What's the Biggest Economic Peril? It Depends on Where You Live

We've got rather used to the world being turned upside down. What's different is the variation. We may still live in a global economy, but if you ask what's front of mind for economic policy makers in America, Europe, and China today, the answer in each case would be quite different. For China it's COVID again. For Europe it's Ukraine, the price of energy and how to cushion the blow for European citizens of that cost of living squeeze coming down the track.

And for the roaring US economy, the problem is how to stop an inflationary spiral of prices and wages without causing a global recession. We've got a window on all three of those in this first episode of the new series thanks to our reporters on the ground. But first our chief economist Tom Morlick with his take. Tom, I know you've been pulling together your new global forecasts with the team. What's the biggest shift that you've been grappling with relative to just the start of the year. Two

really big things have happened since the start of the year, Stephanie. First, we have Russia's invasion of Ukraine and that is a significant negative for global growth. We've taken our global GDP forecast down from four point seven per growth to three point five percent growth for the year. And because energy prices have rocketed up, it also adds to inflationary pressure. Less growth, more inflation, very challenging environment for central banks.

The second big thing which has happened is the a Macron outbreak in China. We've had shen Jen locking down, j Lynn, a province in the north of the country locking down, and now Shanghai, China's financial center, China's big port also locking down. Now that already means China will have a weak start to the year. But the question is what happens next. If Shanghai isn't the end of

the story. If we see Beijing, chung Do, Dali and other big cities locking down as well, that's going to take another chunk out of Chinese growth, another chunk out of global growth, and it's going to add more uncertainty to the inflation outlook. We're used to the world's major regions broadly or often moving together in response to similar forces. But with everything that's going on right now, it feels like that six months from now, those three regions could

be on very different paths. How do you deal with that when you're thinking about what's going to happen to the to the world and the world's growth. Yeah. So, with apologies to Francis for Kayama, it seems like history has restarted right um, and it's not just the last few months. Go back to twenties sixteen. The election of Donald Trump was the beginning of a fissure between China

and the United States. COVID accelerated the sort of forces for deglobalization UM, and now Russia's invasion of Ukraine has added more pressure in the same direction. So that integration force globalization force, which moved the US, Europe, Japan, China onto one integrated global economic cycle, and that's now moving

in the other direction. Globalization is unraveling, and that means you're going to have the US, Europe, Asia on different trajectories, central banks moving in different directions, a much more challenging environment for policymakers, for businesses, for investors to navigate. Let's just touch it briefly. On Europe, we're going to hear in a little bit about the policy shifts that we've seen in Germany in direct response to Russia's invasion of Ukraine.

If Europe is headed in a path where Germany is spending a lot more and on defense and other things, and on weaning itself off Russian oil, and to some extent, the rest of Europe is also going to be spending and potentially borrowing more for a prolonged period. Does that change the way you think about Europe's contribution to the global economy or does it not really figure I think

it's a really interesting question. I mean, in some senses, the European project has been in a huge success right um, But in another sense it's kind of underdelivered. UM. On economic policy, the crises that we've seen over the last decade the European sovereign debt crisis, which affected Greece and Italy and Spain were a kind of a failure of coordination at the European level, right, it was a sort of failure of Berlin and Rome to agree on the

right strategy to lift Europe out of that slump. And on foreign policy and defense policy, well, the failure of coordination has been sort of even more manifest. So the question is, is Russia's invasion of Ukraine kind of a spot k movement for Europe? If you will? Is this a movement where the reappearance of a common enemy on the eastern border provides the catalyst to do more in terms of having a unified defense and foreign policy, and also to do more to ensure that European prosperity is

spread more widely than the border of Germany. We might come back to you a little bit later for a for a little bit more on on China, but for now, thanks very much. Now, I promised you three windows on the world, and we're starting with the American Midwest. If you think the US is entering into a wage price spiral, chances are you're a bit worried by the red hot US labor market, and there's no harder jobs market than Indiana. Our senior global economy reporter Sean Donnan went to check

it out, because you've got all this extra stuff. I'm looking for the names now, Vera, this is Doc Holidays. That's fine. Step onto the factory floor at metro Plastics, family owned forty five year old injection molding company in Noblesville, Indiana, and you quickly confront the present and the future of the US economy. Inflation maybe at forty year highs in

the US right now, but business is buzzing. According to owner and executive director Carol Croll, whose parents started the company and who on this day is leading us on a tour of the factory floor, it just kind of depends on the job set up. Okay, this is where kind of automation comes into play. They're not having to get the parts out of the bin. It's all coming up to, you know, at the level station where they're just swarming the parts. And yeah, like many in manufacturing,

Metroplastics has a problem. It can't find the workers it needs to keep up, which is not just an issue about recovering from the pandemic, or about the present state of a tight labor market. It's also about long term demographics, retiring baby boomers, and the structural issues America's factories are being forced to confront as they compete in the global economy. Even as a pandemic, trade wars and supply chain snarls of prompted conversations about the end of an era of

globalization and the need to reshore production. There's some awkward economic realities that don't always get talked about, including just who is going to work in those factories. Metroplastics has a hundred and thirty employees. It's a twenty four hour day operation that is increasingly being automated. On this day, a machine nicknamed Doc Holiday is melting plastic chips, shooting molten plastic into a mold, and turning out caps for a suspension assembly that will eventually go into a tesla.

It's doing so without any visible human involvement. A camera and a robot are doing quality checks rejected Pasty Wow. Every so often, a human operator will come over to box some parts and carry them the few steps to a station where an autonomous robot nicknamed uber will pick up the open box to carry it across the factory

floor to shipping. But this is the future, right. The search for workers is on nationally, but it's a particularly acute one in Hamilton's County, Indiana, which is home to Metroplastics and has one of the lowest unemployment rate it's in the country. It bottomed out at zero point eight percent in December last year, and though it has crept up since, the most recent numbers still have it lying at half the three point six percent national unemployment rate

recorded in March. Jim Brainerd is the Republican mayor of Carmel, the largest city in Hamilton's County. It is a decidedly red county in a deeply read state that voted overwhelmingly for Donald Trump. In Hamilton's County, in fact, hasn't voted for a Democratic presidential candidate since. But ask Brainard what he thinks the top economic priorities are in America today, and he will tell you two things that are definitely

not from the Trump playbook. One loosening immigration rules to attract more workers, and two increasing wages for low income workers, particularly in the service sector. America is the only country in the world that really had immigration like we have had uh and we need to embrace it and don't even have people to fill our jobs. Metro Plastics isn't the only manufacturer in Hamilton's County that is desperate for help.

Companies have been turning to inmates on work release from the local jail, even as local officials complained they can't find enough guards to work at the jail. At SMC, which makes pneumatic equipment, the struggle is on to recruit people to work in a two point six million square feed facility that, if it was a shopping mall, would

be one of the ten biggest in America. It has been built with a business expansion in mind, so in April one, the company started offering unlimited leave and vacation time to employees, on top of the free healthcare and other benefits. Sometimes even that isn't enough in today's labor market. Kelly Stacy is the president and CEO of s m c s North American unit, which has some sick seen a hundred employees. You'll hire people, um and then they just don't show up. They don't even show up for

their first day. Yeah, they because they've got another offer. We have no idea. You've got them all on board and everything, and in the first day they just don't show up. We don't know what happens soon. In a recent report, experts at the Economic Innovation Group, a nonpartisan Washington think tank, made the case that despite all the claims of a rapid economic change in America in the

twenty one century, the reality is actually the opposite. In their words, America has so far this century been quote mired in a period of unprecedented complacency unquote that has undermined what has been one of the US's key advantages through history, it's economic dynamism, or it's embrace of change and new immigrants. Here's Canon Fikrey, one of the authors

of that e i G. Report. These issues that you know we could have taken in stride back when we had healthy, supergent populations both annually, are now going to just be felt much more acutely because we don't have as much positive forces on the other side of the ledger counteracting a kind of negative drag. The metrics that e i G. Points to include things like the slowdown and not just immigration but interstate migration within the US,

and a diminishing share of workers at startups. Any plea for more workers may seem counterintuitive given that we've just gone through an economic crisis that's some millions lose their jobs in America or amid a conversation we're having about the future of work. But another way to think about it is that in the long term, America may not have the workers it needs to live up to its

current rhetorical ambitions. According to census data released in March, more than two thirds of counties in the U saw more deaths than births in and therefore a natural d increase in population. Hamilton's County, Indiana, is a vision of what many communities in America aspire to be. It's still growing fast. It has advanced manufacturing and growing tech in biotech sectors. Its cities are building new downtowns and walkable neighborhoods,

has great schools. Still, Carol Croll and Metroplastics need workers. Now, this is how she lays it out from the company conference room. We do some automation automatically, other automation. It's just kind of being forced upon us because we don't have any other choice, because we can't find people to do the jobs. Over the years, the company has taken other measures to attract people. They introduced six hour shifts to try and draw stay at home mothers who wanted

to be home with their kids in the afternoon. There's also a tuition reimbursement program for students. The temp agencies she and her brother, who runs the company's operations side, are relying on to fill the empty slots on the overnight ift regularly struggled to find people, Karl says, and even when they do, the attempts don't always show up or last long. In what are now seventeen dollar in

our jobs. That's not just about the weird economy. The pandemic is leaving behind, and that's not going to go away. That's a long term issue. It is very much a long term issue in email. Some of it's the economy and what's going on, but I think a good portion of it that we've known has been coming for a while is the baby books are leaving the marketing period. You know that there's not a whole lot to replace them. For Bloomberg News, I'm Sean do and now to Berlin

and an unlikely Revolution. I interviewed the German Chance let O left Schultz last summer in the run up to the German election. As Finance Minister, he'd been particularly emphatic in his support for that controversial Nord's Dream to pipeline that would have taken Russian gas direct from Russia to Germany below the Baltic Sea. Germany had pressed ahead despite Russia's occupation of Crimea and despite the poisoning and detention

of Alexey Navalny. So I asked him what President Putin would have to do to make Germany change its mind. He dodged the question back then, but I guess now we have our answer. Chancellor Schultz finally did cancel the program last month in the wake of the Russian invasion of Ukraine, and this week he admitted the whole thing had been a mistake. But that's not the only longstanding pillar of German policy that's been sent tumbling in the

last few weeks. Our German economy reporters, Caroline Look and Yana randall have this story. And if you would have told me what to do with in the first one hundred days since my appoint and I am, I wouldn't believe what we have to to face a warm, sweet budgets that Germany's finance chief, Christian and Lindener, speaking in Berlin last week. He's from the country's business friendly Free Democratic Party, and he's a key player in Germany's new

government that took shape late last year. He's an unlikely candidate to introduce massive new spending bills, and yet he's had to do just that. Capabilities always in the first one hundred days, a complete change of the the policy agenda of the new coalition, Ladies and gentlemen. So it's a great pleasure for me to Since Russia's invasion of Ukraine, Lindner and the three party alliance ruling Germany planned to issue hundreds of billions of euros in debt to finance

large scale investments in defense and climate protection. It might well end up being the highest borrowing the country has seen in any year since World War Two. For a country obsessed with fiscal discipline that's underspent on its military for the past thirty years, it's been a remarkable shift. I thought it was necessary, but I didn't think they turned around so quickly. This is tiny carebo from Frankford.

But necessity gives birth to new virtues and being part of the government comes with different responsibilities and being in oppositions. The Greens also had to learn this. It's good they changed their mind so quickly. It's exactly what we need right now. She's retired after a long career as a pilot and we met in a neighborhood cafe to talk about the many challenges for Germany ahead. She wants to

see fiscal policy returning to balanced budgets eventually. She wants to see the country reducing its reliance on Russian gas, and she wants to see Germany taking more responsibilities in defense. Were capable of achieving a lot, We just have to step on the gas Italy. Among the new measures is a one billion euro defense fund Germany announced just two

days after Russia's invasion. Philippa Zeluna, who was a former finance ministry official herself and now leads the Ditsons think tank in Berlin, says it must have been a hard decision for the finance chief and his party to agree to. They had campaigned on a platform of bringing debt down again,

and that was really surprising. I mean, first of all, military spending, that's not something that we normally go into debt for and secondly, a hundred billion is just a huge number, and they came out of nowhere um and I don't think that many analysts saw it coming. That's especially true for Germany, with its checkered past. The country was completely demilitarized for several years after World War Two. It built up forces again during the Cold War era,

but slashed spending after Eastern West Germany REUNI. Fight expenditures haven't exceeded one point five percent of GDP since at least the mid nineties, and the country's army, the Bundeswea, has long been ridiculed for its broken equipment. Helicopters won't fly, submarines won't swim, and there have even been reports that guns won't shoot, at least not properly. Last month, the Parliamentary on bods Women for the Armed Forces warned that

conditions are utterly unacceptable. That will now change, says Chancellor or Left Shots, who promises to raise spending to what NATO has long said it wants to see here. Shots is on one of the country's most popular politics talk shows recently. In Germany is the country with the highest military spending in the European Union, and if we now meet the two percent target, we will be the country in the European NATO Alliance with the highest military spending

in the strongest defense infrastructure. Another change in calls that's significant, though somewhat less of a surprise, is Germany's position on Russian energy. In the past, Germany's leaders have sought close ties to the Kremlin, sometimes overlooking Vladimir Putin's annexation of Crimea and his support of separatists in Eastern Ukraine. Before the war, Germany imported more than half of its natural gas from Russia, but now it wants to be almost

independent from such flows in just over two years. That means North Stream to the pipeline that's taken a decade and eleven billion dollars to build, is unlikely to ever be switched on, although right now Germany is one of the key countries in Europe blocking a regional energy embargo and Russia here's tiny Kaba again. Up until now, we've pretty much financed Russia's annual defense budget with what we

paid for the gas we imported from there. That can't be the goal, and I think we're learning that the hard way. Right now, Germany is urgently searching for alternatives. Plans to shut down coal plants by could be delayed, and even keeping the country's three remaining nuclear plans online for longer is an option being looked at. The plans were slated to shut down this year, and just a few months ago keeping them on the grid would have

been a huge blow to the German public. A November survey showed just one in five people thought nuclear power should play a major role in the future energy makes Last month, some seventy percent of Germans were willing to rely on nuclear energy beyond this year. I have the feeling that the general public has one step ahead of politicians. That's another Ronica vin Land, who was both a nuclear

energy expert and a historian on Eastern Europe. In her youth, she used to be staunchly against nuclear but her position started to shift after spending a significant amount of time in Ukraine as a student. There, she learned how people on the ground dealt with the catastrophe of Chernobyl and that they don't reject the technology. As such, she's now

a prominent German voice in favor of nuclear energy. A key dilemma, she says, is that the country's Green Party has long associated itself with being anti nuclear energy, which is also true for certain social democrats. For the German public and politicians alike, the debates over embracing nuclear energy and reinforcing the military are forcing a rethink of what they stand for. You believe hanged the political identity of the Greens hangs on the fight against nuclear energy in

parts of the SPD. That's not different. To tell people now that we do need these nuclear reactors would be a break from many of these party members with their own political identity. It's taken just a few days to transform the man long marked in German as chasm play on his bland robotic tone, into the chancellor who has

turned German politics on its head. For Bloomberg News, this is Callen Look and Yana Vanor And our last stop is Hong Kong, which has not been invaded by Russia and is not facing much of an inflation problem, but it has been on the sharp end of most of the other big shocks that have hit the global economy in the past few years, all while having to get used to increasingly aggressive interventions in the life of Hong

Kong's citizens by the Communist government in Beijing. So is this the end of Asia's world city as it likes to call itself. We asked our chief Asian Economics correspondent and longtime Hong Kong resident and occurrent to take the temperature I'm living in here so many this is the first time, the worst time. I can say the worst time in Hong Kong. Because I'm doing the business for twenty years. We see many of the things like um sas we have experienced nine one one, and we have

experienced the financial crisis. But this time is not only the academic but also there with so many other things. Hong Kong has long been described as a borrowed place on borrowed time summer, warning that prophecy is finally coming true. On the streets, people like Elizabeth Chan, whom you just heard, are worried about the city's future. The beauty saloon business she runs has cut staff and closed premises, and has even seen around twenty percent of her customers leave the

city altogether. In the past two to three years, global sentiment towards Hong Kong has soured due to Jaconian controls to curb COVID nineteen and a political track down by the government. We're hearing from the Chinese pros and shooting is he is urging the Hong Kong government to stabilize and control the COVID nineteen situation. Shorter Flights Repatch are a booming COVID pandemic business in Hong Kong, and international

financial hub that's increasingly cut itself off from the outside world. Really, Hong Kong's last pro democracy newspaper has officially closed up shop. The first person convicted under Hong Kong's National Security Law has been sentenced to nine years in prison for incitement to secession and terrorist activities. The law come into force after a series of mass pro democracy process in twenty This bastion of West meeting East has become isolated from

the rest of the world. It's democracy movement crushed and its civil liberties eroded. That combination of politics and pandemic has raised questions about whether Hong Kong can ever regain the freewheeling status it had as a gateway between Asia, especially China, and the rest of the world. To get a sense as to how Hong Kong has changed, a boke to David Webb, who first arrived in Barclays and in the years since has become the city's best known

activist investor. He's also known for recording the exodus of those leaving Hong Kong on his website. There has been apart from the political change which which has driven a lot of people, young people and talent away from Hong Kong and threatening the future talent pool through their children there, there's also been a an ongoing drain of people who are just scared of the government's policymaking right now. The young mothers with young children fearful of being separated from them.

That's led to an exodus in the immigration numbers. It's almost a women and children first from the Titanic Web warns the extent of government intervention unleashed during the pandemic runs contrary to an economy fame for its handsover approach, and it will be difficult to unwind. I think the basic the basic issue is that that the balance has been struck towards excessive intervention and conservatism, rather than evaluating

both the social and economic consequences of the actions. Hong Kong's reputation has taken such a blow that it's not certain it can recover from the current crisis, even if the city's core business model as a channel for money flows remains in place, said Angela Jiang of the University of Hong Kong, an expert on China's legal system, that the government cannot be too complacent just about the fact that we are we still remain the global financial hub.

Does not guarantee for tomorrow, like I mean, we have other competitors like Singapore and Shamghai and so um. I just think that there's a lot the government need to do, not just to reform the healthcare system, but also you know, how do you build up Hong Kong's repertention station, how do you improve Hong Kong image in the financial world.

There's a lot that the government we need to reflect up how what's happening in Hong Kong reflects the broader backdrop of what's happening in China, where the government is struggling to contain the virus. After two years of COVID zero has kept the world second biggest economy sealed off. Hong Kong may serve as a patriotage for how China eventually transitions to living with the virus and reconnecting with

the rest of the world. Jang says, China can probably live without Hong Kong, but China would do much better with Hong Kong. And Hong Kong remains a very important strategic asset for the mainland. And you see that Beijing has been pulling a lot of resources into Hong Kong.

And because Beijing want Hong Kong to succeed, right, I mean, the People's Bank of China is now actively promoting Hong Kong as an offshore trading hut through the u N And for a sense as to how business people are viewing the crisis, I spoke with Hing Choo, executive chairman of Wagwang Shipping, one of Hong Kong's leading privately owned ship owners. Chiao says that for confidence to be restored, the authorities are going to have to deliver policies that

highlight Hong Kong's competitive strengths compared with rivals. I think since particularly over last ten years, Hong Kong has been heading towards a cross road. I think we are at the cross road. So at this cross road, a lot of decision making that's being taken today and in the coming to the three years will determine where we end up,

will determine where that Hong Kong would make competitive. Chaos family run company has been in Hong Kong since nineteen fifty two, and the scene the city go through to multi before. The city has reinvented itself multiple times. Hong Kong was a center for light industry in the nineteen sixties and seventies, and transformed into a vital shipping center in the seventies and eighties, but in ninety nineties it had developed into one of the world's leading financial centers.

Hong Kong will continue to adjust to the global situation um and Hong Kong will continue to reinvent itself. But we I think it's important for people not to get stuck to an idea of Hong Kong that's fixing, because as we can see glocally, things are changing very rapidly. For the final word, here's David Webb again on whether

those fleeing residents will ever return. Some of them hopefully will come back after the Titanic is either raised or doesn't think, But right now the brain drain is being accelerated, and that's very worrying. Tom. You live for eleven years in Beijing. You probably more time in Hong Kong than most of the people listening. Is it over? Is it the end of Hong Kong? So? I think Hong Kong has been hit by two really big challenges Stephanie. So.

The first is a governance challenge. Historically Hong Kong worked because it provided a gateway to the Chinese market, but Western standards of governance, a Western approach to the law, a Western approach to regulation, and Western approach to markets. Now that is being taken away as Hong Kong moves closer to the mainlands approach. And the second, of course, is COVID. Two years of lockdowns, of intense testing and then at the end a kind of failure and the

disease tragically sweeping across the island. So can can Hong Kong come back from these two challenges? Well, COVID we all hope will at some point be a memory. The governance challenge, I'm not sure that's going to go away. And just to go back to COVID, this is a serious challenge for China. Having had the zero COVID strategy that worked so well in the early stages of the pandemic. How do you think it's going to extricate itself and

with with what potential cost of the economy. So in trainers control of COVID at home was drastic but effective. If you look at China and international comparison back in on the economic dimension and on the healthcare dimensioned, they look pretty impressive, though they've got a challenge. Their population hasn't ever had COVID, so they don't have natural immunity, and the vaccines they've developed at home they're not but they're not best in class, so they don't have good

immunity from mRNA vaccines either. And what that means is that even when you see a few cases, Chinese authorities have to respond by locking down entire cities, and we've seen that already this year with the lockdowns in shen Jen, in Jelyn and now in Shanghai. The question is what's the path forwards? Well, I think many epidemiologists, many health experts would say that the right path forward for China

is a controlled opening. Acquire a bunch of the effective mRNA vaccines, give those to the entire population of a city or a province, bring healthcare resources into place, and then open that province and allow the virus to move across it um, and yes, there would be a cost in public health, but ultimately the payoff would be that the population has a met true of immunity, and if that process continues across the rest of the country, ultimately

the entire population would have a measure of immunity and China could reopen. Is China ultimately going to take that path? I think the answer is yes. Are they going to take that path in the immediate future, in the months ahead, I think the answer is no. China does not have elections, but it does have politics, and at the end of this year there's a crucial political movement, President Hijin Ping positioning for a third term as president, a third term

as general secretary of the Communist Party. I think that the willingness to take risks ahead of that crucial meeting, which we expect in the fall, is going to be pretty low. So if China ultimately does move onto a controlled opening path, I think that's going to be a three story, not story. Tom Alick, thank you very much. That's it for a frequent flyer episode of Stephanomics around the Globe. In just over thirty minutes, we'll be back next week with a special episode talking to the ubiquitous

Larry Summers. Last year, he was worried about inflation when the rest of the world was not. What's he worried about now? Find out next week. In the meantime, check out the Bloomberg News website for more and all the stories featured today, and follow at economics on Twitter. This episode was produced by Magnus Hendrickson with support from Summer Sadie. Special thanks to Tom Aulick, Sean Donnan, Karen and look Yana Randall. Here's a Fine focal Aggie Cantrill, Yan, Patrick

Barnett and Ender. Current Mike Sasso is executive producer of Stephonomics, though Lucy Meekin also helped out Today and the head of Bloombow podcast is Francesco Leave two