Real Estate, Markets, and Energy (Podcast)

the continuing contrast contractions in the housing market. We know why interest rates going up, mortgage rates therefore going up, more expensive to be buying your homes. But really, this is the sixth straight month and remember this is a November number, so it is quite backward looking, but it's a sixth straight month. The US penning home sales have

indeed fallen. And we've got a great guest to dig into, really where the housing markets going overall, Paul, because one of one, Rich Hill is with us, were pleased to welcome of course, his head of real estate strategy and research coming in stairs. Rich once again move music on manufacturing actually looking a little bit bit better, it would seem for the data, but the housing data once again

really painful. Where are we in the cycle? Yeah, sure, look, um uh this was an undeniably challenging year for real estate investment trust known as rates. They were down around through the close of business at the end of last week. Um Uh. Inflation is usually pretty good for real estate, but what is challenging for real estate is stagflation. So what is stagflation. It's it's an environment where interest rates

are rising and growth is slowing. That's exactly what played out for most of two thousand and twenty two, where the Fed had to raise interest rates to uh combat inflation that was at its highest level since nineteen eighty. Um So it was really a backdrop of higher interest rates, widening credit spread, and exceling growth that is pressured up

the real estate backdrop. So rich, I mean, there's there's folks out there that watched the Fed thinks that, you know, we're gonna see a peak and rates, and we in fact may see some rates come down toward the back half of the year. What's the real outlook for three after what was is you just mentioned was a really challenging Yeah. Sure, Look, we believe that there is potential for low double digit returns in the year ahead. Um Uh. That's pretty good compared to the negative that we had

so far this year. What is driving that view? I think there's really three things that we would point out. First of all, growth will undeniably slow in our view UM given recessionary pressures, but it will be well above trend versus prior recessionary environments. So that's point number one. Point number two is that we actually do see a better inflationary backdrop. I mentioned that stagflation where interest rates are rising and growth is slowing, is really challenging for

real estate. But we see a backdrop where growth is slowing still in two thousand twenty three, but rates are beginning to come down, So we would call that a stagnationary backdrop. As you transition from stagflation to stagnation, that's a much better backdrop for for for real estate in general.

The third point I would make UM is that when the Fed stops raising interest rates, and and that will likely occur at some point over the next up about twelve to eighteen months UM, reeds usually do very well. So to summarize all of that, we think growth is on solid footing. It was slow, but still in solid footing. UM. We think a backdrop of transitioning from stagflation to stagnation

is really good for real estate. And the number three as the FED stops raising interstrates, that's historically environment where red produce plus sixteen percent returns historically six months after the FED stops raising interstrates. So altogether we see a better backdrop, which not all real estate is created equal, as I know you know more than anyone. Of course, with your focus on rates, we were breaking, of course, depending home sales. We're talking about a consumer about where

one wants to live. But from your perspective, talk to us about the most appetizing parts of the markets that have aren and re recovering the bits that you're still not tempted to be going into at the moment. Yeah. Sure, So what are the selectors of the market that we do like? Um, we like multifamily, particularly in the stun Belt. We like single family rental. I think your point about what's happened to the housing market really speaks to the

strength of the single family rental market. It's, uh, buying homes is really unaffordable right now. But if you can sort of rent the American dream, so to speak, through single family rentals, we think that's compelling population migrations to the Sunbelt are continuing to support multi family trends. Again, if you can't buy at home, you have to live somewhere. We do like data centers, um uh. And we like

healthcare as well. On the other end of the spectrum, maybe sectors that were a little bit more cautious on, I would say, I would say first and foremost office sector. Maybe that doesn't come as too much of a surprise from from anyone, but as we figure out work from home trends and other trends, it is still a sector that's pressured, umh. And then hotels were a little bit more cautious on as well. So Rich, Caroline and I were asconced here in Bloomberg's headquarters in Midtown Manhattan, and

as we yes in the office, thank you. And as we look around we see a lot of empty office buildings in midtown Manhattan. If I'm an office rate manager, what do I do? I mean, it's not just New York at San Francisco, it's other major markets. Is there a solution? Yeah, So let me make a couple of comments.

First and foremost, I think we paint office with maybe too big of a proof, too broad of a brush new, clean and green office we think is very well positioned, and I think you can probably look outside your headquarters and see that some of the newer buildings are doing quite well. We think, um uh it's called suburban office is well positioned, particularly in the sun Belt. But where there's really much more of a challenge is Class B

and C office properties. Those are properties that will built in the nineteen seventies of the nineteen eighties, and there hasn't been a lot of money put into them. So what do you have to do. But you have to find a way to reposition them, redevelop them. Uh, there's not an easy, one fit all solution. We've started to see some friends of redeveloping them into multi family properties, but I think it's going to take down a little bit of a combination for entrepreneurs coming in, existing owners

working together to find a solution. The easiest one that people are talking about is redeveloping them in a multifamily um like. That's that's not easy, very very very hard. The good news is the land underneath most of these properties, particularly in New York City San Francisco, is pretty valuable, So I do think we'll find a solution, but it's really a question of where's the net operating income growth growing? How much capexs do you have to spend? Uh, And

that's why the sector continues to be under pressure. Rich, I'm kind of interesting. Also, you didn't just mention offices that we've prided you with, but also the hotel sector. Why are you worried about the hotel sector? Yeah? Look, um, I think there. I think the easy solution is that maybe travel is coming down from peak levels that we saw in two thousand and twenty one two two. Um. Yes, business travels coming back up. But one of the major issues that I don't think a lot of people maybe

unpack enough is how much labor costs are rising. Um uh. And to run a hotel it is it does require a lot of labor. So that's one of the things that keeps us maybe a little bit more on the sidelines. Growth is beginning to slow. That's pressuring revenue at a time that expenses and labor costs are going up. Hey, Rich, As I drive down to the Jersey Shore on the Parkway or the term Pike, I see tons and tons

of you know, just kind of warehouse space. I'm guests sing it's all Amazon dot Com and all that kind of stuff. Is that business overbuilt? Is that still a good growth story? Um Uh, Some aspects of of industrial are still a very very good growth story. I think if you can find infill locations, um that are new

properties that's very well positioned. But look, there has been a significant amount of supply that has come in the logistics space, the warehouse space over the past call it five to ten years, and so if you own an older property in a high supply market, that the growth is probably going to slow. Um. So it is not

a one size fits all market anymore. We're still very bullish on the call it the high growth, high barriers to entry infil locations, and I think investors should be aware that that maybe some of the older properties and not well positioned markets with high supply, those could fit based on growth type challengers. Rich, I'm looking at your eight four billion dollars firm wide assets and management. That's not just us, is it? Because we're a global network.

We've got European audience with us at the moment as well as or maybe some Asian few are staying up pretty late. Talk to us about why you're thinking globally is attractive in rates. Yeah, yeah, Well, look, I would say we think the best opportunities are certainly in the United States right now. But as you start to think about other opportunities, whether it be uh and some of the Chinese locations that are beginning to open up, I

think that's interesting. Some of the major markets in Europe are interesting, but I think we do see the best value in the United States right now. Hey, rich, Let's say I'm an entrepreneur in the real estate business. I want to go buy one of those empty office towers in Midtown Manhattan. Where do I get the money? Do I go over to JP Morgan and borrow some money? Yeah? Uh, So you're you're asking a really interesting question. The debt markets are I would say, um, not frozen by any

means um, but they're not. They're not wide open. I do think there is capital debt capital available for a high for a high quality property with a well, well, uh, well, a good sponsor. But there's also a tremendous amount of money on sidelines that's been raised not yet deployed in commercial real estate. Around three hundred billion maybe that's about a call it nine hundred billion, A trillion dollars of buying power once you put some leverage on it. Um.

So the debt markets are there. Um, they're not wide open. Easy money has been gone. But I think it's a combination of U finding a cheap debt capital where you can find it, and cheap is all on a relative basis at this point, plus some additional equity from the amount of money on the sidelines. So UM. I think lenders are being much more selective right now than they have been in the past. They're being very focused on what property types they lend to, but more importantly making

sure that the sponsor is well capitalized. All right, So my lunch break, I'll walk over to the local, yeah, private bank, or see if I can raise some money here and go buy a midten Manhattan skyscraper. Rich Hill ahead of real Estate Strategy and Research at Cohen and Steers again eighty four billion with a B assets under management. They know what they're doing in the in the reach space, so we love to check in with them. A lot of people are just saying I'm looking for I cannot

afford to look back. It was an ugly year. I want to look forward to and see what the opportunities might be bringing Kim Forest Boca Capital Partners, uh founder and c I O Kim again. I think a lot of investors are like me when they just say, uh, in my rearview mirror, I'm looking ahead here. How are you viewing here? After what was just a brutal year

in stocks and bonds? Sure? Well, I mean it was a remarkable year, We'll give you that, right, And especially if you had any of the former Fang stocks they did not do well, or if you were into technology, especially semiconductors. These are areas that just have gotten hit. And that's for many reasons, but mostly at least here in the US, it's because of the FEDS quick rais

So I guess COVID makes you do things quickly. Your last segment talked about China opening quickly when we tried to get a handle on inflation, and any kind of growth oriented stocks just got killed. But should you care? Should you care if you need the money this year? Yeah,

and you had to and you were forced to sell. Yeah, you probably do care, but you really shouldn't if you're a long term investor, because we know growth will come back at some point, and computers really aren't a fad, and semiconductors are going to be something that companies turn to in the future to give them enhanced productivity. And people find UM computers entertaining too, so it's not end game for technology. Kim though, dovetailing those two ideas the FED,

but also China. An awful lot of what hit the semiconductor industry was geopolitics. Was the tension between China and the US. The fact that you know, an awful lot of business colpi downe between the two. Now, how are you looking towards that as well? Well? I think it was the natural outcome, not necessarily the disagreement between China and UH, the US. But I think a lot of companies are rethinking their supply chain, and I don't know

that everything's going to end up in the US. I think it's really smart to make a more distributed supply chain because what happens if a continent does UM get shut down for whatever reason geopolitical disagreement, UM, you know, UH, I don't know, a large earthquake. I mean, it just seems crazy to have a whole lot of manufacturing in

one and only one spot in the world. Hey, Kim, you know, really since the Great Financial Crisis, technology has really led the market Fang stocks, for example, but just big tech in general has led the market both up and down since a you know, two nine. There's a concern here that as maybe this market begins to take off, maybe in the back calf of that that might not be the case. How do you think about big tech and its leadership role? Sure, well, I think a couple

of things. First of all, UM, the low interest rate environment that we find ourselves in the world, not just in the US, but in the world, really has driven growth companies. And by that I mean companies that traditionally didn't have to have a super strong balance sheet, were newer in the marketplace, and people were buying them on the prospect that they would one day grow into their valuation right that the cash flow would keep catch up.

But a lot of these companies now are big enough to actually have profitable cash flow UM, and I think some of them will come back because they've done great convincing customers to use them, like I don't know, Amazon, But others will probably never reach that peak because people have moved on. UM. Technology is best looked at, in my opinion, as a product of item, right, that increases productivity. It's hard to understand what will catch anybody's imagination online.

It just is the metaverse, right yeah, I mean, well, well we could go down the metaverse discussion for a long time. I quickly want to really on the news has been well, the pressure that's been felt by another key celic and Valley leader and indeed want to move to Austin and has perhaps been more distracted by social

media than perhaps his car company. Talked us about Tesla and about whether you've been keeping an eye on that stock at tool we actually finally get a reprieve after seven days of selling, which was the longest dressing streak since sure. I mean Elon Musk is one of the most fascinating, fascinating people on Earth, right, Like, let's just shortcut that he's in space, he's in the next wave of cars, and now he is turning his attention towards Twitter. And I don't think we're going to be able to

escape that. But it is a concern for Tesla. Are they a car company or are they a technology company? And I would say the valuation has to refer like whatever it is that you believe, Um, I personally think that it will come back that whatever he's doing politically through Twitter is tarnishing his image and causing a lot

of people not to want to buyas cars. But also the US, as you mentioned, is kind of in a contentious space with China, and a lot of his revenue has come from that, and it looks like that tiff between the US is affecting um Tesla as well. I wouldn't look for a quick rebound, but I wouldn't count

them out either. Always great to have some time if you, Kim, you go back when you're looking at the software and tech Stalks were number two software analysts back at the Wall Street Journal's Best on the Street ranking back in two too, So looking at the space a while good, much the most history in the space, as you Paul,

thank you so much. Always great to have Kim Forest Capital Partners founder and CIO talking about the record outputs that we saw in the top Us gas basin, in particular how that antagonized a lot of the power cat chaos that we saw throughout the Christmas period deadly winter storm as well, really perhaps exposing some of the flaws, whether it be the infrastructure, whether it be the provision

of energy here in the United States. And well, one man that might well have been exposed to an awful lot of what's just been occurring is one at Toby Rice's presidency of EQT, one of the largest natural gas producers here in the country. And Toby, we know, and you've come on Bloomberg TV and Radio before to really discuss the fact that you feel more infrastructure is needed, particularly the pipeline side of things. But let's just take

a step back. During this period, we've just seen wells freeze, pipelines fail, we've seen gas pipe supplies therefore completely plunged, and course this driving up prices. How was EQT hit in the last few days. Well, what we've seen across the country is natural gas production fell about ten due to these freeze offs, which is which is normal. UM

in the industry responds very quickly. One thing I would note, though, is that the reliability of natural gas and the share of power generation natural gas performs in the cold weather and specifically compared to renewables where they just don't show up. So thank thank goodness that we've got UM natural gas flowing and keeping the lights. It didn't but it didn't float.

I mean to be perfectly frank, it also frows their work and can you know, freeze off how are common as you say, they're normal, But I'm interested to be how you particularly were affected, How was EQT particularly affected? Were you benefiting this this situation, did you have wells freeze what? What was your experience? Yeah, So in Appalachia, UM, we saw about about four bcf a day, which is a little bit over ten percent of our production for the base on EQT specifically was around one to one

and a half bcf a day freasons. UM. Those issues are going are scheduled to be resolved by you know, the next couple of days. Uh. This is all part of the winterization preparation plans that we were able to put out. UM. But you know clearly the solution here is to produce more natural gas and have a greater abundance. And the key for us to be able to do that so that we can have some cushion in the systems when things do hit, like whether we know what's

going to show up every year. The key is to is to get more natural gas production, and we need more pipeline infrastructure so that we can create the industrial capacity that this country needs to run, because what you're seeing across the board is our industry is pretty much redlining the limited infrastructure that we have right now, and

that's really making performance absolutely critical. It would be great if we could have some some relief, and that relief will come from building more pipeline infrastructure, all right, So, Toby, in addition to building more capacity, there are a lot of folks saying more investment needs to be done to improve the weatherization of the existing infrastructure if we assume that we're going to have more extreme weather events going forward, so it's not just more production, but it's better more

robust suction and infrastructure. How do you respond to that, Well, I think the I think you can look at places like New England, which is a really great example of the shortfalls that we have with our energy systems here in America. You know, we have the biggest gas field in the world, literally a couple hundred miles away from New England. But they are burning, you know, oil to generate their electricity. About thirty percent of their electricity past few days has come from oil um and only of

that electricity is coming from natural gas. The solution there is very simple. It's build more pipeline infrastructure so we can connect you know, are low costs, very responsibly produced natural gas with the demand centers, and you see the lack of infrastructure is the reason why you have prices in different parts of the country like New England, where their energy prices are going to be over twenty dollars this winter, and we'll be selling that same gas here

in Appalachia for a cost of five dollars um. These are the really remarkable things. If you want to focus on correcting the issue, it's getting more pipeline infrastructure, and this industry will continue to find ways to make our energy that we produce more reliable through the winterization efforts

that are largely already in place. All Right, Given the pipeline issue is an ongoing issue we see with between the government and industry and the marketplace in general, give us a sense where we are now to be with that argument. Here is there a better Do you have a better platform to go to certain regulators in certain states to say we really need more investment here. Here's what's changed with the conversation in um you know, the

heading into two. The when people think about energy, the number one thing that people are thinking about is the impact on emissions UM. You know, EQT we put on our plan to Unleash us Energy, which will be the biggest green initiative on the planet. But what has really shown us is that energy security is absolutely critical, just

as important. And you can look at what is happening in Europe as an example of what happens when energy security UM slips away and the conversation about energy transition UM. It's really important for people to understand it's going to be impossible to transition if you don't have energy security. And that's what natural gas brings the table. It brings both energy security and it also is the key to

lowering emissions around the world. And so with this new perspective, coupled with the fact that now Americans are facing much higher energy bills because of this lack of pipeline infrastructure, you know, that's another thing that's changes. Americans are actually feeling the brunt of this if these energy prices are unnecessary, and there's things that we can do about it, and it's as simple as building more pipeline infrastructure to your

point to be wholesale pipe prices social. The six thousand percent and sent parts of the country over this crisis. I'm interested in whether you whether did e QT benefit from the high spot prices so we sell some of our product on on spot. But you know, we've been saying, we've been jumping up and down for the last year saying these high energy prices are completely unnecessary and we would like to see more pipeline infrastructure so we can

add supply um so that we can combat these high prices. Now, it's absolutely amazing that we are sitting in the biggest gas field in the world EQUT and we cannot grow production because we do not have access to more pipeline capacity. That is the root cause of the issue, and that's where people need to focus is what can we do to get more pipeline infrastructure so we can get the cheapest, most reliable, cleanest produced energy in the world onto the

playing field. And that really is is the focus. Toby. We're Texas last year had some issues talk to us about the Texas grid and just had the Texas gas market, uh their infrastructure there have they made some changes over the last couple of years, some uh, some upgrades perhaps in terms of the weatherization. Yeah, one of the biggest issues that they faced during the winter storm jury was

that some of the compressor stations which rely on electricity. UM, those compressors move natural gas to the actual power plants, were not deemed as as critical, which is an oversight, and UM that's what had electricity to get shut off. That was something that was fixed. And I think you can look at Texas performance of natural gas on the grid these past week and you will see very strong performance of natural gas down there in Texas, UM other

places that have really struggled to provide the reliability. You're seeing this with utilities across the country, you know, warning and telling people to pinch back their energy needs. It's because we have lack of energy flowing into those areas, and that energy can only flow if we have more pipeline infrastructure. We've got the biggest gas field in the

world in Appalachia. We just need more infrastructure, more infrastructure to connect this with the demands that we know is going to continue and mean and clear, we hear your call. You want more infrastructure in terms of pipelines, but just we go back and we'll end where we started. The weatherization. You said, of course there were elements that you know, a lot of there is a lot of depleted. But I did the well, why did so many wells freeze

in and of themselves? If you say that weatherization is already sort of on its route and being invested in, well, freeze us happened because when we produced this energy out of the ground, it's a mixture of natural gas, water and also water vapor. UM. You couple that with some of the pressure changes and it creates freezing temperatures, and

that creates some ice blockages and the pipes. UM. These are things that can be can be solved through drying out some of the some of the equipment that we the gas that we have flown through UM, and then also making sure we have some lying heaters in place. So these are all things that that we've been dealing with for years. We have tools and techniques to combat that, which is kind of nuts. Why why why therefore did

so many freeze? If it's been yeah, and and and another thing is that that's that's important is when we have winter storms, UM. You know, we need to get water trucks to our location so that we can empty to produce water tanks. And when the roads get icy and shut down, it gets hard for us to get water trucks out there to that location, and that means we have to shut in production, not because of freezeroffs, but because we don't have the ability to produce any

more water on location. So it's just a little bit of time to get the dozers out and get the roads taken care of. You know, safety is our number one priority, and all of these things are are temporary, and like I said, you know we're gonna have these resolved in the next couple of days. All right, Toby, great stuff, Really appreciate you taking the time to walk us through that, Toby Rice e q T President and CEO.

If you march towards the close of trade in Europe, we have thirty minutes left and looks as though we're still seeing some little bit of bit into German debt markets, but overall we are seeing a little bit of nervousness when it comes to the overall equity market and the

stocks fifty is currently off by six tens percent. Let's talk about the ECB, about some of the warriors in the European economy, about the outlook for twenty three with one yends eisen Schmidt, his chief European economist and Morgan Stanley. He comes to us on vacation but very kindly turns on his terminal, checks in on his emails and joins

us live. We thank you so much, ends happy in between the Christmas festivities and New Year across Europe, and just tell us a little bit about whether you are gathering around your family tables and being peppered with questions as to whether is going to be as bad as Yeah, I thank thanks a lot for for the kind words. And indeed, it's it's always the time, this time of the year when when we economists and our families probably are getting getting tough questions in terms of what's going

to be like next year. And now my other leg of the family, my my wife is Spanish, so it's in Spain. The typically I get a whole host of questions also in Spain. You know, um, first time I got tough questions goes around there the housing crisis here in Spain or the banking crisis if you want, That was over seven or eight and levels of the film you that house prices are unsustainably high. That didn't get me a lot of let's say, sympathy around the Christmas table,

but it turned out to be right. Now this year, I'd say Spain, at least according to our forecasts, it is probably doing relatively well within the set of countries UM that that formed the R area where Germany is probably the language. We're looking for a recession, a mild one UM in terms of overall year and year growth numbers. Twenty three. V think it's a point too, which is slightly slightly it's had above consensus, it's it's it's slightly below what the CD recently has been saying in their

expectation twenty three will look like UM. But you know, I think that the main point here is that the short term dynamic is pretty much well telegraphed. So we are looking all of us, all professional forecasters, including the should be, are looking for a contraction in Q four, which is within the p M s and it's also looking like the latest release of how data are confirming that another contraction quarterly in Q one, And then the debate starts. Is the recovery relatively strong or is it

more muted? We think it will be more muted. For instance, the US to be things that will be much stronger, and that has been probably one of the key ingredients and their relatively strong rhetoric at their last meeting in terms of where weights have to go. Ay, gents here in the US, as people think about different scenarios for a potential recession in twenty three, we do have to

backdrop that the consumers in pretty good shape. Unemployments at a near historic lows, consumer retail sales continue to be pretty decent. Here give us a sense in Europe how that how the consumer is faring right now? What's the outlook for the consumer as we head into twenty three? Yes, so I think this is a key question also for us here right. I mean, first of all, clearly, the consumer side of the econ many it's not as strong

as in the US. That's historically always been the case, So it's it's it's still a very important part of GDP, but just not as high as in the US. That's one second. We have seen lots of impact on things like consumer confidence surveys already since the start of the war in in February, but a lot of that hasn't materialized so far. So for instance, the Q three growth numbers, the last we have for the U area have been

particularly strong and driven by consumption. Now the debate is on whether that is actually a reflection of the physical spillovers um or whether this is still you know, COVID reopening dynamics plus excess savings. I mean, there are elements

of all these in there. But it's clearly the case that the consumer consumption on our and our expectation, and you know, if you look at data, it's it's it's very difficult to deny that there is weakness to come and that is essentially the backdrop of our growth expectation, of all weak growth expectation that essentially the hit to real the supposably income is coming through inflation will be

such that consumption will take a big hit. Okay. It's interesting because we had Charles to us this on from Society General on yesterday talking about he thought maybe that would be the wild card of the consumer would be more strong, stronger than anticipated in for Europe. And interesting to hear your counterpoint to that, and I wonder, therefore, what what for you might be the upside risk here?

What might be something that comes in that's better. You know, we hear about a slowing of inflation, we hear about the ECB managing to understand the impact of that. But is there any way that you think some of the energy markets might be aimed better than expected with Russia Ukraine being the ultimate world card for the entire year.

So I mean it's it's it's good to sort of go back a little bit in time, say around the middle of this year, when essentially, but it became increasingly clear that Russia would turn off the gas supply um in an increasively aggressive way than during summer, we have seen huge increases in natural gas prices in the in the area, and of course extrapolating that and associated with

that increases in electricity prices. And we have seen this for the first time actually in years that for one or two years out in the future space electricity and natural gas grow trading really at very high prices. Lots of clients raising the question whether that, you know, what is the future of EU industrial base given these prices. So this is the you know, the back drop in the summer. Now, of course, against this or relative to

this back drop, things have improved marketly. So I think this whole spectra of rationing of energy electricity that has vanished. So we have seen a significant drop in both oil and gas prices. Um. Now, the consumer tends to be at this stage protected depending on the country a little bit by by by seeking AFFICN fiscal measures, and I would say, I would characterize this is the biggest upset

risk in the short term, in the near term. Now, in the medium term, we have this thing that of course relative to summer, the energy backdrop looks better, um but monitor policy for instance, looks decisively more aggressive. Um. So in that sense, I would say, in the short term, there's very little you can you can think of. I mean take away from the dynamic that you have that essentially consumers are hit by these huge inflation rates and that that eats into disposable income and that must do

something to consumption. There is a little bit of an element of if there's a fiscal spillow is more physical, then maybe it's needed. Then you get a bit of a boost consumption. But overall the outlook is relatively muted. And then the discussion, as I said before, is really focusing into is the energy side giving way having you know,

essentially a better better outlook and better prices. Is this, you know, dominating or is really the fiscal Sorry, the monitor policy of response dominating in here as in terms of it'd like to growth. Just in the last few days, a big, big change in China zero COVID dropped, UH seemed to be reopening extraordinarily quickly. That's got to be good news for that European industrial base. I'm thinking about, you know, our good friends and Munich. It seemens they're

gonna be feeling pretty good this morning. Is in this air for nooon as they think about their opportunities in China. How does that factor into your outlook? So we have been looking into this in terms of scenario analysis and looking into elasticities there. Of course we've been in touch

with our China team on this one. So when people producing amongst Stanley all the noble outlook, and you know, Robbin was one of those that were relatively early and actually they are now about consensus with their core in terms of growth for twenty three and they were relatively early in calling for reopening happening. Now what happened there is that they I mean, if you were looking close are in terms of a what would be the new

sources of growth in China? It's it's a bit more domestically oriented affair A and B H elasticities are that is near nowhere near as big that we would sort of get a huge impact from that. Having said it, of course it's a positive, but it's really not not the game changer in the sort of generalized state of affairs where we see a drag on growth coming from

these two sources, which is consumption and investment weakness. And I've got some recentcy bias and you can hear it my voice that I haven't been in Spain for my holidays, but I was back in the UK talk to us a little bit about the strikes. The For me, there was a sense of just lack of hope coming from

various members of my family in the United Kingdom. What do you see from an economic perspective at the moment, So the UK for us, it's clearly if you sort of look at the European specter of things, it is clearly the country legging things most simply because you know, it has essentially the worst of all worlds, and it combines, of course the same sources of the growth if you want,

investment weakness and consumption weakness. And you know, again here against sky high inflation rates um and and you know very sort of you know, not not very significant or not not very high wage gains that can can sort of go against the class. Of course, you have this additional titan in coming in through the bontom my kid, and here the mortgage market. So all in all we see this economy shrinking by more than your area economy um.

And you know, the recovery being even more lack luster than than than here in the in the your area continent. So yeah, in that sense, it's indeed a little bit of a sign of lots of structure reforms needed um and lots lots of more adjustment needs to come. And of course the labor market here that doesn't really help, right, I mean, and I guess it's also a question of migration. How much migration can you get into your labor market.

And I think here continental European labor markets are better better place to to to sort of get get through tight tight moments or moments of tightens all r. Yeah, it's great stuff. Really appreciate you taking the time, particularly on your holiday. You get a gold gold star for that, y I can smit Chief European Economist for Morgan Stanley. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever

podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Pet On Ball Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio