The Global Economic Preview for 2020

our European Economy reporter Yana Randa. We're sitting all in different studios in Washington, London, and Frankfurt, and we're just going to chat together about what might happen in and what it could all mean. I start with trepidation because I'm mindful that we spend a lot of time in thinking and talking about stuff we didn't expect to be talking about this time last year. Protests in Hong Kong, for example, or Chili. Not to mention interest rate cuts

by the US Central Bank year ago. Remember, we were expecting monetary policy to be tightening this year, and more bond purchases and printing money by the European Central Bank. We weren't expecting that. Not to mention Boris Johnson becoming Prime Minister. For goodness, sake, so we all know we're going to be surprised by what happens in the year ahead, and this is about just looking ahead what we can see.

But very briefly, I wanted to ask all three of you what was your most memorable moment covering the global economy in t Tom Wrling UM. So back in November, we were in Beijing for the New Economy Forum UM and Wang Xi Shan, arguably the second most powerful leader in China, took to the stage and there he was speaking to an assembled crowd of the most powerful chief executives,

government leaders, thought leaders from around the world. There's so many questions about China, questions about the trade war, questions about what's happening in Hong Kong Hong, and he was a moment where Wang could have really addressed these questions, and he didn't do it. He gave a powerful speech which spoke to China's domestic political agenda. And what struck me about that was that we really just don't have a meeting of minds right now. The US and China.

The trade conflict between US and China, which has really defined the global economy this year, is really just scene in completely different terms in d C. And in Beijing. It was a problem in could well be a big problem in twenty twenty as well, Sean Donna. So my momentt memorable moment in nineteen had to be sitting in a barn with Lorenda Overman, who is a hog farmer in North Carolina. Has lived on this piece of land

for thirty seven years. It's been her husband's family since the Civil War, and she had just had the worst year that she had had in already seven years as a result of the trade wars and the impact on pretty much everything she raises or grows. UH. It had meant that she had stopped cutting checks to her son and her son in law who worked on the farm, and that meant that, as she said to me, she was literally taking the food out of the mouths of

her grandchildren. It was a pretty amazing thing. She was close to tears as she was laying out the finances she ran through UH commodity prices and what that meant for her own personal finances. And then she got to the end of it all and told me that she still remained a strong supporter of Donald Trump. And to me, that was the paradox in the US economy and in

these trade wars in twenty nineteen. That tension between the people who are getting hit or suffered as a result of the trade wars and their continuing support for Donald Trump, and whether that continues into is the big question Yana Randall.

For me, it was the e CBS decision in September, so Mario Dragon, just a few weeks away from the end of his term, announcing a massive stimulus package of rad cut deeper below zero, quantitative easing, more favorable terms of long term loans, a bunch of other things, And that was just showing how severely the r Area economy was hit by the trade war, by uncertainty, how vulnerable the economy was. Suan, I guess we have to start

where we ended with Donald Trump's trade wars. I mean, they completely dominated the outlook for the world economy quite a lot in and I think particularly when many economists were writing their look aheads for this coming year, the prospects looked pretty menacing. It seemed like there was a rising chance of the global recession in part because of trade wars. By the time we got to Christmas, things look Calma, Will Donald Trump settle for what he has

on China and retire gracefully or can we expect something else. Well, I think it's first of all worth kind of benchmarking where we are and and the point that we ended twenty nineteen at and we're starting is a lot worse than the point we ended twenty eight and started twenty nineteen at. And there's a lot more tariffs in place

on trade between the world's two largest economies. And even though we've had this Phase one deal that should be signed in the coming weeks, uh, it has not gotten rid of those tariffs or that drag on on the global economy that they that they represent. So that I think that's one point is is we have gotten to and this is a kind of Donald Trump effect. We've gotten to a point where we think of calm as a lack of escalation, but we forget how far we've escalated and and and where we are there. And I

think that's worth remembering. The second thing is is, you know Donald Trump is if we we're gonna look at it through a rational political lens and we're gonna look at what he's done with China, Uh, it would make a lot of sense to kind of pause the trade wars here, have some negotiations go on through and uh and and leave it there and and leave any further deals or achievements or escalations if they need to come until after the November election. But this is Donald Trump,

and Donald Trump is unpredictable. And it could be something as simple as a poll coming out showing that he's trailing in Iowa at some point, or trailing somewhere in the manufacturing states where is gonna be really important in the election, That may cause further actions. So, I mean, it's I'm dodging the question there, but it's there's a reason for that, and that we're dealing with president who's

more unpredictable than any other we've had beforehand. Tom, I mean, share makes a good point that we are going into this year. I mean, Donald Trump has normalized a lot of things. Heaven knows, but we have. He has to some extent normal lies to having tariffs in a way that we didn't. We didn't think of that as a normal fixture of the environment, at least of the level they are now, um even a couple of years ago.

That has an impact on the global economy. If we have a sort of steady state of uncertainty around trade but no real escalation, the kind of thing that Sean just described. You know what does that mean for the global economy? And I guess particularly for China. So we've run a bunch of numbers on this one, Stephanie. If we look at a plausible base case of tariffs rolling back some way towards the May two thousand and nineteen levels and some reduction in uncertainty, then we're looking at

a boost global GDP. We think of around no point three percent in so that's not nothing. It's about two hundred and seventy billion dollars and China, which has been one of the main losers from the trade war, does a little bit better again. But I would certainly echo

Sean's point on this. We don't have to go very far back in history Buenos Areas, the end of two thousand and eighteen, Osaka in summer two thousand and nineteen to remember positive moments in the US China trade conflict, which evaporated almost before the leader's jets had taken off on the runway. There's a bunch of uncertainties in this deal. Where's the extra two hundred billion dollars in Chinese purchases going to come from. What's the U S going to

offer in terms of tariff rollback? What commitments is trying to going to make in terms of intellectual property. So the baselines tentatively positive. There's a bunch of stuff that could go wrong. As I should say at this point, the very observant listeners will know that we don't have anyone talking from Asia for this conversation this time of year. I wasn't very keen on making people stay up really really late to be on the line. But luckily we

do have Tom, who lived eleven years in Beijing. We were there together in No but Tom, I think President Trump would say he had a good year in Sorry, he would say we had a great year minus that small matter of the impeachment. Would President she Jimping say that? I think President she Jimping would certainly say that he's had a great year, and he would be resounding lee echoed by his fellow members of the Chinese leadership, the

Chinese official press. It's quite hard to find anyone these days who's willing to express a negative view on President she or his achievements. Okay, so he's President President she in his bath alone, would he would he look back and actually also be looking into and think, yes, I'm

in an ok state. The reality, I think, stephaniely is that if we think about the problems which China has faced in two thousand and nineteen, to a large extent, they reflect a strategic miscalculation which took place in the past few years. The Belton Road Initiative, the Made in China, the China Five initiative. Both of these were really ambitious plans which kind of proclaimed China's arrival on the world stage.

The Belt and Road Initiative was China's arrival in terms of international relations, building infrastructure across the world, wielding more political influence across the world. The China Plan announced China's arrival as a as an ambitious technological power and ambitious technology power um the staking their claim for ownership of the technologies which would um determine the pattern of winners

and losers in the global economy going forward. And both of these things just rang really loud alarm bells in the rest of the world, especially here in Washington, d C. And I think the origin of the trade war partly goes back to that overreach by China. So I think two thousand and nineteen was a year where China avoided the worst possible outcome. They've ended the year with the

trade truce. They haven't made very, very significant concessions to the US on things like intellectual property, technology transfer, industrial subsidies. So in that sense, I think they can claim a victory. But why do they find themselves in this new difficult position facing a newly hostile US and newly hostile world. I think it's because of those strategic missteps over the

past few years. Suspect we'll get back to China's role in the future of the of the global recovery a little bit later, But yeah, and I want to want to bring you in with a with a European perspective. I mean, Germany was one of the economy's worst hit by the trade wars, in the worst hit in many ways than the US or China because it's so bound up with the global trading system. How would you say things are looking now for twenty in Germany? And I

guess the Eurozone economy generally. I think if you had to summon summed up in one sentence, you would say we can be lucky that if it doesn't get any worse. So there are signs that both the German economy and the Eurozone economy have stabilized. UM. For the past couple of months, we've seen some indicators suggesting and ever so slow pick up in momentum. Others have pointed to setbacks. So right now we're in this in this phase where

the optimists say we're about to bottom out. If you look at momentum over or forecast momentum over twenty it won't pick up significantly. So we're not talking about any v U shaped recoveries here. Um, we're talking about very very um slow growth stabilization at the current level. So the forecast don't look any better next year than they

then they do. Look now, the problem really is that the manufacturing slump has been so deep, um, the recession in industry has been so severe, uh that there is only so much domestic demand private consumption investment can do to offset that. And we're starting to see that confidence is also declining in in the domestic economy. Uh. You

see labor markets being slowly affected. And it's that very that very fine line we're walking at the moment where things can improve from here, but it won't take much for things to get significantly worse. So I think we need to be very very careful in looking at what the German and the Eurozone economy can do over the

next couple of months and over the next couple of quarters. Now, listening to Christine look are the new ECB president, she said, risks are still on the downside, but she also made sure to stress in her in her first public press conference, in her first official remarks on monetary policy, that those risks from trade, those risks from protectionism, from vulnerabilities and

emerging markets have actually diminished somewhat. So there is a willingness to be optimistic and see the signs of improvement, but people are also very very aware that things can go terribly wrong. Yeah, I guess it's a reminder. You know, when we we do think about the overall picture for the economy in we tend to say, you know, everything is reliant on the consumer, and if you're sitting in the US or even the UK, very consumer led economies, that kind of sounds like good news because it's such

a big um. It's always the source of momentum in the economy. But the countries like Germany, which have have to some extent struggled to have that more consumer driven side, have been so dependent on manufacturing. It is a it is a potential weakness that we are now so dependent on consumption globally. I mean, yeah, I should also ask you about new leadership in Europe. You know, there was a famous question about you know, if I want to

call Europe, who do I call? I mean, all of those top jobs changed hands in the last twelve months, not just at the European Central Bank you mentioned, but a lot of the key jobs in Brussels, at the European Commission and such. I mean, will will ordinary people or even failing that, the people listening to Stephanomics notice anything different with this new leadership. Are they going to try and make their mark? I think so, and I

think we already have to be honest. Um, the past Commission, the past leadership of Europe was still very much engulfed in crisis fighting or picking up the pieces after after Europe's debt crisis. It's not remember it's not too long ago that Grace almost dropped out. So it was very much fixing the problems, but not very much time for problems that are inevitably coming our way. In the few chure and I think was alla funderlying the new Commission

President set out very ambitious agenda. She made very very clear that her commission, her her term, will be about defining and shaping Europe's future. So it's about transforming society, it's about fighting climate change, about making countries and society ready for UM a life in in UH, embracing new technologies UM, but also to look at aging society UM, looking at how demographics shifts will affect living and and sustaining economies in in Europe in particular. So I think

the agenda the Commission set out is very ambitious. We've heard the first the first ideas about what they want to do on climate and in particular it's a very it's a topic that will be with us probably for for a very long time, in particularly next year. So I think we've already seen that they have ambitious plans and how much of those will materialize that we will find out. I suppose they will be interesting. This year.

I mean, I think was definitely a year when the urgency of the climate debate became much more evident to people that entered the mainstream, especially in Europe, and it's interesting we've also that we have now seen the President um in the head of the Commission putting that green

new Deal on the agenda. Will we see a lot more practical action in You know, this would be the obvious time for me to say something about Brexit, but you know what, I'm not going to because we've talked plenty about Brexit on this podcast and many other podcasts. I guess the only thing I'll say is that I can say with quite a lot of confidence that but in the next few months, sometime in almost certainly the

end of January, Britain will have brexited. We will have left, but there will still be plenty of uncertainty about what our future relationships are going to be, well, pretty much with anybody. I mean. At the end of it looked possible, maybe not likely, but possible that the UK would be coming into with a radical left winger as Prime Minister,

Jeremy Corbyn. That didn't happen, But at the end of this year we could have a US president about to take office with an agenda that's almost as radical as Corbin's. Looking at some of the democratic that the leading Democratic candidates. You know, assume one of those, say Elizabeth Warren has won the presidency, how do you think that would change how we would see the global economic outlook in the year.

So I think there's a prior question there, Stephanie, and that's will the US Democratic Party look at what happened in the UK election and say, okay, there's a lesson here for us. The UK Labor Party tried a radical agenda. It didn't resonate the ballot box. Maybe we need to think about that when we're making a decision between a Biden and a Warren and Assanders. But let's say they

go ahead. Let's say we get one of the more progressive Democrat leaders um coming into the twenty election and winning. If we think about the international aspect of it, the most important thing is trade policy. And my reading of the sort of the tea leaves the sort of initials policy statements from the Democratic candidates is actually, they're going to be as tough on trade as Donald Trump is. But I think it's also fair to say that they

would be more predictable. There'd be a policy process, there'd be more transparency, there'd be announcements rather than tweets. And when we look at the drag from the trade war, a bunch of it has come from tariffs, but a bunch of it has come from uncertainty as well. If the uncertain he goes down, if the predictability goes up, that's going to be a positive for global growth. Second aspect of it is the domestic agenda. And here too there's a there's a prior question, which is Democrats might

well win the presidency, do they win the Senate. If they don't win the Senate, it's going to be very difficult for them to push through any far reaching domestic policy reforms, and so I think we'd be looking very much at the kind of the status quo in terms of US tax policy. For example, if they do win the Senate, which is going to be a stretch, then I think we would be looking in a more ambitious domestic reform agenda. We'd be looking at changes in tax policy,

we'd be looking at changes in healthcare policy. And I think one of the impacts of that would be margin compression for the US corporate sector, with pretty far reaching implications for the markets. Because it was interesting that there had not been a lot of discussion around the economic or the potential market impact of a Trump victory until he was actually elected, and then everyone claimed to be not at all surprised by the US stock markets, you know,

soaring upwards. Um, you know, sometimes these things become obvious only only just after something has happened. So you know, we'll see. But Sean we if you looked at the booking odds right now, you would say a Trump victory was more likely than not, in part because the U s economy looks like it's going to continue to be okay, even with the uncertainty you talked about and the tariffs from the trade wars. You have spent a good chunk of I'm rather jealous. Actually, you've spent a good chunk

of the last few months out in the field. We heard your discussion on stephonomics around the places you've been in North Carolina. You've been to Granite City, You've been on the Mississippi. When you cut through it all and you talk to these people, has the trade war been

good or bad for Trump's chances of reelection? I think if there is one weakness in Trump's economic argument going into the election, it is the impact of his trade wars on swing states like Wisconsin, Michigan, Pennsylvania, even Ohio, And what we've seen in all of those places is a slow down in manufacturing growth and in some cases a the start of layoffs in manufacturing, some of which is tied directly to the trade wars and impact of everything from rising costs due to tariffs on inputs from

China or steel, but also just the damper on demand that you've had, the retaliation that you've had from the Chinese, which means US exports to China are going down, and that you know, while the US exported less to China or exports less to China than it than it imports, that's still an important market for a lot of American companies. Uh. So you're starting to see that filter through the economy where you know, it started off in the agricultural sector.

We saw it a lot in agricultural equipment suppliers early on. We're now seeing it in the trucking business. Uh. You know, a few years ago or a year ago even Uh, the you know, one great promise, Uh, if you were a young blue collar man who might support tunnel Trump in terms of employment, was signing up as a truck driver where they were offering good salaries and benefits, and trucking companies were shortening delivery routes so that they were

more family friendly and so on. Well, trucking companies are starting to lay off people. We're seeing truck makers start to lay off people. We're seeing digital engine makers starting to lay off people. So that kind of industrial economy in America, a lot of which is is concentrated in those important swing states, is weakening. And how that carry is through in is going to be really important to

the election prospects of Donald Trump. I mean, we need to remember that all of these swing states were states that Donald Trump won by not many votes. It's not like you take a five percent swing even in those states for a Democrat to win them. It could be

less than one percent that swings. And if you have, you know, just enough people who are slightly disenchanted with Donald Trump's economic policies or more broadly, with his presidency, those you know, the fortune his fortunes could change very quickly in those states. Well, of course, you know, the irony is that a lot of those states were supposedly the kind of voters that he was doing the trade

war four. I mean it is is um perhaps going to be a striking feature of in the UK as well, at the places where you've got this more nationalistic and potentially protectionist policies, um end up hurting the very people who voted for it and damaging their their interests more more than anyone. But we shall we shall see how that plays out. I'm not going to get anyone to

call the result of the US presidential election. I'm going to remind listeners that Michael Bloomberg, the majority owner of Bloomberg News, is running for president himself, running at least for and for the for the Democratic candidacy. But Tom, in your gut, do you think we will get to the November US election with the US and the global economy still looking broadly Okay, we know it's not great,

but still in decent shape. So I was really interested to hear Sean's on the ground observations from some of those swing states and how the trade war has been impacting them if we're thinking about the US economy as a whole. Though, we've got unemployment at the lowest level

since the late nineties sixties. The November job report, which remember came in a very robust two sixty six thousand new jobs significantly changed the narrative on where we're going into I think a few people now expect a recession in the year ahead. Most people, including US, expect low unemployment,

rising wages, robust consumption to keep growth chugging along. I think the bet has to be when we look at the national picture, President Trump is going to be coming into the election with a pretty strong economy behind him. I started with some of the stories that caught us by surprise in There'll be plenty more surprises in twenty we know. But what are you all especially looking out for possible places for surprises that could could really matter

for the global economy? Yana Randa. I'm keeping my eye on trade, on uncertainty about the economic outlook, and as apecially on inflation because the numbers we've seen on wages, they are actually coming up. The labor market is not looking too shabby. In fact, we have unemployment close to a record low across most of the region. So I am I am really um looking out for for inflation to pick up. Now it's not in the official statistics, but there there is a risk that that, um, we

will see you a slight increase. You heard it here. First, the correspondent from Frankfurt is worried about inflation, and Sean Donnan, I'm going to be spending looking at the Swing States and what's happening in industrial America. The big wild card, though, uh in may come from China. We ended with a wave of corporate defaults coming out of China and it's starting to filter into the government sector there. Uh that could build into something more consequential for both China and

the global economy. Tom So, if we think about the global economy in I think the first word which pops into everyone's head is trade. Um. But I think we can make a case that actually the most important word to characterize the global economy has been uncertainty. UM. Let me give you three really brief examples. First, US trade policy uncertainty, that surprise move on Mexico, all of the surprises on China which Sean, Jenny Leonard and others have

reported on so well over the course of the year. Um. Secondly, Brexit, all of that misinformation about the positives and negatives of Brexit, the scope to get negotiations done quickly or not. And

thirdly China, this was probably below most people's radar. But there was a report which came out in the middle of the year by some really serious Chinese academics with involvement from an adviser to the People's Bank of China, and it said, you know what, China's GDP growth for the last five years hasn't actually been six or seven percent, It's been four and so on some of the most important dimensions of the global economy. There's just a really

elevated level of uncertainty. And I'm reminded of a famous statement by by Hannah Arrant, the great twentieth century philosopher, made in a very different context, but I think really relevant to the type of situation we face today, and she said, when all we hear are lies, the consequence is not that we start believing lies. It's that we

stopped believing anything um. And I think the biggest risk for the economy globally in heading into and further forwards, is that in this kind of miasthma of misinformation UM, the uncertainty which has clouded the outlook this year, just proves really hard to lift. And that uncertainty premium, that uncertainty drag stays in place and drags on global growth

going forwards. Well said, thanks Tom, I mean having if I'm going to give myself a few wild cards, having been made a cheap joke about Yano and inflation, I actually agree with her that that would be the big surprise for markets and others this year. And let's face it, it's perfectly likely when you have a consumer led economy driven a recovery with a problem on the investment side in that in those circumstances we often have seen inflation in the past. I guess the other obvious go to

place for surprises and problems would be Italy. We could certainly have a flare up at any time in Italy. And finally, I think we have to remember the potential seriousness of what's happening in Hong Kong and how that could actually reverberate, not just on the geopolitical front, but potentially economically as well. Plenty to think about. Thank you very much to everyone here, Yano round out, Tom Marlick and Sean Donnan. Thanks definitely, thanks for having us, Thanks

for listening to Stephanomics. We'll be back next week with more on the ground insights into the global economy. In the meantime. You can find us on the Bloomberg Terminal, website, app, or wherever you get your podcasts, and please do take the time to rate and review our show so it can reach more listeners. For more news and analysis from Bloomberg Economics, follow at Economics on Twitter, and you can

also find me on at my Stephanomics. This episode was produced by Magnus Hendrickson special thanks to Sean Donnan, Tom Marlick, and Yana Randall. Scott Lamman is our executive producer and the head of Bloomberg Podcast is Francescani.