The total amount that would be wiped out by the slow down of the world economy is going to be between now and six four trillion dollars. This is the size of Germany g d P gone. And when we when we look at the picture, we are asking what are the drivers and of course what can be done? Hello Stephanomics, here the podcast that brings you the global economy this week from Washington, d C. For the meetings
of the World Bank and International Monetary Fund. Though as you'll here, I have an entirely escaped the crisis battering the UK. It's the first of these meetings they've been able to hold a hundred percent in person since before COVID, which might have added an upbeat tone to the proceedings if the news from the world economy hadn't been so bleak.
The I m S Managing director Chris d'lina Gorgieva kicked things off with that morning that Shion would blow a Germany sized hole in the global economy by six and that rather set the tone. It's inflation that's causing the trouble. Inflation and central banks efforts to control it, which have produced the largest, most synchronized increase in interest rates the
world seen in thirty years. In a few minutes, we have a report from Maria Eloisa Caburo in Brazil on the way high inflations infecting daily life in Latin America and upending the region's politics. We also go to Beijing to find out exactly what's involved in covering the Chinese Communist Party Congress happening next week, and we're told hugely important for cementing the rule of President shi Jing Ping. Theo's Bloomberg correspondent Callum Murphy explained working out exactly what's
happened is going to be a challenge. But first, here's some of a conversation I had with my friend, the Financial Time senior economic commentator, Martin Wolf. The event was hosted by the Institute for International Finance and moderated by its president and chief executive, Tim Adams. He started by asking us what on earth was happening in the UK? Martin, tell me about your new prime minister. What's she going to do well? In my I think my last column
them ended up. These people are mad, bad and dangerous. They have to go. This was a serious understatement. So oh, I didn't expect them to know. I just want his treat to note that I called it. We have a
government that came in with a plan. Uh plan is far too fancy a word, a a manifesto, agenda of how Britain will be fixed forever, essentially of an idealized Thatcher, without the fact that that was a great politician, which is quite an important distinction, or in American context, Reagan Reaganism, and he was also a great politician, which these people certainly aren't. I'm not sure that even now understand it.
I'm very happy to talk about economics and why it's all problematic and what on earth does the Bank of England do when everybody can see that the government is
run by lunatics. But the really interesting question is how our group finished here, is how this happened, And I think the answer to that is, in extreme form, we are going through a political crisis, crisis crisis in the political institutional system, which we are also seeing in different ways in some other G seven nations, not all, and and this has become increasingly obvious over the last at least twelve, fifteen, twenty years that spends when you start
the COCA every party coalition doesn't work anymore. And in this case a really rather small part of the Conservative Party coalition from an electoral point of view, but a large part of the membership, which is tiny now really tiny, chose a Prime Minister who represents at most perhaps a third depends on how you look at it of them of the views of the members of Parliament. And that's what we're living with. Let's give it a little bit of growth. There is an ambition to have capital formation
focused on supply side growth. When you say there are some elements there that are worth pursuing. It is true that the UK has lagged behind other countries since the global financial crisis in terms of what looks like it's sort of potential growth rate. I mean, none of them are looking great, but the UK was definitely had taken
a step down post global financial crisis. And some of the idea is in the quasi quatngs growth collection of ideas to maybe not plan were perfectly good, but they involved some difficult things like planning were formed to really insist that houses get built or make it easier for big infrastructure programs to get built. One problem with some of our agenda was that a lot of the natural enemies are conservative supporters, the people who don't want big
housing estates built in their backyard. And another was that this we've already gone quite far down this road with Margaret Thatcher to the to the extent that it was a deregulatory agenda or low tax agenda, we'd already gone further than most other countries. There are diminishing returns. The major issue is a program like that. We have not there's not been centered around tax cuts in the past
that were unfunded. And to make that kind of gamble at a time when the markets were quite likely to punish, punish that in a way that would be completely self defeating, I think was was the really foolish thing. I mean, if you want growth, you don't tank the currency and lead to a further run up in borrowing costs that's actually going to cost you more in the long run
and probably hurt growth. Oh and by the way, in order to reassure about the long term fiscal strategy, you're looking at around forty to fifty billion pounds more squeeze more austerity than George Osborne did. And a lot of that the easy things to do, like cutting public investments that will hurt growth much more than if these tax cuts would ever help it. You can't do rea economics in the UK period, but you surely can't do it in the middle of a world crisis. I mean, come on.
But the other question you asked is would it work economically, And as I've tried to explain them and go through it, the answer is no. The we don't have a very deep problem of personal incentives. Are tax ratio is by the standards of most of our peers pretty low. We're not the US and we will never will be. Um.
We have incredibly low rates of corporate investment. But the tax on corporations that they're going to introduce is the one that was introduced by George Osborne, which did nothing for corporate investment, which, by the way, I said at the time, if I think wouldn't it's economically frivolous, to put it bluntly. So Andrew is in a tough spot. He's got a fine inflation at the same time, is in the guilt market today and maybe extending for weeks to come. The Bank of England's in a tough spot.
How does he navigate this? Um? Well, I think what he has to do is use every institutional means he has, and it may or may not be enough to cajole behind the scenes the Chancellor and the Prime Minister into putting forward a fiscal plan which looks are sustainable. If they have a fiscal plan which looks sustainable, then the pressure on sterling and on the guilt market. It's clearly going to have much higher interest rates than before, but that was going to happen anyway for various reasons, and
that will affect the public announces, So that's important. But the Central Bank cannot maintain stability in the bond market for a government that has a fiscal plan which everybody regards us crazy. This is that now we get into a problem that is going to be faced by other places, not least the ECB when it thinks about Italy. We're going to have a dynamic with a lot of countries about how much do you let investors make a new judgment about the long term sustainability of debt without that
is that is harsh? Um, how do you let that happen whilst but avoid sort of great a risk. The CBS problem is going to in my view, but I've tried not to write about going to be even bigger, and I segue into Europe, and then I'm gonna turn to the audience. You and I Remunich a few weeks ago for a conference. The outlook for Europe is pretty bleak, given energy prices, potentially energy rationing, obviously a war on
the eastern periphery of the continent. Uh It's tough times have had rates are going to have to go up as well as as we've seen. How do you see Europe? And throw awa In politics? We have had elections in Sweden, We've had elections in Italy which have turned decidedly to the right. Although we can debate about how right it truly is, some of it is is less um, less
problematic than that. Maybe the headlines, how do you see Europe given that we were just in Germany, Well, let's go for the context and then think about the policy choices, particularly central bank, we're going to have. They're going to
have a deep recession and it will uh um. And I don't think there's much they can do about it, because it's a real shock and they have obviously done very very well, I think, probably as well as they can to try and manage the gas situation, and nobody knows how the well eyesactually don't know how this will play out. But given what's happened to prices, share availabilities, the industrial impact and so forth, it's going to be severe.
It's also going to be differentiated. This will be a crisis in which Germany will be really seriously it it's it's in the cockpit, as it were. Italy is also very vulnerable because of its dependence on gas, Russian gas, but it's worked quite hard to get to other supplies. But it's clearly there's a big, huge, real shock, and that follows the real shock of COVID, so that two
massive real shocks. That's the first point. The second point is at the EU level, I would say, and include the ECB here overall, the political response to these crises, given that it has been so far remarkably good, by and large, they managed this as well as you could really imagined. Third point, however, is that the real tensions I think are to come, and and they will come
in two directions, people and markets. The people level is will people be willing to accept the policies on Ukraine in the context of this, And the other point is the CBS tank needs you say, there is going to be immense political pressure, political pressure coming from the economics. How is the new Italian government going to fare? And is the ECB going to be able to stabilize those debt markets? So there are huge questions about the future. You will be excited to hear that I don't completely
agree with one of them. Normally I would match him, you know, step for step down the dark alley of pessimism and glue might be there. But although governments have not been good at some things, these storage levels are incredibly high. They have actually brought a lot of the gas imports, all energy imports onstream faster than many people expected a few months ago. Um, we are energy sort
of consultancy bit of Bloomberg. Beneft actually estimates that this that the demand for energy for gas going into this winter is running about seventeen percent below the five year average. So you've seen quite a big demand response despite I might say government's actually cushioning way too much of the blow and not allowing perhaps enough of that to happen
with these massive fiscal programs of France and Germany. If you have a reasonably mild winter that could actually mean that prices fall quite dramatically, and then you get a positive of reinforcing effect where that Europe is not having to spend quite so much. Suddenly importing gas we think at the moment it would have to be about five percent of GDP, and that's one of the things that
squeezes the economy, pushes it into recession. So I do think there is a possibility that in a few months time we will sort of say, well, Europe's got too much gas? How did that happen? It isn't our sort of main scenario, but I think this is probably the one area where I think the risks are potentially on the upside. Where I agree with you is I think there's the seeds of real solidarity issues. So the German plan,
they're not going to spend to underbillion. They always say they're going to spend a lot of money, and then in a sort of Germanic way, they find a way to spend much less. We think it will be less than that, But you are right that it sends the French plan. The German plan sends a signal to send released in Europe that they're willing to just spend all It takes to cushion their households, and the countries that are most affected that can't do that are sort of
left on the sideline. In Europe is important and if you get a very hard winter, the question of sharing of the available stock of gas becomes very critical. And I think we don't have an answer to that, but there is a possibility things will be back. Let's turn to the audience. This gentleman right here, Thank you, Matthew saw I f cum according to the sentatis are failing quote in Bloomberg this past summer, supply factors account for more than half of the current level of inflation. Housing
it painted because we hadn't invested enough in it. Supply change are stretched because we hadn't invested enough in on shore manufacturing energy. Yeah, there's a war to serve that we need to invest more. Raising interest rates doesn't exactly encourage an investment, in fact makes everything more expensive. So do we actually have a death sparreal of inflation because cental banks are using a wrong instrument for the job.
My view is a fairly simple one. To create a lot of inflation, you need a lot of demand RelA to supply, so uh, sort of pretty basic So if supply was more constrained than we realized when the the boom, when the recovery from COVID occurred, that was an argument for having a greater demand contraction, not less because it was constrained. So the basic logic of this just makes
no sense to me. That would be a case for saying even more strongly what I thought that once it was clear that we're going to have a very very strong recovery, the unbelievably easy monetary policy of which I wrote my first call, I'm worrying about inflation in made twenty, combined with his massive fiscal expansion, was bound to be inflationary. So once that stops and is halted, we would expect inflation to fall a lot because those temper three factors go.
The energy scene is not temporary as far as I can see. Well, if it's a permanent supply constraint on energy, then that part of the story of what you have to adjust to. But the problem is now, if you look at inflation, core inflation is really quite high. It's not just headline for the which is basically food, energy, these elements, and core inflation is high because we've got
an overstressed. We've got an overstressed supplying situation worldwide. Demand therefore has to be contained somewhat ideally in ways that would allow investment to rise, which is why, coming back to our earlier discussion, the fiscal monetary policy mix that we are proposing in the UK is a gain nuts. Unfortunately, my watch tells me it's time we've got to go.
Martin's new book, The Crisis Democratic Capitalism, will be out January January m h. There's no subtler, no surer means of overturning the existing basis of society than to debauch the currency, so wrote John Maynard Canes about inflation in supposedly quoting Lenin in Latin America. Double digit inflation today has started to undermine the rule of law in some countries, and the argument over who's to blame for rising prices has hit the streets. Here's Brazil economy reporter Maria Eloisa
Capro Mike at oil Way. Well, wait, eggs are the worst. You have to be reached to buy them nowadays, a millionaire even, that's my A shopper in the Columbia city of Rio Ata, near the border of Venezuela, it's eggs, cheese. I honestly don't see anything that's cheap in my consumption. Ambascue. Yeah, she's three six and takes care of her father, and she says that in order to do that, she will need two million pastles just to barely get by on a regular month. That's about four hundred U s dollars.
Eggs used to cost her five cents, but now Jave doubling price, and eggs are just really one in a number of basic food items that have gotten more expensive in the last year. Milk went up thirty eight percent and plantains sixty It's not just Colombia, It's happening all across Latin America. High inflation is widening the gap between the reach and the poor in the most unequal region
in the world. At least one third of the population in Latin America we'll meet the criteria for being poor, and if some estimates are true, they will face an inflation rate that is a full percentage point higher than that of the rich. To paint from inflation is appending politics in this region of the world, and politicians who want sustain power are raising to find ways to help
their constituents pay for the gas and groceries. In Colombia, Maria ellis that woman who struggles to buy X. She voted for Gustavo Petro, who got elected this year as the first left wing leader in the country's history. She believed things would change under Petro and welfare benefits would increase, but inflation remains her main concern. And that's because inflation is above twelve percent for the poor and the vulnerable,
but it remains at single digits for the rich. Their vulnerable spend more of their consumption budget in food staples just at that time when inflation is driven by food, so that makes inflation higher for them. In Brazil, inflation for the poorest he had two digits months before he did so for the rich. Now, consumer prices are falling for everyone, but mostly on the back of recent tax cuts. Us un Nestor levision, head economists for Latin America at
City Group. This round of inflation is even more handful for poverty levels and income distribution because it's affecting food prices and in the initial stages energy prices such as gasoline and electricity, so the day to day lives of consumers is more difficult. Petro's government might now need to cut long standing self service that helped lower gasoline prices in order to free up money to make higher welfare payments to the poor, and with that his risking products
from drivers, trackers and many of his own borders. How to ease the pain from inflation without breaking the anc is a lement that many other governments in the region face, and it's grabbing the attention of world leaders. Protesters block high winds in Panama, Strikers in Peu demanded state health for the poor. Riots broken equal or oversawing costs of living. Peu and Chile opted for radical change of government as
the pandemic students long standing inequalities. Here's revision again. If we consider that there was already discontent in Latin America since two thousand nineteen and before, and we put on top of that the worst economic crisis in the Depression and a very unequal health crisis with COVID nineteen, the
probabilities of unrest are clearly increasing. President andress Manuel Lopez of Radar has managed to keep his approving ratings above despite high inflation, and that's because his convinced borders that things would be worse without him. The key might very well be at twenty two million package of gasoline subsidies and social programs that reached many voters, but in parts of Mexico like the middle class and industrial areas, his
enchantment is well enough for now. Mexican hardware store owner Causes Avala remains undecided, but my stick with Lopezo Rador, who's also known by his initials Ect. We talked about how expensive things are. Everything is going up. Vegetables, chicken, meat, it is really expensive and that takes a towel in my budget. It's too expensive. Milk, bread, it's really expensive. Savalis a widower and has his daughter and grand daughter to take care of, and though he is stressed all politicians,
he still says that Amlo wanted to change things. Next year the elections for governing his state, an Amblos party might have a voter in Savanah. We complain about how expensive things are, but it's only that and why I don't really know. I don't really know to tell you the truth. But everything is more expensive now in Brazil. In fusion is one of the main things in the
presidential rates. Here's an ad from former president Listen Silva, who's trying to secure his comeback to the presidency, that Fili under Lula, families were able to buy much cheaper food staples, but under Boso minimum wages barely afford the basic consumption basket. Lula is trying to remind borders that their purchasing power was higher under his presidency. It could be working. On the first round of the presidential election, he got forty eight percent of the votes and he's
headed to a runoff as the favorite candidate. The incumbent Jaibelsonato had a later wakened too inflation problem. I'm back. In July, he pushed for a multivillion social program that included gasoline tact cuts and boosted paychecks to the poor. Bosonato plans to keep throwing money at the problem. He's promising more social spending to improve his standing ahead of
the runoff. As politicians from Mexico to Chile worked to prevent unrest among their citizens, Latin America is proving how high prices of eggs, cheese, and gasoline can distrut politics. For Bloomber News from Brazilia, this is Mariello. Now there's an event starting next week in Beijing, which is almost certainly going to be more important for the future of the global economy than this week's i am f from World Bank meetings, But it's also a much tougher gig
for journalists to cover, especially foreign ones. The meeting in question is the Chinese Communist Party Congress, which happens only once every five years, and this year is being built as a critical test of President Chi Jingping's hold on the party and the future direction of China. Well Bloomberg Government reporter Colin Murphy is one of those benighted foreign journalists in Beijing who will be trying to cover the congress. Column. Thanks so much for for coming on Stephanomics your debut.
This is a party congress, now, obviously. I mean in the UK we've just had these annual conference is of the major political parties. In fact, we had to report the other day from the Conservative miserable Conservative Party one. And I guess if you had those words in the US, you might think of the party conventions that you have in the summer before a presidential election. But this Chinese Party Congress isn't anything like any of those, is it not at all? It's first of all once every five years,
and the scale is quite impressive. There's more than like two thousand delegates will descend on the Great Hall of the People in Beijing, and basically it's it's a lot of theater, it's a lot of you know, reinforcing how China's Communist Party has succeeded over the past five years and why it is necessary that China maintains the Communist Party going forward. So it will be a lot of looking back on achievements and also pointing towards the future.
Just to sort of think about it from your perspective, what will you be able to cover and how challenging do you think it will be. Yeah, it's it's a little bit of a sort of paradox in a way because you know, this is a major milestone and in terms of reporting assignment in China, it's one of the events. But even though this is the case, the reality is that our access to the event is very limited. Regardless
of whether we're they're in person or not. Access to the actual delegates and to the leaders is you know, minimal, in fact non existent, I would say, but I would say, you know, access is is not just an issue for the Congress itself. It's also an issue generally being a foreign reporter in China, and it's one that's got increasingly harder and more more constrained in the past two to
three years. So for example, you know, speaking to officials or even academics at universities, which for reporters, you know, it tends to be kind of a low hanging food. If you want to get an expert quote, you ring up a university and and and they you know, talk to an expert. Even something like that has become increasingly difficult. In the end, if you're lucky, they will come back to you and say no, we can do the interview.
So so that's that's definitely an aspect. And of course, you know, this also extends to the broader Chinese society because there has been this pronounced demonization of foreign journalists in China through the state media propaganda. When we go out in the field, it can become a security issue. People can get um, you know, quite sort of aggressive
in trying to stop people from reporting. So just going back to the convention, I mean, I'll be watching video of that and then or you're on the sidelines trying to talk to people. I'm just trying to get a sense of how you physically report it. So it will depend on the event sort of. The main opening event will take place on October sixte and that will be in the Rate Hall of the People, which of course is this massive structure in the center of Beijing just
off Tianamen Square. Most likely what will happen is that we will be sent into quarantine a couple of days in advance to a hotel. Uh. Then we will be transported by a bus from the hotel to Tianamen Square. They'll bring us up to one of the higher galleries and there'll be rows upon rows of delegates and probably up on the front there will be a dias with
you know, the leaders. And at that event, President Seating Pain will will give a work report, a long speech which can go on for anything up to three hours um. And I guess what I'll be looking out for in that capacity obviously will be following the speech as closely as possible, but also looking for any sort of um, you know, color that we might see on the day. What's the reaction from the audience, what's the degree of applause,
which which part of the speech got more attend mention. Uh, you know, was there music playing, so on and so forth. So basically just trying to capture at that moment there might be some hiccup which you cannot rely on the TV feed for so I would say, you know, depending on the reporter that you ask. I personally am quite excited about sitting through three hours. I do think it's a historic event. You're really selling anyone who was wondering
whether or not to be a foreign correspondent in Beijing. Gosh, you're making it sounds so good. Yeah, it is a little bit. It's a bit sad in the way that, you know, the access on the ground, which is the whole purpose of being a foreign correspondent, is it's curtailed.
But you cannot replace the fact that we are on the ground in Beijing, that we we do have access to at least the pageantry, but also talking to people who live in the city and listening to the conversations around the congress, and much of that is actually related to COVID these days. And we do know, we I mean, we do know that it has hurt hurt the economy,
and I'm interested. Um, as you say, people waiting to see once this congress is over, whether the government's going to be willing to start living with a bit of COVID. And there's been some talk online about discontent with the policy perculating up through social media and accidents of involving bus loads of people being taken into quarantine and then
being complaints about that. I mean, would you say that there's been an uptick in in sort of visible opposition, you know, by by the standards of communist controlled China, definitely, um, I would say that the more and more people are expressing dissatisfaction with COVID zero, there is definitely more voices coming out complaining about COVID. We only see these sort of protests in in in pockets at a very extreme moment.
So for example, during the two months lockdown in Shanghai, we had a couple of protests, and then there was, of course, as you mentioned, that bus tragedy where a couple of dozen of people were killed being transported to a quarantine center. And all of these acts sort of like flashpoints where you have a bubbling up of of sentiment and people become quite vocal or expressive on social media, but they tend to die down. So all said, the answer is yes, there's an uptick in frustration with COVID.
Whether that would influence any government decision is the next question, and it's unlikely that there will be any major changes. What we might see is some sort of incremental uh you know, small measures being relaxed here and there. But overall, the direction of COVID zero still looks like it's it's going to be in place for some time to come.
People who have heard about this Congress will have heard that it's very important for s Jing Ping seal his position potentially as president for life, certainly for a for a third term. What should we watch for first signs that it's been more or less successful for him? Relatively? Right? Um So, yes, I would say that what I'll be looking out for anyway in the coming weeks will be the combination of the Politburea Standing Committee. Right, so, this
is the top group of leaders. We will be looking very very closely to see who exactly all of them wearing the same suits, probably and probably all men as well, I will add, um So, that will happen roughly around one week after the opening ceremony. We will they will be paraded out and they'll come out in order, and then we will all be jumping on that because we want to know how many people on that Standing committee have an association which she are considered to be part
of his, his, his, his group. We'll also be looking at like what sort of backgrounds they have, what expertise they have, are they more ideological or are the technocrats and so on and support. So that's basically the key thing, I would say, But we'll also be looking for things that sort of indicate either a consolidation or an elevation of she's stature. And one of the things might be like what sort of titles he might get in the process.
So one of the titles might be People's Leader, which would be a sort of an elevation or a confirmation of of his sort of supreme importance to the party. These are a whole combination of things that we'll be looking for, but obviously to get to the specifics of the policies, we'll have to wait until next spring, when the MPC takes place in March. Usually in March in Beijing, that's where we start to see more granular details emerge, and also that's the time where she will actually get
the title of present, that's it for Stephanomics. We'll have more on China next week and who knows what else in the meantime. Do please rate the show and check out the Bloomberg News website for more economic news and views on the global economy. Who should also follow at economics on Twitter. This episode was produced by Summer Sadi Yang Yang and Magnus Hendrickson. May ir Back and Matthew Bristow helped with the reporting of that Latin American inflation story.
Special thanks also to Martin Wolf, Tim Adams, Maria Aloisa Gaborro, Daniel Cavallo, is Adora, Colombia, and Callum Murphy. Mike Sasso is the executive producer of Stephanomics. This episode has been corrected just to accurately identify Christine Naggeva, the managing director of the imf ST