Bloomberg Audio Studios, podcasts, radio news. The Golden SAX Annual Global micro Conference for Asia Pacific getting underway in Hong Kong right now with more than two thousand investors, policymakers and amlest gathering to really go over the economic outlook for the year ahead. We're trying to correspond the mime and Low is there with our next guest meme.
Thanks Heidi. Certainly what those Trump terry scheme for the global economy is an important theme here at the Global micro Conference. And the perfect guest to join us here discussing this is Jan Hatzias, a chieved global economists at Goldman Sex. So Jan, really great to have you here, and I want to start with what's happening in the
US because obviously we're waiting for the inflation data. We had a very strong jobs report on Friday, and we've seen you spiking investors really stop pricing in anything more than a full rate card. But your house view, though, is still that the Fed will cut twice this year.
Why is there Basically because we think that inflation is still on a normalizing path and right now we're at two point eight percent for the core PCE measure that the FED watches particularly closely. We think that's going to go down to about two point four percent by the end of the year. And even of that two point four percent, about thirty basis points in our forecast comes from tariffs. Tariffs are more of a one off effect, it's a price level effect, so you might want to
sort of downweigh that thirty basis points. And the underlying inflation rate in our forecast is two point one percent, which is very close to the Fed's target. So in that kind of environment, I still think you're likely to get a couple of cuts, but clearly the FMC is in no hurry, and therefore we think it's probably going to take until later in Q two, maybe the June meeting, for the first cut to be delivered.
As you said, inflation is actually still quite well, quite well above that two percent target. Do you see any risk of no cut at all? And underw scenario, I.
Think you can. Look, there's always a range of scenarios, so it's hard to really rule anything out, especially when it comes to monetary policy. Monetary policy has to be very data dependent and respond to new information. So if we were to see very sticky inflation closer to three percent throughout the year. Yes, I think in that case
they might not not cut. That's a possibility. But again, if I look at the adjustment that's occurring in the economy, the trends in the most least noisy components of inflation. If I look at the labor market rebalancing that we're seeing even after the strong jobs report, in the slowdown in wage growth, to me, that suggests there's still some room for monetary policy toized. After all, the funds rates still quite high at four and a quarter to four and a half percent.
Okay, so you see the set cutting as a way to normalize rates. But meantime, we actually have the news today that Trump's economic team is looking at possibly a gradual way of a gradual approach to those tariffs, hiking maybe two to five percent per month. And to me, this sounds like is just going to be a giant headache for businesses. So what is your take on this and how it's going to shape global trade in businesses?
First of all, I'd say there have been a lot of different reports about tariffs. I mean, I think we can have pretty high confidence that tariffs are coming in some form. What form exactly they take, I think is still a little bit open to debate. There is a there are different approaches to rolling out tariffs. You could do a ten percent tariff immediately, or you know, maybe a twenty percent tariff on China. That's our baseline assumption, but you could also roll this out more gradually.
You know.
I think which one is more damaging or less damaging is a little bit of a judgment call, because if you go more gradually, then obviously each increment is pretty small, it's kind of predictable what happens next, but it also lasts for a longer period of time and you don't get it over with in some sense as quickly. So I think those are ultimately probably a little bit more details.
The important point is that, yes, I think tariffs on China and probably on auto imports from Europe are probably coming. That is part of our baseline, and that is going to have an impact on inflation and on growth, not a huge impact. These these kinds of tariffs that we have in our baseline, they don't negate that we still have a pretty constructive inflation outlook and an above consensus
growth outlook. We're two and a half GDP growth for two thousand and twenty five, which is still about half a percentage point above the consensus.
Okay, and I want to talk about China here, because your house view is that we could see the CSI three hundred gains some twenty percent by the end of the year, which I think is one of the most optimistic ones out there at a time when investors are pulling out of China, and in fact, you're thinking that the CSI three hundred will outperform the SMP because your outlook there is an eleven percent gain by the end of the year. What is underpinning this very strong outlook on Chinese equities?
It's really more a view on valuation and the fact that quite a lot of bad news is already priced in China, whereas a lot of good news is priced in the US. From an economic perspective, we're above consensus for the US is are just noted, and we're more in line with consensus on China four and a half percent growth. We do think there's going to be an impact from the tariffs that we just discussed, although I think a significant part of that is going to be
undone or cushioned by policy stimulus. But from an economic perspective, you know, our forecast is deceleration from four point nine percent last year to four point five percent now. But that's not the only driver of equity market and financial market performance, because the initial conditions and what investors already discounting also plays a role.
Right. What is your expectations of the sort of stimulus we could see from China.
We think it's going to be a broad range of measures, you know, rolling out additional monetary easing, fiscal easing, and support for the housing market. I'd also note that if you look at the housing markets, obviously a very big downturn that we've been seeing unfold over the last few years that is still ongoing, but in certain regions at least we are seeing some more positive developments on home sales.
I think housing will continue to be a headwind in a bigger picture sense over the next several years, but at the margin, in the higher frequency data, we are getting a little bit of support, suggesting that the policy easing is having some effect.
Okay, I want to touch on India because India had been that bright spot last year and gaining importance as concerns mount around China, but we do see India sort of prrying back expectations of growth. We've seen a market seller recently, the currency plunging. Are you still optimistic on the India story?
Well, I think what we've seen in India has been above trend growth and growth really at an unsustainable pace. We think that the potential growth rate of the Indian economy is closer to six percent, and we've been running well above that. So that transition from a and above t rend pace to more of a trend pace that was always going to occur. And of course these transitions can be you know, a little bit disruptive and investors,
you know, maybe disappointed as growth slows down. But in my view, it's really an inevitable deceleration which we'll go through now. But if I look at the longer term outlook, you know, something in the six plus range, I think it's very realistic for India for many years. And that's a very rapid potential growth rate, even if it's not quite as rapid as the numbers we've been printing in the in the recent past.
All Right, thank you so much. Jan. That was Jan, chief Global Economists at Goldman s