of 2022. I'm tamar chief economist coming to you without
Speaker 1: a guest with our year and commentary.
Speaker 2: We
Speaker 1: called our 2021 Outlook a
Speaker 3: bifurcated world and
Speaker 2: the year lived up to that thesis. The global economic
Speaker 2: recovery was extremely uneven from vaccine distribution to the impact
Speaker 2: of the sharp
Speaker 3: rally in asset
Speaker 1: markets. Both of
Speaker 2: those favored the wealthy. And let's also not
Speaker 1: forget all the fiscal
Speaker 2: and monetary support.
Speaker 2: They were of course the
Speaker 1: most supportive in nations
Speaker 3: with the most were brutal.
Speaker 1: A globally
Speaker 2: coordinated approach to distribute medical equipment
Speaker 3: and vaccines. On one hand,
Speaker 2: financial support on the other hand would have shortened
Speaker 3: the duration of the pandemic
Speaker 1: and soften
Speaker 2: its blow to
Speaker 3: livelihoods. But that didn't happen
Speaker 2: unfortunately.
Speaker 3: And predictably
Speaker 1: Our 2022 Outlook is titled
Speaker 3: testing the guardrails.
Speaker 2: The bifurcated world after delays and missteps
Speaker 1: has built some
Speaker 3: guardrails admittedly
Speaker 3: vaccine
Speaker 2: production is up and distribution is becoming more. Even
Speaker 2: economies are opening up with vaccinated
Speaker 3: travel lanes.
Speaker 2: Strong demand for manufactured goods
Speaker 3: and commodities is
Speaker 2: helping the emerging
Speaker 3: markets that export
Speaker 1: them
Speaker 1: funds
Speaker 3: and facilities from multi laterals
Speaker 2: for short term challenges like debt repayment
Speaker 3: and buying medical
Speaker 1: equipment and for long term
Speaker 3: challenges like
Speaker 2: transition to renewable
Speaker 1: fuels.
Speaker 1: They
Speaker 2: are becoming increasingly
Speaker 1: available
Speaker 1: hands
Speaker 1: 2022 Ought to be
Speaker 2: characterized by strong consumer
Speaker 3: demand in developed markets
Speaker 2: and a substantial reopening
Speaker 3: dynamic in emerging markets
Speaker 1: clouded of
Speaker 3: course attacked by U. S. Monetary policy
Speaker 2: moves.
Speaker 1: But the omicron variant
Speaker 2: threatened to spoil
Speaker 3: that narrative to some extent.
Speaker 2: Even if it turns out to have more
Speaker 3: bark than bite? Basically what I'm saying is it's very
Speaker 2: infectious but turns out to be
Speaker 1: not particularly lethal. The world's
Speaker 2: vulnerability to variance
Speaker 1: is will underscored
Speaker 3: by these developments and that again sheds harsh light on
Speaker 3: the danger posed by the global vaccine. Inequity
Speaker 2: markets therefore will remain
Speaker 3: on the edge with inevitable news flow of this nature.
Speaker 1: Now
Speaker 1: beyond the
Speaker 3: pandemic,
Speaker 1: let's talk about the
Speaker 3: other big elephant in the
Speaker 1: room inflation.
Speaker 1: The inflation
Speaker 3: debate, supply versus demand
Speaker 2: temporary versus
Speaker 1: structural
Speaker 3: has run its
Speaker 2: course with policy liftoff from the emergency accommodation very likely
Speaker 2: to be the
Speaker 3: big team
Speaker 2: For 2022.
Speaker 2: The US Fed would
Speaker 3: have to balance inflation risk against keeping the economic recovery intact.
Speaker 3: That's the key challenge
Speaker 1: inflation out turn
Speaker 2: in the U. S. Gets most of the headlines. But
Speaker 2: the phenomenon goes beyond
Speaker 3: its domestic factors like strong stimulus tight labor market and
Speaker 3: will
Speaker 2: affect stemming from a
Speaker 3: frothy asset market.
Speaker 1: In fact
Speaker 2: many items in the consumer price
Speaker 1: index in the
Speaker 2: U. S. Or elsewhere that have soared lately
Speaker 2: are
Speaker 3: taking their cues
Speaker 1: from global
Speaker 3: prices
Speaker 1: given the prevalence of common
Speaker 3: factors like natural gas,
Speaker 2: petroleum fertilizer and a
Speaker 1: range of food items inflation
Speaker 2: unsurprisingly has picked up in the euro area and the U.
Speaker 1: K. Although not
Speaker 3: as sharply as in the
Speaker 2: US right here in Singapore inflation has picked up in
Speaker 2: recent months
Speaker 2: With headline inflation running at three
Speaker 1: .2% through
Speaker 2: october
Speaker 2: although the year to date
Speaker 3: average price level is
Speaker 1: Up only about two
Speaker 2: over the corresponding
Speaker 3: period last year.
Speaker 2: What about
Speaker 1: emerging asia? Well, china India and Indonesia have
Speaker 2: not yet seen comparable
Speaker 1: upward pressure to
Speaker 2: prices reflecting subdued domestic demand, an
Speaker 3: incomplete pass
Speaker 1: through of world prices at the local pump level. Still
Speaker 1: inflation by no means is a non issue in India
Speaker 2: and there is a risk of fuel
Speaker 3: prices being raised in china and
Speaker 1: Indonesia
Speaker 1: at the component level.
Speaker 3: Energy prices
Speaker 2: admittedly have soared this year
Speaker 3: and demand some degree of
Speaker 1: scrutiny from us.
Speaker 2: Think about
Speaker 3: it, demand for energy has jumped
Speaker 2: due to trade rebound with
Speaker 3: gas prices jumping on account of low stock and strong
Speaker 1: demand, especially as
Speaker 2: coal usage has been discouraged
Speaker 1: on oil. Opec kota has held up
Speaker 2: shale production in the U.
Speaker 3: S. Has been poor
Speaker 2: and transportation demand
Speaker 3: has jumped with economic reopening
Speaker 1: then
Speaker 2: there is call which has suffered from pandemic induced
Speaker 3: supply disruptions
Speaker 1: in all cases though,
Speaker 3: supply is coming back gingerly, but it is coming back
Speaker 1: outside of
Speaker 2: industrial economies. On the food price side, we have seen
Speaker 2: major development
Speaker 3: with respect to rise in soybean. These are important ones.
Speaker 3: They have a lot of
Speaker 2: political and social sensitivities and there are reasons to worry
Speaker 2: about these prices and also quote for broader
Speaker 3: range of prices
Speaker 1: on the rice
Speaker 2: and soybeans side, they
Speaker 3: rose a lot last year. Uh They
Speaker 1: have somewhat moved
Speaker 3: past the pandemic
Speaker 2: induced supply crunch and some idiosyncratic
Speaker 3: factors. For example, in china last
Speaker 2: year there was a major driver
Speaker 3: for soybean demand
Speaker 2: and prices because there was a
Speaker 3: spike in soybean based feedstock demand.
Speaker 2: But these
Speaker 1: things have
Speaker 1: somewhat run its course,
Speaker 3: but not everything.
Speaker 2: If you think about cereals
Speaker 3: beyond rice, uh coffee,
Speaker 1: sugar, meat, fish, edible oil,
Speaker 2: these things have gone through major
Speaker 1: supply shortages while
Speaker 3: they have had to keep up with sustained global demand
Speaker 3: of these food items that I just talked about.
Speaker 2: There is no major
Speaker 3: driver of supply demand dynamic to ease anytime
Speaker 1: soon. You see
Speaker 2: food production
Speaker 3: is somewhat inelastic in the
Speaker 1: short run
Speaker 1: and
Speaker 3: climate change related events are causing crop failure with increasing frequency.
Speaker 2: So there is reason to
Speaker 1: worry here.
Speaker 1: If elevated food prices is a given that would cause
Speaker 1: considerable
Speaker 3: stress in developing societies that are food important dependent. Another
Speaker 3: risk for them is
Speaker 2: that the US
Speaker 3: dollar strength, which is probably likely next year around taper
Speaker 3: and rate increase
Speaker 1: that would also push
Speaker 3: up the import costs for developing countries.
Speaker 1: No,
Speaker 1: there is a good chance that energy
Speaker 2: and food prices won't keep
Speaker 3: rising, will remain high but not necessarily keep rising
Speaker 2: because there would be some
Speaker 3: degree of demand adjustment. You may have um in elastic supply,
Speaker 3: but there's a limit of how much we can buy
Speaker 3: these things at very high levels. So demand would have
Speaker 3: to adjust to some extent. But one area where demand
Speaker 3: looks rather in elastic is base metals,
Speaker 2: demand for various metals
Speaker 3: related to electronic
Speaker 1: manufacturing continues to
Speaker 2: soar as the
Speaker 3: world turns more digital and energy transition efforts gathered momentum,
Speaker 1: low
Speaker 2: greenhouse gas technologies including renewable energy, electric cars, hydrogen
Speaker 3: and carbon
Speaker 1: capture. All of these
Speaker 3: things require more metals than their fossil fuel based counterparts.
Speaker 1: A multiyear
Speaker 3: rally in metals, industrial metals, that is
Speaker 1: look
Speaker 3: pretty likely to
Speaker 1: us
Speaker 1: all. The high prices of metals such
Speaker 2: as cobalt,
Speaker 2: copper,
Speaker 1: lithium and nickel could
Speaker 2: inadvertently cause
Speaker 3: delays in climate transition. So that's one major downside
Speaker 2: interestingly. And finally
Speaker 3: on the inflation side,
Speaker 1: precious metals would be obvious
Speaker 3: candidates for a rally at this juncture
Speaker 2: as their historical role has been to act
Speaker 3: as a hedge against a broader rise in the price level,
Speaker 3: oddly, that has really not been the
Speaker 1: case.
Speaker 1: Now.
Speaker 2: Earlier, gold and silver bowl jumped. That's during
Speaker 3: the uncertainty heavy phase of the pandemic
Speaker 2: for last year.
Speaker 1: But since
Speaker 2: then gold has been largely
Speaker 1: flatter week
Speaker 3: while silver
Speaker 1: jumping on the back of
Speaker 2: demand uh, do from coming from china
Speaker 1: has corrected lately.
Speaker 3: Also with china's
Speaker 1: slowdown.
Speaker 1: What does that tell us? Well, to me that
Speaker 2: is a major verdict from the
Speaker 3: market that it is fairly sanguine about the medium term
Speaker 3: inflation scenario. So there's a
Speaker 2: lot of discussion about the near term inflation
Speaker 1: and we recognize
Speaker 3: some of those risks,
Speaker 1: but for the medium term market
Speaker 3: based indicators are telling us there isn't that much to
Speaker 3: worry about.
Speaker 1: That's
Speaker 2: That for inflation, let's move on. What are the other
Speaker 2: risk factors for 20
Speaker 1: 22? Well, first in that list is the state of
Speaker 1: the asset market
Speaker 2: marked by historically high evaluation across the spectrum.
Speaker 2: While interest rates, liquidity and
Speaker 3: investor appetite
Speaker 2: remain conducive for that fraud to
Speaker 1: persist. The
Speaker 2: space between profit
Speaker 1: taking and a downward spiral
Speaker 3: is narrowing because of such lofty levels.
Speaker 1: Unlike the
Speaker 2: chinese authorities who appear impervious to asset price correction
Speaker 3: to some extent,
Speaker 1: the Fed faces
Speaker 2: tremendous pressure to support the markets and
Speaker 1: Therefore 2022 will
Speaker 2: brings several
Speaker 1: tests for the Fed, which
Speaker 2: would want to go ahead with paper and rate increases,
Speaker 2: but at
Speaker 3: the same time would would not want to undermine asset
Speaker 3: markets in a very
Speaker 2: big manner because
Speaker 3: then the negative wealth effect can
Speaker 2: percolate through the system and cause the
Speaker 1: recovery to falter.
Speaker 1: The second risk factor
Speaker 3: is china.
Speaker 3: The global
Speaker 1: economy and markets
Speaker 3: took notice of china's market
Speaker 2: sell off and economic slowdown
Speaker 1: In 2021. But there was actually very little spillover.
Speaker 3: That's surprising given china's
Speaker 1: large scale.
Speaker 1: Now,
Speaker 2: just because that didn't
Speaker 3: happen in 2021 doesn't mean it will not happen in
Speaker 3: 2020
Speaker 1: two.
Speaker 1: So we think that further correction in china, be
Speaker 2: it from pandemic resurgence regulatory crackdown or power
Speaker 1: shortage could
Speaker 2: put a major dent
Speaker 3: in global demand and investor sentiment next year. So watch
Speaker 3: out for
Speaker 1: that
Speaker 1: 3rd, dealing with the fiscal cost of the pandemic.
Speaker 1: Now, many countries have
Speaker 2: seen their debt
Speaker 3: GDP ratio go up by
Speaker 1: 15 to 30
Speaker 3: over the past couple of years,
Speaker 2: regardless of the level of interest
Speaker 3: rates. The time to stop adding to debt has arrived,
Speaker 2: which would require both healthy GDP growth
Speaker 3: and reduction in fiscal support.
Speaker 1: So you need
Speaker 2: GDP to continue to grow that can add or stop
Speaker 2: addition to grow debt
Speaker 3: GDP to go up
Speaker 2: or you can start cutting back on
Speaker 3: fiscal support, which can also then reduce the fiscal impulse
Speaker 3: and debt
Speaker 1: creating flows.
Speaker 3: Now this is going to be a challenging act to
Speaker 3: say the least with a high
Speaker 2: chance of a few
Speaker 3: sovereign stumbles. You
Speaker 2: can't really orchestrate
Speaker 3: a slaughter on the debt market without
Speaker 2: some stumbles here and there. You have already
Speaker 3: seen that in some parts of the
Speaker 2: world.
Speaker 2: So these risks are likely to
Speaker 3: manifest outside of Asia
Speaker 2: more so than Asia.
Speaker 1: But the stress could certainly spill over to these shores.
Speaker 1: Coming
Speaker 2: back to the Feds forthcoming
Speaker 3: challenges. Even if developed asset markets managed to handle the liftoff.
Speaker 1: Two questions will linger. First,
Speaker 2: would inflation come down with a bit
Speaker 1: of policy normalization
Speaker 2: or would it require
Speaker 1: forceful crow
Speaker 3: dampening action.
Speaker 1: Second, would
Speaker 2: emerging markets be able to
Speaker 3: handle the lack of volatility in
Speaker 1: capital flows that
Speaker 3: would accompany the Fed
Speaker 1: moves.
Speaker 1: So
Speaker 1: lots to worry about,
Speaker 1: but it is important to play called attention
Speaker 2: to these risks.
Speaker 1: Surely
Speaker 1: there is also a good chance that it could all
Speaker 3: work out next year.
Speaker 1: These are
Speaker 2: not some
Speaker 2: very, very aspirational points.
Speaker 1: I'm about to make consider the following
Speaker 1: in the near term. The
Speaker 2: transition to an endemic
Speaker 1: Covid could keep
Speaker 2: progressing.
Speaker 2: Put aside omicron
Speaker 1: for a second. Think about the
Speaker 3: wider picture,
Speaker 2: vaccination. Rollout of antiviral treatments, herd immunity being
Speaker 1: built up Well then maybe we are actually
Speaker 3: not at a very scary part of the
Speaker 1: pandemic, but we're actually the final chapter of the pandemic.
Speaker 1: Then there's the issue of
Speaker 3: supply side bottlenecks,
Speaker 1: especially at the ports.
Speaker 1: They're going
Speaker 2: to ease the consumer demand may remain
Speaker 1: resilient, but
Speaker 2: the way to release the goods, the way to distribute
Speaker 2: the goods is certainly within our
Speaker 3: grasp and it is in the office
Speaker 3: Then there is a big challenge of our generation china.
Speaker 2: Us
Speaker 1: they're not going to become
Speaker 3: Allies in 2020
Speaker 2: two
Speaker 1: but they could certainly find
Speaker 3: areas of detente
Speaker 2: especially over
Speaker 3: climate change and technology
Speaker 3: and
Speaker 2: That could make for a common 22, 20
Speaker 1: two supported
Speaker 2: by the guardrails of
Speaker 3: geopolitics, economics, and finance.
Speaker 1: That's
Speaker 3: it for this year.
Speaker 2: We hosted 28 episodes of COVID time in 2021 covering
Speaker 2: subjects from fintech to climate change and of course global
Speaker 2: macro and the pandemic.
Speaker 1: What a
Speaker 3: fascinating time to cover global markets and economies.
Speaker 2: We thank you our listeners for your time and feedback.
Speaker 2: Thanks to those wonderful
Speaker 1: guests who have kindly
Speaker 3: given their time and
Speaker 1: insights to the show.
Speaker 2: Thank you martin Tuckey
Speaker 2: for your
Speaker 1: impeccable production skills,
Speaker 2: daisy Sharma and violently thank you for
Speaker 3: your tireless support.
Speaker 2: We wish you all a happy and healthy holidays and
Speaker 2: a joyous new year
Speaker 3: With your loved ones. See you in 20
Speaker 2: 22.