Lost Opportunities for Asia’s Lockdown Generation

That optimism would have been well founded. Any young person growing up in one of the fast growing Asian economies could expect to end up comfortably better off than their parents. But it doesn't feel that way for those just entering the jobs market in The pandemic has hit job prospects for young people in Asia hardest of all. They're calling it the lockdown generation, and Bloomberg Senior Asia Economy correspondent end the Current is going to tell us all about

them a little later. But this week I also wanted to give you a sneak preview of some smart analysis we've been pulling together for Bloomberg's New Economy Forum, which will be entirely online this year but starts on November six. All the Bloomberg economists have been put to work on this. Later on we'll hear Eurozone economist may have a Kuzin tell us about a project she's done looking at how climate change could affect the global economy under different scenarios.

But first, our chief economist, Tom Olig, a great friend of the podcast, is here to give us an overview of this special report. Tom, I've got the report in my hands, hot off the presses. It's going to be available on the Bloomberg New Economy Forum website any minute now, which is a rare treat for those of you who don't usually get to see Bloomberg's economic research. There's so much here, but I wanted to focus Tom on your projections for what the world could look like in twenty

You're a brave man looking that far ahead. But if you step back with that kind of long term view, I guess you can get to the nub of the big forces driving the global economy. What different scenarios did you think about? Well, Stephanie, let's keep in mind that I just published a book called China, The Bubble That Never Pops, So clearly you're talking to someone who's who's

not afraid of leaving hostages to fortune. So we're looking out to the world in and clearly there's a huge amount that could change between now and then, and we're seeing in how a pandemic can shape the trajectory for

major economies. But what we've done is we've used a growth accounting framework, so we've looked at how demographics is going to change, We've looked at the likely pathway for capital spending and productivity growth, and by doing that, we've put together baseline forecasts for GDP growth over the next three decades. And then we've layered on top of those scenarios for some of the mega trends globalization, climate change,

and how they could shape the outlook. So one of the one of the pieces you did, I guess it's a familiar story in a sense, the shift in economic power from west to East that we expect to see happen in that time and that, but the numbers are quite significant. Yeah, So for the last seventy years, there's been a period of really remarkable stability in the sort

of the economic balance of power. We've had the US and Europe firmly in the driving seat, and the intellectual consensus has been centered around the benefits of free markets and the power of democracies to drive economic dynamism. Now, in the last fifteen twenty years, we've seen the beginning of a transition. China is rising, India are coming up

behind them. So what our forecast show is that this is really just the beginning of the transition, and in the next thirty years we're going to see China, India other Asian emerging markets like Indonesia rising up the global rankings. By the time we get to twenty fifty, China will firmly be in the number one spot, India we think will be number three and closing the gap with the United States, and Indonesia could well be up in the

big league as well. Now, as that happens, it's not just a geographical shift, right, It's not just a shift from west to east, it's also a shift from advanced economies to emerging markets. And it's a shift from economies which operate on a free market principle to economies like China and in a different way, India that have a

much higher degree of state intervention. And that's actually that is a very very striking so so what what what's the numbers there in terms of the share of the global economy that, if you like, in democratic hands versus nondemocratic and how does that change? Um so, um so.

So what we've done is we've interacted our forecasts with the classifications of different societies by Freedom House, and Freedom House classify societies into free so that's kind of a functioning democracy, partly free, so that's the society which has some democratic um aspect, but you wouldn't characterize it as a fully functioning economy and not free so that's single

party states. Um and So when we interact our forecasts with those social classifications, what we see is that the share of the global economy, which is which is controlled by free democracies is going to shrink from around eighties six percent in two thousand two around six and the share which is controlled by partly free and not free societies is going to rise all the way up from about four to about so a huge shift in the sort of the geographical composition of the global economy, the

sort of the share of the global economy that's classified as free market versus state interventionist, but also that political shift as well, a much larger share of global output is going to be coming from non democratic states, and you've spent a lot of time in China, I mean, it is quite I wonder whether you think that the way that China has responded to the COVID thread could make even these projections turn out to be an underestimate of China's what China's standing is going to be in

a few years time. I mean, many people think they have vaulted several years a head of the of the West by being able to manage this crisis so effectively at a time when particularly the US and Britain was

really floundering. Right So, so one of the things that could throw these projections off are a major crisis, right um, and a lot of people look at China and they think there's a big financial crisis coming down the road because China's taken on so much debt, and if that happens, clearly it would put a dent in China's growth trajectory.

What we've seen in though, as you know, is this global pandemic catastrophic impact across major economies, but China has really come out of it first and come out of it fastest. So our forecast is for two percent growth in China this year. We think they'll come back to eight percent growth next year. No other major economy is going to do so well. So ironically, even though the COVID crisis started in China, when we come out of it, it could well be that China has accelerated that process

of narrowing the gap with the United States. Now. One view of at least part of what the Trump administration has been doing the last few years, and we've reported so much on this podcast, is he was trying to fight the kind of arithmetic and dynamic that you've just outlined. He was trying to make sure that the US didn't fall behind in terms of its share of global economy,

and quite the same way that you've described. I mean, is there anything that the so called West, the US and Western Europe can do to change the outcome in in a sort of serious way. Yeah. So there's there's a phrase which you often see in Chinese policy documents, ban hoard um. It's roughly translates as do your own work well. Right, the last four years have really been a period where the US has focused on attacking China. Right, let's put tariffs up let's make it harder to old

technologies to China. Let's try and break up big Chinese internet companies. There hasn't been a lot of investment in US education, a lot of investment in US infrastructure, a

lot of investment in US research and development. Now, if the US wants to do its own work well and accelerate great at home, then I think a sort of a smart strategy would be to continue that advocacy for sort of a level playing field free markets globally, but also make those investments which drive growth potential at home as well. It's almost a shame that we haven't got President Trump doing his next summit with the Chinese leader to be told do your own work well. I think

that would go down extremely well. We should just touch on the other piece of this research, which was looking at the impact over a thirty year timeframe of ath of less globalization, or indeed a reversal of globalization. There's been so much talk about that in the wake of the both Donald Trump trade policies but also the COVID pandemic. What what did you find there and what were you looking at? So um, it's not just US China relations which are breaking down right. We have Brexit, the UK

stepping away from its trade relationship with the European Union. UM, we have covid Era concern about control of supply chains. Countries which in the first half of this year could make their own masks and make their own antibiotics and make their own ventilators were in a better position that countries than countries which were sourcing those from overseas. So there's a kind of there's a global trend towards um deglobalization that is potentially a very serious problem for global growth.

A world where global trade and technology and financial ties start to splinter is going to be a smaller world than a world where they continue you to strengthen, and it also has distributional consequences. Globalization is good for all countries, but it's especially good for emerging markets, which are aiming to export their way to prosperity and catch up rapidly

to the global technology frontier. So we explored a couple of scenarios, one where global ties continue to strengthen, and one where global ties splinter, back to the level in two thousand, just before China joined the w t O, just as Europe was creating its single currency. The consequences of that for the consert The difference between those two scenarios for global growth is really enormous. The negative impact of deglobalization is much more severe for those emerging markets,

places like China, places like Vietnam. And I was going to ask you that, So, who are the biggest losers? Are those countries? I guess who would have otherwise have done the best on the integration scenario. Yeah, it's the it's your it's your Asian it's the Asian emerging markets. It's China, it's Vietnam. A bit further up the development spectrum, it's Korea. It's the countries that have done the best from gaining global export market share and absorbing foreign technologies.

They're the biggest winners from globalization. They'd be the biggest losers if globalization now spins into reverse. Tom Warlick, thank you very much. Great to be in, Stephanie. Well, we're not assuming that globalization will go into reverse. But the COVID crisis has given young people in Asia a taste of a world in which all the economic opportunities have suddenly dried up. They're calling it the lockdown generation. Bloomberg's

and the current has more here in Hong Kong. While the pandemic is under control, the economy remains in recession. Unemployment is that a fifteen year high, and youth unemployment has surged during the crisis. Of course, the story of youth unemployment is playing out across the Asia region, a part of the world that is home to a majority of those aged fifteen to twenty four. It's why the Asian Development Bank and International Labor Organization are warning of

a lockdown generation. We reached out to young people and experts across the region to gauge how deep this job's crisis is. Vincent Laud, aged twenty, is among those in Hong Kong who's unemployed and looking for work, in his case, possibly as a waiter. It's very hard to find you all. Now when Padelica comes in, a lot of a lot of comedies start to firing the employee. I kind of afraid of unlocking any job you guys, I don't think they got hired too much people. Yeah, I'm not expecting

to a job player soon. I spoke with Felix Weibenkoff of the International Labor Organization, who is based in Bangkok. So the COVID nineteen pandemic has led to a massive disruption to the economies and labor markets in in Asia Pacific, and we found that they have disproportionate impacts on unused employment,

now threatening to create a lockdown generation. The regions fast growing economies for decades have offered millions of young people the chance to do better than their parents, a path to upward mobility now at risk as youth unemployment source. Young people are losing jobs at a faster rate than older generations because almost half are clustered in the four economic sectors hurt most by the COVID nineteen pandemic wholesale

and retail, manufacturing, business services, and accommodation and food. Young women and the poorest are hardest hit, and there are several underlying factors why used in Asia Pacific are particularly vulnerable as and the Pacific region is home to the majority of the world's young people aged fifteen to twenty four, and as such their contribution is is key to the

region's productivity and also inclusive development. Panic super Plan is a twenty year old from Bangkok who wanted to turn his love of aviation into a career by studying aerospace engineering. Those plans are now far from certain after COVID halted

much of global air travel. That the pandemic just like change everything that I have thought about my career because aviation was supposed to be one of those industry that was going substantially before COVID, and I thought that Thailand is kind of like the central hub of Asia, so I figured it might be good if I pursued this career path. While Panas is hopeful that the aviation sector eventually gets back in the air, he's also looking at

his options if aviation was not possible. I have so considered other fields of engineering, like the energy field, which I already sent some applications to. So this is my alternative plan right now. The impact goes beyond headline rates of unemployment. Professor way John gene Young, founding director of the Center for Family and Population Research at the National University of Singapore, warned that this crisis will strain relations

with older generations. It puts young people's mental health at risk and is shaping up to be worse than previous jobs crisis. And it's not just use unemployment. There's the underemployment, people who cannot find jobs, set up for something less well paid and work fewer hours. There's also people who get discouraged of looking for jobs that becomes I don't. So there are various ways that this pandemic is making

the impact of economic recession much worse than young people. Uh, you know, in a way that's much worse than any other UH age groups. She highlights the impact on younger women, especially who are forcing to unpaid labor at home as they fall out of the workforce. You know, a woman, this is particularly hard. Uh. Many of them would just become um someone in the statistics that are not in employment, education or training because of the labor market, but also

because of unpaid work demand at home. Even in China, where the economic recovery is most advanced, the government has warned that the jobless rate among young workers remains high. In Japan, companies are cutting back on hiring and the new graduates are losing their chance for long term employment. Julia Re simply completed her internship at a big tech company in Beijing, and there's now in Japan or she

plans to finish her post graduate studies. She's hoping for a job in media or digital content at some of Chinese technology joints, but she's already noticed that there are fewer roles on offer. When she first graduated in two thousand nineteen, jobs were plentiful compared with right now. I think the competition is much fiercer than before because there are so many graduates who should have fand a job

in twenty but didn't. Before the start of my job hunting, I planned to apply for some potations in some internet companies. UH this year, I found that this kind of job not available anymore. The COVID nineteen shock is creating a class of new poor across East Asia and the Pacific Core into the World Bank, thirty eight million more people will be living in poverty. In to counter long term scaring, why didn't have at the isle O says, governments need

to pour money into education and skill training. The pathway is that a lot of young people might have taken when in Asia Pacific when they entered the labor market that is now being disruptive was that used to be insectors that are now most impacted, such as the wholesale and retail trade and manufacturing. Governments need to adopt and and implement immediate, large scale and and targeted measures to

stimulate economy and use employment. Essentially, that has to do with the fact that it is now critical to prioritize youth employment if if you want the region to come

out with more inclusive and sustainable growth. And the concern we have this stage is that this will have long lasting impacts and the current crisis on the labor market outcomes of youth in the each And we know from um the previous financial crisis in Asia and the Pacific that they use unemployment rate never recovered to pre global financial crisis level of of two thousand and and seven. What is different now is the crisis due to COVID nineteen is much more widespread on both the labor demand

and supply side. When I intervide young people for this podcast, I was struked by their optimism that this crisis will pass eventually. Money like planets per plan say that they want to be ready to embrace whatever opportunities comes along. It's a hopeful note in an uncertain time. The plan for me is always learning final opportunities and never limit yourself. Maybe the plan I thought about the energy like renewable energy might not work for the next month, next year's whatever.

But I am always learning. I am always trying to find new opportunities. If you can say that you can do that, I think there's nothing to be scared off for Bloomberg News. I'm and the current mm I mentioned that our Eurozone economist may have a Kuza, who has been on the podcast a few times, had contributed a climate piece to this special New Economy Forum report. She worked with the chief Emire economist Jamie Rush on this project. But maybe tell me briefly what you did and some

of the broad brush conclusions. Yes. Thanks, So we've looked at the cust of climate change, not just the physical cost of climate change, but also the coust of transitioning to a low carbon economy to a very those physical cross from climate change, and so we've used so scenarios developed the base the n JFS and network of Central banks for being the financial sector, and we've focused on three main scenarios. One is to do nothing scenario. It's

a hot planet scenario. It's a case where UM policies simply continuous they are now no more and that would mean in temperatureizing to about probably two degrees above pre industrial times by twenty fifty and four degrees based with

than one and tread. And then there are two transition scenarios along the lines of the Paris Agreements, so to capt temperature at two degrees celsius um and that with one olderly scenario that starts now and it's gradual and it's times for the technology to mature, and when disorderly scenario which is delayed until twenty thirty. And then we looked at the different trajectories for different countries, which allowed us to um estimate the costs for various countries rather

than just global. There's lots here and it's hard to go into the into the details of the lots of people knit picking at it. I did notice one big thing which is obviously also quite worrying when you think about the political economy of this is some of the biggest economy is the ones that we look to now and we know we're going to be really important for this effort are ones that will not benefit from the

mitigation efforts for quite a long time. So you've got them having to spend quite a lot of money or at least sacrifice a certain amount of growth. For some period before they get to see the benefits of that of that cooler planet. Yes, that's right. I mean the problem is that the cust of claim a change of physical crist the conquest from hotter temperatures are are quite slow moving and it's difficult to descend thing of them to really notice them, and they become more and more important.

But according to these scenarios, they did already quest test about one percent of GDPs of today, so even the world was not so hot already, we would be maybe a one percent how your GDP, and then by twenty fifties estimate around three percent extract supercent extractors, so cost of three percent in total and then ten percent by twenty one dread. But these are central causes, are chronickers.

There are of course a lot of uncertainty. It could be um in the In these estimates they go up to maybe twenty five percent cost by to son and one dread. So there's this big uncertainty on the cost of claimate change and the fact that they are gradually increasing and maybe they will building being point where they start increasing even faster the cost of transition or or more um front cloded. So a lot of the transition

costs would happen at the start of the transition. Even in the orderly transition, they would be around two percent by twenty fifty estimated, and then they would go up to maybe three four percent by than one dread. So they are very much frontlodied. And what happens is that the focus being on the next thirty years, it looks cheaper globally to do nothing than to start the position.

But of course an one hundred and so it means that probably it quite given where it becomes more expensive, more cheaper to do something than do nothing is around to than D sixty nine, which is already quite late in terms of global GDP two day. But then if you if you look at the U S or the U, it's more like to to than a ninety to extand and one hundred um. So it's short for short stated policymakers, and you don't have to be I mean even quite

long sighted. Once we're talking about seventy years ahead, and that's that's a big challenge. If there was a central planner, we would probably be uh. I think we would have started quite a long time ago acty. But but in those current circumstances, the coordination is a key challenge. But to be clear, it's not saying that it would only

makes sense to do something in two seventy. It's just that it won't be It won't be evident you will be able to say right now that the costs are less than the benefits until the final thing I noticed in this research labor which I think would worry some incoming members of the Biden administrations who have put the climate high on their they've named it as one of their four priorities, is that you you show that if the more aggressive the US is in embracing the climate agenda,

the quicker it will be before China overtakes the US. So it sounds like Donald Trump was right. So in a way, that's high because the more discriptive costs of climate change, or the discriptive class costs of a disorderly transition will be fent more in some parts of the

world and less generally in advanced economies. Is there because they are less reliant fuels, or they have better capacities of adjusting um tailor as quite a lot of very a lot of the productivities in very urban areas where the cost of climate change from floods from very rain in particular could be quite high, so that makes them

quite sensitive. As the estimates we have at the moment is four percent course by twenty fifty for for for chain now where it's less than I think it's probably less than one percent for the US and most advant economies. So that's right, that the genuinely emerging economies would benefit more from from from from America's efforts from yeah, from everybody's effort to to to move um to an orderly transition.

That's right. Well, much to think about, and let's hope that the incoming Biden administration don't focus too much on those long term scenarios. You get the impression that they're trying to look they're looking past those kind of narrow assessments, at least for now. Maybe because thank you very much,

thank you, thanks for listening to Stethonomics. We'll be back next week with the bloom Burg New Economy Forum, where I'll be discussing, among other things, the future of central banking with a blockbuster panel of Larry Summer's, Janet Yellen ragam Rajan and Lord Mervin King. In the meantime, remember you can always find us on the Bloomberg Terminal, website, app or wherever you get your podcasts. For more news and analysis from Bloomberg Economics, follow as Economics on Twitter.

This episode was produced by Magnus Hendrickson, with special thanks to Ender, current Mayor Kaza and tom Orlick. Lucy Meakin is the executive producer of Stephanomics, and the head of Bloomberg podcast is Francesco Levy.