April 13, 2024 • 38 mins
Bloomberg Daybreak Weekend with Tom Busby takes a look at some of the stories we'll be tracking in the coming week.
- In the US – a preview of the IMF and World Bank meetings, and U.S Retail sales.
- In the UK – a look at German Chancellor Olaf Scholz’s visit to China.
- In Asia - a look at a slew of China economic data, including GDP, Industrial production and retail sales.
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Episode Transcript
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Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:09):
This is Bloomberg day Break Weekend, our global look at
the top stories and becoming week from our Daybreak anchors
all around the world. Straight Ahead on the program, we'll
look at what to expect from the spring meetings of
the International Monetary Fund and World Bank. I'm Tom Busby
in New York.
Speaker 3 (00:25):
I'm Stephen Carolyn London. We're looking ahead to German Chancellor
Olaf Schultz's trip to China amid trade tensions with the EU.
Speaker 4 (00:33):
I'm Brian Curtis in Hong Kong. We look ahead to
a ton of eco data in China, and as usual,
we hunt for a catalyst that might fire up the
Chinese economic kitchen.
Speaker 5 (00:42):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg,
E Loove the three Own, New York, Bloomberg ninety nine
to one, Washington, DC, Bloomberg one O six one, Boston,
Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius
XM one nineteen and around the world on Blue Bomberg
Radio dot com and via the Bloomberg Business App.
Speaker 2 (01:07):
Good day to you. I'm Tom Busby, and we begin
today's program with the Spring meetings of the International Monetary Fund,
the IMF and the World Bank. This coming week, central
bank leaders and finance ministers from around the world gather
in Washington, d C. To discuss interest rates, monetary policy,
and other issues of global concern. For more on what
(01:27):
to expect, we're joined by Michael McKee Bloomberg International Economics
and Policy correspondent Well Michael. In a written statement to
be delivered this week, the Managing director of the IMF
says it'll push its global growth forecast slightly higher, up
one notch to three point two percent in twenty twenty five.
That's despite stubbornly high inflation massive debt loads. What's behind
(01:50):
that rather upbeat assessment.
Speaker 6 (01:52):
The fact that the economy of the United States in particular,
but other economies around the world have been able to
grow faster than people anticipated coming out of the recession. Now,
we've talked many, many times about the weirdness of this
pandemic recession and how it has upended all kinds of
economic ideas and forecasts, and the IMF is just reflecting
(02:15):
what reality is that, whether we understand it or not,
things are better than we had thought.
Speaker 2 (02:22):
Well, the IMF predicting US growth this year two point
one percent. It's not going to blow anyone away, but
it's pretty steady and actually a drop in twenty twenty
five one point seven percent.
Speaker 6 (02:32):
Why is that there's a feeling that we can't sustain
this growth level? But I don't think there's a whole
lot of confidence behind that prediction. The other thing that's
important to realize about the world economic outlook, which is
what the IMF will be putting out next week with
actual numbers. And basically nobody pays any attention to the
(02:54):
numbers they generate for the US and the European Union
and the United Kingdom, Japan, China, because there are people,
thousands of people paid around the world to do that.
Where the IMF does get some interest is especially people
who trade in emerging markets because those aren't covered as well,
(03:15):
and they really do have the depth of information about
what's going on in those countries. Is not a lot
of value add to say the US is going to
grow two point one percent when the FED is already
saying it's going to grow two point one percent, and
everybody on Wall Street is weighing in how much it's
going to grow.
Speaker 2 (03:31):
So it's those sleeper countries, like you said, not Japan,
not the Eurozone, not China, but the ones maybe on
the back burner.
Speaker 6 (03:40):
Right, yeah, frontier markets, emerging markets.
Speaker 2 (03:42):
Okay, now, China forecasting pretty solid growth. That's not exactly
a sluggish economy, is it. It's just not what we're
used to seeing in China.
Speaker 6 (03:51):
Right They've started to run into the law of large
numbers that it's really hard to keep improving at the
same rate when you start to get as large as
their economy is right now. They're also going through something
of a recession there and real credit issue problems, so
we don't know. There isn't a lot of faith put
(04:13):
it that way in Chinese economic data, so we don't
know for sure how fast they're growing, And it is
interesting to see what the IMF will say because there
are a lot of private sector economists who think China's
growing a lot more slowly than the numbers that China
will put out. So the only odd thing about it,
(04:35):
or not odd thing about it, but the only thing
is it's really hard to invest in China, so it's
not like you're going to be using a lot of
these numbers just to readjust your portfolio.
Speaker 7 (04:48):
Got it.
Speaker 2 (04:48):
Well, one thing that we know is going to be
talked about in that is interest rates. We saw Christine
Legard from the ECB just this week holding steady. We
know here we're in sort of a holding pattern in
the USA US on interest rates at least maybe eve
until later in the year. What's going to be the
big discussion, Well.
Speaker 6 (05:06):
You know, when they were meeting last fall, there was
a lot of talk about interest rates eventually coming down
because we've sort of gotten through the recession and we've
sort of gotten through inflation and things were getting better.
And now the conversation is going to be different because
the major central banks are all stepping back from the
(05:27):
precipice of rate cuts, with the exception of the ECB,
because they're at this point still worried about the possibility
of inflation resurging. The conversations at the IMF meetings World
bank meetings will be basically around the idea of synchronicity.
Will everybody be moving at once or will somebody move
(05:49):
much faster than everyone else? And in her news conference
last week, Christin Laguard was asked about that because what
happens is if you cut your interest rate and others don't,
then your currency is going to fall and it's just
more attractive to invest in the higher rate countries. She
did not want to comment on that, but you can
(06:11):
bet that's going to be one of the discussion points
behind closed doors at the meetings.
Speaker 2 (06:16):
And another one because of all this geopolitical risk out
there in the Middle East, Ukraine and Russia. I mean,
that has got to be also forefront on the agenda.
What to do and when to do it.
Speaker 6 (06:27):
Well, this is an opportunity for a lot of discussions
because the finance and foreign ministers from all over the
world come and attend along with central bankers these meetings,
and they have a lot of meetings together, and so
that sort of thing will get discussed. You just can't
expect any kind of answers or conclusions about what should
(06:52):
be done, because if they haven't got it right now,
just a few more meetings in Washington next week are
going to make a difference.
Speaker 2 (07:00):
And the meetings are here. What role does the US
play in these meetings and in the World Bank, in
the IMF.
Speaker 6 (07:08):
Well, the US is the host. We're the biggest economy
in the world, and we have perhaps the best infrastructure
for bringing all of these people together from the disparate
countries of the world. And so twice a year they
come to the US and they hold the IMF and
World Bank meetings. We're the headquarters for the IMF and
(07:28):
the World Bank, so this is the place where they
can get things done.
Speaker 2 (07:34):
Well, it's a lot to look forward to our thanks
to Michael McKee, Bloomberg International Economics and Policy Correspondent. Next
week we get a sense of how cautious consumers are
being with their money. We get US retail sales data
for March that's out on Monday. Also, how could this
possibly impact FED policy going forward? And for more we're
joined by Anawong, Bloomberg Chief US Economists. So Anna, what
(07:57):
are you expecting to see in the March retail sales number?
Speaker 8 (08:00):
Right, we are expecting to see tapped number. I think
there are various signs pointing to consumers being exhausted by
the price increases over the past two years. We saw
that a March purchases of cars has fallen sharply, and
that was following a rebound in February after another slump
(08:22):
in January. But if you smooth over the first three
months of the year. It is clearly showing a slowdown
and that's consistent with what we're seeing and also auto
loans rejections. It's harder to get financing to auto loans
given that auto loan rates are still pretty high. And
(08:43):
for the category of retail that directly go into Q
one GDP, it's the control groups sales which excludes vehicles, gasoline,
food service, and building materials. We are expecting a tappit
zero point two percent gains that's versus zero percent in
the previous month. I think that overall the US consumption
(09:05):
will be growing at about the two percent pace in
the first quarter, and that's a slow down from the
more than three percent in the fourth quarter. And I
think that as we go into the year, to slow
down will further be more evident. And by the end
of the year, we're only expecting a one percent quarterly
growth in PCE spending, so.
Speaker 2 (09:24):
A steady decline in spending. Do you attribute this mostly
to inflation? I mean everywhere you go everything costs more.
Every time you go to the store, you go out
to dinner, you look at a sticker on a car, everything.
Speaker 8 (09:38):
Yeah, it's both a combination of inflation and also increasing
job in security layoffs announcements have risen in news headlines
and that naturally could make people more cautious, and that
would how that translate to spending behavior is that people
would think, Okay, I don't know if I'm on the
chopping block next, I better spend as much and so
(10:01):
saving rates should overall increase as a result of this caution.
So in the March CPI report that was released last week,
we saw that a few consumer categories prices fall. So
for example, recreational goods and consumer electronics, where two categories
(10:22):
in the core goods category. That's a very sharp decline
and prices, and I think that reflects that the discretionary
component of consumer budget is being slimmed down because they
have to pay you know, twenty percent higher for auto insurance,
and auto insurance is non negotiable. It's a big part
(10:42):
of consumer spending because everybody needs to drive a car.
And as a result, what we are seeing is less
spending on things that could be cut and that will
show up in the retail as well. That I think
the retail goods component discretionary good spending, we'll see a decline,
whereas most of spending is coming from services and which
(11:03):
is benefiting from the stock rally in the past couple months,
and people who are primarily spending and services are they
are the people who are benefiting from the market rally,
which they tend to be older people baby boomers though
that's a two track economy for you.
Speaker 2 (11:22):
Well, another thing I want to talk to you about,
non discretionary is the price at the gas pump, which
has been going up steadily since the start of the year,
triple A predicting gas will average four bucks a gallon
by the summer. How will that affect budgets and spending?
Speaker 8 (11:37):
So, gasoline and food, especially for the lower income household,
account for more than a fifth of their budget, so
it will definitely squeeze the budget. It's not a very
comforting thing for a household. The only thing that could
offset that somewhat is the hike and minimum wage across
many states early in the year. So in California we
(12:00):
just saw early this month in April that fast food
workers minimum wage have been increased by by almost twenty percent.
And in Florida, for example, early this year, the state
hiked minimum wage by seventeen percent, So there's still hope
for the lower income household who could see you know,
(12:21):
ten to twenty percent jump in their wages.
Speaker 2 (12:24):
March retail sales data out on Monday, and our thanks
to Anawong Bloomberg Chief US economist, coming up on Bloomberg
day Break weekend. Why Germany's chancellor is heading to China.
I'm Tom Busby and this is Bloomberg. This is Bloomberg
(12:50):
day Break weekend, our global look ahead at the top
stories for investors in the coming week. I'm Tom Busby
in New York. Up later in our program a look
at some key economic data come out of China. But first,
as China's economy struggles to recover, diplomatic relations become more
crucial on the heels of US Treasury Secretary Janet Yellen's
visit to Beijing last week. German Chancellor Olaf Schultz set
(13:14):
to visit the region in the coming days. For more,
Let's go to London and bring in Bloomberg Daybreak Europe
Banker Stephen.
Speaker 3 (13:20):
Carroll Tom Janet Yellen went to China with the message
that Beijing's manufacturing drive is a threat to other economies.
Her comments at times strongly worded, we're respectfully received by
her hosts, but aren't likely to result in a policy shift.
So as Germany's Chancellor Olaf Schultz makes the trip to Beijing,
can he hope for any more? European countries have taken
(13:41):
a different approach to their relationship with China versus what
the United States is doing. EU commissioned President our Slavanderlin
has described the strategy as de risking rather than decoupling.
That hasn't stopped the EU launching a competition investigation into
Chinese subsidies for green industries. Olaf Schultz will be conscious
that German companies are a major exporter to China, so
(14:02):
he must be cautious. A recent survey by the German
Chamber of Commerce in China highlighted the challenges that many
Western firms have mentioned before. Two thirds of those operating
in the country say they face unfair competition in the market,
a problem that threatens to push up their costs and
a road profit margins. Schultz's discussions in China will also
(14:22):
be set against a backdrop of geopolitical unrest. Continue. Tensions
in the Middle East and Russia's invasion of Ukraine are
set to feature heavily during the upcoming G seven Foreign
Ministers meeting in Italy. I've been discussing the implication of
Schultz's visit to China and that meeting with Bloomberg's EMEA
and THES director Rosalind Matheson. I started by asking her
(14:42):
how different Scholtz's time in China will be to that
of the trip by US Treasury Secretary Janet Yellen.
Speaker 1 (14:49):
Well, it'll be similar, but also a bit different, as
you say, because the relationship between China and Germany is
a bit different to the relationship between China and the US,
although there are similarities in terms of the challenges around
the business environment, and so you can expect that the
German Chancellor Olive Schultz will be echoing some of what
(15:10):
Janet Yellen was saying on her recent trip, the challenges
for German companies operating their clarity around that business environment,
certain tier around supply chains specifically, though for him, the
issue of electric vehicles will probably come up again, and
the tensions over Chinese support for their companies and the
(15:31):
broader EU probe that's going on into that support. So
there'll be some similarities around the messaging that's going to
come from Olive Schultz, but also Germany's tended to take
a slightly more careful line about the overall relationship. The
US has been willing to criticize China more overtly on
(15:51):
the human rights front, for example, and over what they
see is its militarization of areas like the South China
Sea with Taiwan. That doesn't mean that Olave Schultz won't
bring those things up, but Germany is traditionally has just
been a bit more cautious about some of their rhetoric
because they really need the economic relationship with China to work.
Speaker 3 (16:16):
Yeah, I mean, the President of the European Commissioners used
this expression de risking, not decoupling when it comes to
the relationship with China is I'll love Schultz likely to
step outside of that in his comments as he's muting officials.
Speaker 1 (16:29):
Well, so far, he's really maintained by and large the
sort of the tone taken by his predecessor, Angela Merkle,
and she was very much about, you know, similarly with
other countries like Russia, I would add, keeping the dialogue going,
keeping the conversation going, preserving the economic and trade relationship
out of the view that if you bind yourselves economically
(16:50):
and through investment and trade, then you're more likely to
be able to behave better with each.
Speaker 9 (16:55):
Other on the political side.
Speaker 1 (16:57):
And that's very much the sort of the tone and
philosophy adopted by Olaf Schultz since he came to power,
and of course as someone who is very much part
of the Merkele era himself, he has gotten a bit harder,
i would say, than Angelo Merkele did on the political front.
But that's also because Germany is under pressure within Europe
to take that harder ligne.
Speaker 9 (17:16):
You see France, you see the UK, you see the
EU as a.
Speaker 1 (17:20):
Whole, pressing China quite heavily on its behavior over trade,
over market access, over its tech companies, and over its
behavior around things like human rights, and Germany has been
seen as a bit of an outlier, so he's been
pushed quite heavily by his French counterpart Emmanual Macron to
do that.
Speaker 9 (17:37):
So you might see that slightly harder.
Speaker 1 (17:39):
Tone, but generally he's been consistent with his predecessor's policy.
Speaker 3 (17:43):
Because part of this trip will involve a love Schultz
also visiting German companies that operate in China, survey from
the German Chamber of Commerce and China found that two
thirds of German companies that operate in the country, so
they face unfair competition in the market. I mean, realistically,
does Olof Schultz have any leverage attack or something like that,
given the you know, even Janet Yellen seemed of difficulty
in getting any actual movement.
Speaker 9 (18:04):
Very unlikely.
Speaker 1 (18:05):
If Johanet Yellen can't succeed, I wouldn't imagine that all
Love Schultz will. I mean, those surveys that show that companies,
you know, German companies or British companies or American companies
are complaining about the environment in China are very very common,
and that sort of figure is not surprising because those
concerns are longstanding about the ability to have clarity around
(18:28):
market access and Chinese support for their own industry and
so on. So that's not going to I think affect
ol Love Schultz on his trip, although it does sort
of show again the need to really be showing that
he's listening to those concerns. But as a Chinese leadership
going to take their cues from Germany, probably not. What
they are interested potentially doing is bifurcating a bit, because
(18:51):
China's quite good at trying to play countries a bit
against each other. And what they might do is, you know,
they'll have a certain tone with Germany that they won't
have with the US for exams. They'll be keen to
keep Germany probably closer in the tent right now, because
that's to their advantage to have that kind of sense
of potential disunity in Europe over a China policy. So
(19:11):
it's all about playing those kind of games really, and
so they're not going to change their policy simply because
Olave Scholtz asks them to. They certainly wouldn't do it
even if Janet Yellen asks them to, because they're really
playing their own game there. It'll be interesting to see, how,
you know, whether they try and keep Germany peeled off
from the rest of the pack, because.
Speaker 3 (19:32):
I mean, there is something in common that China and
Germany have is weakness in their economies as well for
slightly different reasons. Are there matters of common ground that
we could see sort of flagship announcements or issues where
they emerge at some positive cooperation.
Speaker 9 (19:48):
Well, certainly it's not just a one way street.
Speaker 1 (19:50):
And that's a really important point that you make I mean,
obviously Germany in the US need China economically and for business,
but China also needs them for business. The Chinese economy
has been quite weak of late. It's showing a few
green shoots at the moment, but certainly it's nowhere on
the level that it was some years ago pre pandemic,
(20:11):
and Cgping is very consciously aware of that. He does
need his economy to be stable, and so there are
some mutual interests there. You can imagine there'll be lots
of positive rhetoric in a way like there was with
Janet Yellen, also about the relationship about being open for business,
about China being ready to engage with these companies that obviously,
(20:32):
you know, doesn't necessarily reflect reality, but there'll be that
rhetoric and that sense of mutual need. You can also
imagine there'll be conversations around areas of mutual interest globally
between Germany and China. And one key one there obviously
is Russia's actions in Ukraine with the war there. You
can imagine there big conversation around that. There'll beg conversation
around the Middle East and the war in Gaza, There'll
(20:55):
be conversations around disruptions to shipping and global supply chains.
So some of those broader topics will definite they come up.
Speaker 3 (21:00):
Of course, and some of those issues are also going
to feature with the other big geopolitical event in the
coming days, which is the G seven Foreign Minister's meeting
that's happening in Italy. What are we likely to hear
on things like Russia Ukraine at that meeting.
Speaker 1 (21:14):
We'll certainly going to expect general expressions of support for Ukraine,
of unity because the G seven has been very unified
in general around the need to keep supporting Ukraine, and
what you may see, of course is disagreements over in
what way to keep supporting Ukraine, because of course the
US is sitting on a very very big aid package
for months that's unlikely to be unlocked anytime soon, in
(21:38):
a sense that maybe Europe is left holding the can
more than they did previously for military and financial support
for Ukraine. So that's definitely going to be one topic
for conversation, is that they all need to be pulling
their weight when it comes to that. There'll probably be
conversations with Ukraine on the table in terms of the
future of the war. Is there a need at some
(21:59):
point to crack open the door to negotiations with Russia.
Does there have to be some sense of getting a
deal as this war goes on and Ukraine certainly is
on the back foot a bit at least on the
ground inside Ukraine itself, So that will probably be the
two major topics when it comes to Ukraine. And then
that broord a conversation around how Europe can beef up
(22:21):
its own defense and its own defense spending.
Speaker 3 (22:23):
That's our EMEA News director Roslind Mathieson knows Roz was
telling us geopolitical tensions high on the agenda at the
G seven meeting. The wars in Ukraine and Gaza led
to calls for countries to increase defense spending, and Bloomberg
Economics recently estimated that an increase to four percent of
GDP soort by some would cost governments of G seven
countries more than ten million dollars per year over the
(22:47):
next decade. Global economist to Bargabi Schuchtoweale joined us on
Bloomberg Daybreak Europe to discuss their forecasts.
Speaker 10 (22:54):
We looked at two specific scenarios for defense spending, one
in the US and has partners spent at least two
percent of their day of their GDP on defense, and
then we lost at a more extreme scenario which emulates
the Cold War levels. So if they raise defense spending
to four percent, for countries like Germany and Canada with
relatively low levels of forecast to debt and physcal headroom
is higher, spending may be painful, but it's actually feasible.
(23:17):
But for a lot of governments, especially Japan, Italy and
maybe even France, it's they kind of struggle a lot
to increase defense spending substantially without there being additional spending
cuts somewhere higher taxes, additional debt, or some combination of
the lot. France, Italy and Spain would be particularly exposed
if if the extra funding spending is funded by borrowing,
(23:38):
which Italy is public debt jumping to one hundred and
seventy nine percent of output by twenty thirty four f
one hundred and forty four percent this year. For the US,
which is already spending three point three percent on defense,
debt could still increase to one hundred and thirty one
percent from ninety nine percent this year over the next decade.
If we pushed up military spending to four percent. That's
where we get potentrally indolar numbers from the US and
(23:59):
major allies together. If they were to reach such levels,
that's going to be a large number.
Speaker 11 (24:04):
Is an increase of defense spending to two percent, which
is the sort of NATI goal. Would that be enough
to meet the challenges? What's the sort of thinking behind that?
Speaker 10 (24:14):
In Europe, there's been this particularly in this need to
catch up because the industry has been shrinking at the
years of low spending on defense, particularly like we've been
see seeing these new style of wars in Ukraine with
a lot more focus on air defense, and allies will
need to invest in more on that in air defense
and ammunition. And there's also these plants for NATTER to
(24:35):
put as many as three hundred thousand troops on higher readiness,
and all of that is going to cost a lot
of money. And there's also promise of aid to keep
which needs to happen. And some officials are pointing to
Cold War levels where native allies spent about three to
four percent on defense as what may be needed to deal.
Speaker 8 (24:50):
With these sets.
Speaker 3 (24:50):
That was global economist at Bloomberg Economics Pargavi shops Well,
speaking to myself and Caroline Hepger. I'm Stephen Carroll in London.
You can catch us every weekday morning here for bloom
day Break. Here at begetting at six am in London
and one am on Wall Streets. Tom, Thank you, Steven,
and coming up on Bloomberg day Break weekend to look
ahead at some key economic data in China. Could there
(25:12):
be signs of recovery for the slumping Chinese economy? I'm
Tom Busby and this is Bloomberg.
Speaker 2 (25:28):
I'm Tom Busby in New York with your global look
ahead at the top stories for investors. In the coming week.
We'll be getting a slow of economic data out of
China this week, including GDP, industrial production and retail sales data.
Let's get to Bloomberg Daybreak Asia hosts Brian Curtis and
Doug Krisner as we look for signs of recovery in
the Chinese economy.
Speaker 4 (25:48):
Tom, China may be close to turning the corner on
its economic recovery, but the jury is still out. Manufacturing
picked up in March and risk assets have seen a
bounce of late, but consumer activity has lagged.
Speaker 12 (26:01):
And in the coming week we'll get retail sales numbers
along with data on home prices that would be both
new and used. These data could give us some insight
into the health of the Chinese consumer.
Speaker 4 (26:12):
Can consumers emerge from the doldrums and get the economy
going again? We put that question to Mark Conan at AIA.
Speaker 13 (26:20):
Coming out of the pandemic and then uncertainty around policy,
the confusion around geopolitics, the weakness on the currency, the deflation,
the cut in rates, all of these have compounded upon sentiment,
and I think it's going to take a little bit
longer for people to recover from that and for us
to see a significant improvement within consumption. That's at an
(26:42):
aggregate level. But of course within that picture there are
those that are prospering, that are able to offer a
relative advantage and are continuing to make progress well.
Speaker 4 (26:52):
Joining us now to discuss the plight of the Chinese
consumer is Eric ju Bloomberg economists covering China and Hong Kong,
and Jenny Marsh, team leader for a Greater China Eco Goz.
Speaker 12 (27:03):
Welcome to you both. We're glad you can help us
take a look at what's happening with the Chinese domestic economy.
A moment ago Markcnin mentioned that there have been some
winners of late. Two areas of the economy seeing a
pickup are manufacturing and exports.
Speaker 13 (27:18):
Exports so far this year have surprised on the upside
for China. As we've say in the rest of the
world has perhaps continued to grow more vigorously than was expected.
China has benefited from that, but that transition towards more
of a domestic focus for the economy is certainly a
long term policy.
Speaker 4 (27:36):
That's Mark Conan at AIA talking about both internal and
external inputs into Chinese growth. We thought for the discussion
today that we would focus a little bit more on
domestic consumption and what it takes to get consumers going again. Jenny,
how important is it for the Chinese economy to see
some sort of turn up in consumption and is it coming.
Speaker 14 (27:59):
It's absolutely crucial that they see turn up and upswinging
consumption because they cannot rely on the factory floor alone
to sort of turn the economy around. This year, there
have been some green shoots, you know, over the recent
Chingan holiday, torres spent more per trip than any time
since twenty nineteen, so you know that was encouraging, but
(28:21):
you know, outside these sort of big holiday events where
pent up demand is being released, there's still a lot
of pressures on people and the sort of the general household.
Speaker 9 (28:30):
You know, the property crisis is.
Speaker 14 (28:31):
Still weighing on confidence, you know, and you can see
that the CPI is sort of a reflection of that
week demand. You know that people are not buying enough
and there before prices are continuing to sort of feel
these deflationary pressures at the moment.
Speaker 12 (28:46):
Eric, the service's economy is a very broad category.
Speaker 1 (28:49):
We know that.
Speaker 12 (28:50):
But when you look at the sentiment vis A VIV,
the official PMI data, what do we know about business
centiment in the services industries?
Speaker 7 (28:58):
I think if you look to in my you know,
services in earlier this year, I think it's generally sure
that they're doing well. They'reing the holiday, but if you
look at peers outside of a holiday, you know, those consumption,
those high frequently data actually is show that people are
not really spending much except for the holiday. And even
(29:19):
if you look at holiday data, we just got the
early April holiday and the per day you know, the
capital spending was still not as strong as before, right,
so you see, yeah, lots of people are traveling, but
they're not really spending as much. So some part of
it can be, you know, some culture shift, right young people,
they no longer spend lots of money on shopping around.
(29:42):
They did more value experience, you know, in the travels.
And we also see similar patterns even in overseas tourism.
If we look at data from a visitor from China
in Hong Kong, in Japan, we did some anasis and
see it's a very similar story. People coming back to
those tourists vidits, but they're not already spending on the
(30:05):
mntrets before.
Speaker 4 (30:06):
It seems like housing is at the root of a
lot of the spending issues. That people just don't feel
so confident with their overall wealth and about their security
economically going forward, and so we need to see some
improvement there. And Eric, let me put a question to
you that's tied to policy making. And we did see
a few newspapers talking about this just in the past
(30:28):
couple of days, about cities removing some of the lower
limits for mortgage rates on first time home buying and
generally just loosening the strings a little bit on housing policies.
Is that going to work?
Speaker 7 (30:41):
I have to say, those incremental, those small steps. It
has proved that it's not working very well so far.
I think since the second half of last year, we've
seeing lots of you know, easing steps from local governments
and losing mortgage rates and you know, relaxing some home
purchaser rules. But it's all step steps, small loosening, and
(31:05):
we haven't seen any you know, big impacts from those policies.
So that's that suggests you probably need more aggressive, you know,
more proactive eating steps. Someone would suggest that you should
have relaxed, removed, just like Hong Kong, remove all the
home purchasing, you know, relaxed the restrictions especialty in the
Tier one cities in China.
Speaker 12 (31:26):
Jenny. Last year, I think the government unveiled a plan
to boost household spending on everything from electric appliances to
furniture things like that. How is that working. Is it
been an effective prescription to try to revitalize a bit
of spending.
Speaker 8 (31:41):
Not so far.
Speaker 14 (31:42):
So this is the sort of cash for clunkers program
they rolled out, and it's really the government sort of
big swing at trying to boost consumer spending, essentially raising
the standards for electronics across a broad range of sectors,
forcing people to sort of hand in their old goods
and buy new ones.
Speaker 9 (32:01):
It's very I think that it's going to.
Speaker 14 (32:02):
Be rolled out sort of in a piecemeal way, province
by province, and we've been monitoring closely to sort of
watch for the beginning of this program, and we haven't
yet seen signs that it has sort of been put
into effect. But you know, the rollout has been quite
slow so far, so we're not going to see the
effects of it yet. It was a note this week
saying it could raise GDP by zero point nine percent
(32:22):
when you look at the industrial impact of everything that
would need to be manufactured for the program, so it
could be significant. But it's going to be rolled out
over a series of years and it hasn't yet come
into effect.
Speaker 4 (32:34):
Recently, in a discussion about the latest CPI and PPI data,
we caught up with way Yaw, chief economist for the
Asia specific at stop Gen and it was kind of
interesting because you know, it was a mixed bag. You
had very negative PPI, but everybody expected that, and it
was in line consumer prices. As you mentioned earlier, Jenny,
(32:54):
they did advance, but only just just zero point one percent.
So what was interesting was I I mentioned to Wai yea, well,
at least that's a little bit of positive news, and
we can listen to her answer here. She also started
to bring in policy in China.
Speaker 15 (33:08):
Maybe it's just a wee bit of good news, but
I think structurally things haven't really changed much. If you
look at economic situation in China, it continued to be
a challenge of not enough do miss the demand and
a lot of supply so and a policy on the
policy front, there is not much significant to address this issue.
Speaker 4 (33:29):
So, Jenny, if we were looking at policy, if we had,
you know, a wish list of things that we thought
would be necessary to be done by the policy makers
to get consumers moving, what would be high on your list?
Speaker 14 (33:41):
I think there are no quick fixes. I mean, they
could offer consumers sort of direct stimulus, I sort of
give them cash handouts to be spending. But you know,
if you do that, the underlyinging structural problems still remain right,
so you'll still have the property crisis, which is really
underpending household wealth and sort of the root of a
lot of the problems. You know, when Janet Yellen came
(34:03):
to Beijing last week, and she basically advocated sort of
a rethink of the Chinese economic policy in order to
boost consumption and rebalance the economy. And the things that
she was proposing were not short term suggestions. You know,
she was saying, improve pension security, make education more affordable,
you know, things that make people feel like they don't
(34:25):
need to keep saving. Because of this high household saving
rate in China, the social security net isn't there. If
something happens and you feel very ill, you know you're
going to have to pay for your medical care. You
know you need to say for your retirement because there
isn't a good state funded pension program. So this is
all part of the broader framework and there's no easy fix,
(34:46):
in my opinion, for getting people spending again. Obviously, if
things improve in the economy looks better, people will feel
more boyd. But you know, there's some big problems there,
and these are sort of deep seated spending habits.
Speaker 12 (34:56):
So playing off that, Eric, I'm wondering, if you're a
policy maker, would you necessarily push banks into reducing deposit
rates as a way of discouraging savings and maybe forcing
some more money, more liquidity into the economy.
Speaker 7 (35:11):
That could be helped. But I think the fundamental problem,
the Postumaker neutral address is the acceptation of the household
and the business.
Speaker 8 (35:19):
Right.
Speaker 7 (35:19):
So in the past, it's everybody is expecting that economy
is booming, right, the product market is booming, so I'm
going to you know, make more money and my property
is going to work more in the future, so it's
it's okay for me to you know, spend more now.
But I think now the expectation is kind of you
know reverse, right, So everybody was expecting, they're having probably
(35:42):
a harder time looking forward, especially you know, giving you
see lots of news about you know, some some financial
sector they're cutting salaries, right, They're cutting you know, payments.
So I think that the people's acceptation is not very
high at this moment with economy slow in with lots
of restrictive kind of regulation trying to you know, contain
(36:06):
the income growth, and that's put more pressure on you know,
people feeling if really my life is going to get better,
you know, looking forward, so I would probably you know,
spend save more and now just to prepare for words days.
Speaker 4 (36:21):
There are some technical reasons too, sometimes where people don't spend.
For instance, the government just asked hotels to accept foreign
credit cards for people traveling. Could could the Chinese authorities
do more to to try to really stimulate domestic tourism,
light a fire there and even encourage people to go
to maccount.
Speaker 7 (36:39):
I think people are really going there, but I'm not
sure if they're really spending to the casinos, because they
really they they're not as you know, as willing to
spend as before. So it's not only on spending money
I'm putting in good. It's also applied to, you know,
spending money around gambling.
Speaker 12 (36:58):
Jenny, I'm curious about out the degree to which the
story on weak domestic demand is tied to a labor
market that may be struggling, particularly where young people are concerned.
Is that a part of the narrative here.
Speaker 14 (37:10):
Yeah. You know, you've got very strong youth unemployment, and
even the overall employment rate last month erased all the
gains that had made since the previous six months, so
you're seeing declined and employment rates overall. So you have
this weak labor market. So the overall landscape for the
Chinese consumer is pretty poor. I do think on the
(37:30):
sort of the sentiment side, the flip of it is
after three years of COVID, there is pent up demand
for experiences and people are sort of excited about traveling.
We're seeing that in the numbers, but they're changing how
they're spending, so they're preferring to go to third and
fourth tier cities. It's not as high value spending as before.
Speaker 4 (37:50):
We'll have to leave it there, Jenny, thanks so much
for joining us. Jenny Marsh, team leader for Greater China
ecogov at Bloomberg, and Eric ju Bloomberg economists covering China
and Hong Kong. I'm Brian Curtis here in Hong Kong
along with Doug Krisner. You can catch us every weekday
for Bloomberg Daybreak Asia, beginning at eight am in Hong
Kong and eight pm on Wall Street. Tom.
Speaker 2 (38:11):
Thank you Brian, and thank you Doug. And that does
it for this edition of Bloomberg day Break Weekend. Join
us again Monday morning at five am Wall Street time
for the latest on the market's overseas and the news
you need to start your day. I'm Tom Buzby. Stay
with us. Top stories and global business headlines are coming
up right now.
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:09):
This is Bloomberg day Break Weekend, our global look at
the top stories and becoming week from our Daybreak anchors
all around the world. Straight Ahead on the program, we'll
look at what to expect from the spring meetings of
the International Monetary Fund and World Bank. I'm Tom Busby
in New York.
Speaker 3 (00:25):
I'm Stephen Carolyn London. We're looking ahead to German Chancellor
Olaf Schultz's trip to China amid trade tensions with the EU.
Speaker 4 (00:33):
I'm Brian Curtis in Hong Kong. We look ahead to
a ton of eco data in China, and as usual,
we hunt for a catalyst that might fire up the
Chinese economic kitchen.
Speaker 5 (00:42):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg,
E Loove the three Own, New York, Bloomberg ninety nine
to one, Washington, DC, Bloomberg one O six one, Boston,
Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius
XM one nineteen and around the world on Blue Bomberg
Radio dot com and via the Bloomberg Business App.
Speaker 2 (01:07):
Good day to you. I'm Tom Busby, and we begin
today's program with the Spring meetings of the International Monetary Fund,
the IMF and the World Bank. This coming week, central
bank leaders and finance ministers from around the world gather
in Washington, d C. To discuss interest rates, monetary policy,
and other issues of global concern. For more on what
(01:27):
to expect, we're joined by Michael McKee Bloomberg International Economics
and Policy correspondent Well Michael. In a written statement to
be delivered this week, the Managing director of the IMF
says it'll push its global growth forecast slightly higher, up
one notch to three point two percent in twenty twenty five.
That's despite stubbornly high inflation massive debt loads. What's behind
(01:50):
that rather upbeat assessment.
Speaker 6 (01:52):
The fact that the economy of the United States in particular,
but other economies around the world have been able to
grow faster than people anticipated coming out of the recession. Now,
we've talked many, many times about the weirdness of this
pandemic recession and how it has upended all kinds of
economic ideas and forecasts, and the IMF is just reflecting
(02:15):
what reality is that, whether we understand it or not,
things are better than we had thought.
Speaker 2 (02:22):
Well, the IMF predicting US growth this year two point
one percent. It's not going to blow anyone away, but
it's pretty steady and actually a drop in twenty twenty
five one point seven percent.
Speaker 6 (02:32):
Why is that there's a feeling that we can't sustain
this growth level? But I don't think there's a whole
lot of confidence behind that prediction. The other thing that's
important to realize about the world economic outlook, which is
what the IMF will be putting out next week with
actual numbers. And basically nobody pays any attention to the
(02:54):
numbers they generate for the US and the European Union
and the United Kingdom, Japan, China, because there are people,
thousands of people paid around the world to do that.
Where the IMF does get some interest is especially people
who trade in emerging markets because those aren't covered as well,
(03:15):
and they really do have the depth of information about
what's going on in those countries. Is not a lot
of value add to say the US is going to
grow two point one percent when the FED is already
saying it's going to grow two point one percent, and
everybody on Wall Street is weighing in how much it's
going to grow.
Speaker 2 (03:31):
So it's those sleeper countries, like you said, not Japan,
not the Eurozone, not China, but the ones maybe on
the back burner.
Speaker 6 (03:40):
Right, yeah, frontier markets, emerging markets.
Speaker 2 (03:42):
Okay, now, China forecasting pretty solid growth. That's not exactly
a sluggish economy, is it. It's just not what we're
used to seeing in China.
Speaker 6 (03:51):
Right They've started to run into the law of large
numbers that it's really hard to keep improving at the
same rate when you start to get as large as
their economy is right now. They're also going through something
of a recession there and real credit issue problems, so
we don't know. There isn't a lot of faith put
(04:13):
it that way in Chinese economic data, so we don't
know for sure how fast they're growing, And it is
interesting to see what the IMF will say because there
are a lot of private sector economists who think China's
growing a lot more slowly than the numbers that China
will put out. So the only odd thing about it,
(04:35):
or not odd thing about it, but the only thing
is it's really hard to invest in China, so it's
not like you're going to be using a lot of
these numbers just to readjust your portfolio.
Speaker 7 (04:48):
Got it.
Speaker 2 (04:48):
Well, one thing that we know is going to be
talked about in that is interest rates. We saw Christine
Legard from the ECB just this week holding steady. We
know here we're in sort of a holding pattern in
the USA US on interest rates at least maybe eve
until later in the year. What's going to be the
big discussion, Well.
Speaker 6 (05:06):
You know, when they were meeting last fall, there was
a lot of talk about interest rates eventually coming down
because we've sort of gotten through the recession and we've
sort of gotten through inflation and things were getting better.
And now the conversation is going to be different because
the major central banks are all stepping back from the
(05:27):
precipice of rate cuts, with the exception of the ECB,
because they're at this point still worried about the possibility
of inflation resurging. The conversations at the IMF meetings World
bank meetings will be basically around the idea of synchronicity.
Will everybody be moving at once or will somebody move
(05:49):
much faster than everyone else? And in her news conference
last week, Christin Laguard was asked about that because what
happens is if you cut your interest rate and others don't,
then your currency is going to fall and it's just
more attractive to invest in the higher rate countries. She
did not want to comment on that, but you can
(06:11):
bet that's going to be one of the discussion points
behind closed doors at the meetings.
Speaker 2 (06:16):
And another one because of all this geopolitical risk out
there in the Middle East, Ukraine and Russia. I mean,
that has got to be also forefront on the agenda.
What to do and when to do it.
Speaker 6 (06:27):
Well, this is an opportunity for a lot of discussions
because the finance and foreign ministers from all over the
world come and attend along with central bankers these meetings,
and they have a lot of meetings together, and so
that sort of thing will get discussed. You just can't
expect any kind of answers or conclusions about what should
(06:52):
be done, because if they haven't got it right now,
just a few more meetings in Washington next week are
going to make a difference.
Speaker 2 (07:00):
And the meetings are here. What role does the US
play in these meetings and in the World Bank, in
the IMF.
Speaker 6 (07:08):
Well, the US is the host. We're the biggest economy
in the world, and we have perhaps the best infrastructure
for bringing all of these people together from the disparate
countries of the world. And so twice a year they
come to the US and they hold the IMF and
World Bank meetings. We're the headquarters for the IMF and
(07:28):
the World Bank, so this is the place where they
can get things done.
Speaker 2 (07:34):
Well, it's a lot to look forward to our thanks
to Michael McKee, Bloomberg International Economics and Policy Correspondent. Next
week we get a sense of how cautious consumers are
being with their money. We get US retail sales data
for March that's out on Monday. Also, how could this
possibly impact FED policy going forward? And for more we're
joined by Anawong, Bloomberg Chief US Economists. So Anna, what
(07:57):
are you expecting to see in the March retail sales number?
Speaker 8 (08:00):
Right, we are expecting to see tapped number. I think
there are various signs pointing to consumers being exhausted by
the price increases over the past two years. We saw
that a March purchases of cars has fallen sharply, and
that was following a rebound in February after another slump
(08:22):
in January. But if you smooth over the first three
months of the year. It is clearly showing a slowdown
and that's consistent with what we're seeing and also auto
loans rejections. It's harder to get financing to auto loans
given that auto loan rates are still pretty high. And
(08:43):
for the category of retail that directly go into Q
one GDP, it's the control groups sales which excludes vehicles, gasoline,
food service, and building materials. We are expecting a tappit
zero point two percent gains that's versus zero percent in
the previous month. I think that overall the US consumption
(09:05):
will be growing at about the two percent pace in
the first quarter, and that's a slow down from the
more than three percent in the fourth quarter. And I
think that as we go into the year, to slow
down will further be more evident. And by the end
of the year, we're only expecting a one percent quarterly
growth in PCE spending, so.
Speaker 2 (09:24):
A steady decline in spending. Do you attribute this mostly
to inflation? I mean everywhere you go everything costs more.
Every time you go to the store, you go out
to dinner, you look at a sticker on a car, everything.
Speaker 8 (09:38):
Yeah, it's both a combination of inflation and also increasing
job in security layoffs announcements have risen in news headlines
and that naturally could make people more cautious, and that
would how that translate to spending behavior is that people
would think, Okay, I don't know if I'm on the
chopping block next, I better spend as much and so
(10:01):
saving rates should overall increase as a result of this caution.
So in the March CPI report that was released last week,
we saw that a few consumer categories prices fall. So
for example, recreational goods and consumer electronics, where two categories
(10:22):
in the core goods category. That's a very sharp decline
and prices, and I think that reflects that the discretionary
component of consumer budget is being slimmed down because they
have to pay you know, twenty percent higher for auto insurance,
and auto insurance is non negotiable. It's a big part
(10:42):
of consumer spending because everybody needs to drive a car.
And as a result, what we are seeing is less
spending on things that could be cut and that will
show up in the retail as well. That I think
the retail goods component discretionary good spending, we'll see a decline,
whereas most of spending is coming from services and which
(11:03):
is benefiting from the stock rally in the past couple months,
and people who are primarily spending and services are they
are the people who are benefiting from the market rally,
which they tend to be older people baby boomers though
that's a two track economy for you.
Speaker 2 (11:22):
Well, another thing I want to talk to you about,
non discretionary is the price at the gas pump, which
has been going up steadily since the start of the year,
triple A predicting gas will average four bucks a gallon
by the summer. How will that affect budgets and spending?
Speaker 8 (11:37):
So, gasoline and food, especially for the lower income household,
account for more than a fifth of their budget, so
it will definitely squeeze the budget. It's not a very
comforting thing for a household. The only thing that could
offset that somewhat is the hike and minimum wage across
many states early in the year. So in California we
(12:00):
just saw early this month in April that fast food
workers minimum wage have been increased by by almost twenty percent.
And in Florida, for example, early this year, the state
hiked minimum wage by seventeen percent, So there's still hope
for the lower income household who could see you know,
(12:21):
ten to twenty percent jump in their wages.
Speaker 2 (12:24):
March retail sales data out on Monday, and our thanks
to Anawong Bloomberg Chief US economist, coming up on Bloomberg
day Break weekend. Why Germany's chancellor is heading to China.
I'm Tom Busby and this is Bloomberg. This is Bloomberg
(12:50):
day Break weekend, our global look ahead at the top
stories for investors in the coming week. I'm Tom Busby
in New York. Up later in our program a look
at some key economic data come out of China. But first,
as China's economy struggles to recover, diplomatic relations become more
crucial on the heels of US Treasury Secretary Janet Yellen's
visit to Beijing last week. German Chancellor Olaf Schultz set
(13:14):
to visit the region in the coming days. For more,
Let's go to London and bring in Bloomberg Daybreak Europe
Banker Stephen.
Speaker 3 (13:20):
Carroll Tom Janet Yellen went to China with the message
that Beijing's manufacturing drive is a threat to other economies.
Her comments at times strongly worded, we're respectfully received by
her hosts, but aren't likely to result in a policy shift.
So as Germany's Chancellor Olaf Schultz makes the trip to Beijing,
can he hope for any more? European countries have taken
(13:41):
a different approach to their relationship with China versus what
the United States is doing. EU commissioned President our Slavanderlin
has described the strategy as de risking rather than decoupling.
That hasn't stopped the EU launching a competition investigation into
Chinese subsidies for green industries. Olaf Schultz will be conscious
that German companies are a major exporter to China, so
(14:02):
he must be cautious. A recent survey by the German
Chamber of Commerce in China highlighted the challenges that many
Western firms have mentioned before. Two thirds of those operating
in the country say they face unfair competition in the market,
a problem that threatens to push up their costs and
a road profit margins. Schultz's discussions in China will also
(14:22):
be set against a backdrop of geopolitical unrest. Continue. Tensions
in the Middle East and Russia's invasion of Ukraine are
set to feature heavily during the upcoming G seven Foreign
Ministers meeting in Italy. I've been discussing the implication of
Schultz's visit to China and that meeting with Bloomberg's EMEA
and THES director Rosalind Matheson. I started by asking her
(14:42):
how different Scholtz's time in China will be to that
of the trip by US Treasury Secretary Janet Yellen.
Speaker 1 (14:49):
Well, it'll be similar, but also a bit different, as
you say, because the relationship between China and Germany is
a bit different to the relationship between China and the US,
although there are similarities in terms of the challenges around
the business environment, and so you can expect that the
German Chancellor Olive Schultz will be echoing some of what
(15:10):
Janet Yellen was saying on her recent trip, the challenges
for German companies operating their clarity around that business environment,
certain tier around supply chains specifically, though for him, the
issue of electric vehicles will probably come up again, and
the tensions over Chinese support for their companies and the
(15:31):
broader EU probe that's going on into that support. So
there'll be some similarities around the messaging that's going to
come from Olive Schultz, but also Germany's tended to take
a slightly more careful line about the overall relationship. The
US has been willing to criticize China more overtly on
(15:51):
the human rights front, for example, and over what they
see is its militarization of areas like the South China
Sea with Taiwan. That doesn't mean that Olave Schultz won't
bring those things up, but Germany is traditionally has just
been a bit more cautious about some of their rhetoric
because they really need the economic relationship with China to work.
Speaker 3 (16:16):
Yeah, I mean, the President of the European Commissioners used
this expression de risking, not decoupling when it comes to
the relationship with China is I'll love Schultz likely to
step outside of that in his comments as he's muting officials.
Speaker 1 (16:29):
Well, so far, he's really maintained by and large the
sort of the tone taken by his predecessor, Angela Merkle,
and she was very much about, you know, similarly with
other countries like Russia, I would add, keeping the dialogue going,
keeping the conversation going, preserving the economic and trade relationship
out of the view that if you bind yourselves economically
(16:50):
and through investment and trade, then you're more likely to
be able to behave better with each.
Speaker 9 (16:55):
Other on the political side.
Speaker 1 (16:57):
And that's very much the sort of the tone and
philosophy adopted by Olaf Schultz since he came to power,
and of course as someone who is very much part
of the Merkele era himself, he has gotten a bit harder,
i would say, than Angelo Merkele did on the political front.
But that's also because Germany is under pressure within Europe
to take that harder ligne.
Speaker 9 (17:16):
You see France, you see the UK, you see the
EU as a.
Speaker 1 (17:20):
Whole, pressing China quite heavily on its behavior over trade,
over market access, over its tech companies, and over its
behavior around things like human rights, and Germany has been
seen as a bit of an outlier, so he's been
pushed quite heavily by his French counterpart Emmanual Macron to
do that.
Speaker 9 (17:37):
So you might see that slightly harder.
Speaker 1 (17:39):
Tone, but generally he's been consistent with his predecessor's policy.
Speaker 3 (17:43):
Because part of this trip will involve a love Schultz
also visiting German companies that operate in China, survey from
the German Chamber of Commerce and China found that two
thirds of German companies that operate in the country, so
they face unfair competition in the market. I mean, realistically,
does Olof Schultz have any leverage attack or something like that,
given the you know, even Janet Yellen seemed of difficulty
in getting any actual movement.
Speaker 9 (18:04):
Very unlikely.
Speaker 1 (18:05):
If Johanet Yellen can't succeed, I wouldn't imagine that all
Love Schultz will. I mean, those surveys that show that companies,
you know, German companies or British companies or American companies
are complaining about the environment in China are very very common,
and that sort of figure is not surprising because those
concerns are longstanding about the ability to have clarity around
(18:28):
market access and Chinese support for their own industry and
so on. So that's not going to I think affect
ol Love Schultz on his trip, although it does sort
of show again the need to really be showing that
he's listening to those concerns. But as a Chinese leadership
going to take their cues from Germany, probably not. What
they are interested potentially doing is bifurcating a bit, because
(18:51):
China's quite good at trying to play countries a bit
against each other. And what they might do is, you know,
they'll have a certain tone with Germany that they won't
have with the US for exams. They'll be keen to
keep Germany probably closer in the tent right now, because
that's to their advantage to have that kind of sense
of potential disunity in Europe over a China policy. So
(19:11):
it's all about playing those kind of games really, and
so they're not going to change their policy simply because
Olave Scholtz asks them to. They certainly wouldn't do it
even if Janet Yellen asks them to, because they're really
playing their own game there. It'll be interesting to see, how,
you know, whether they try and keep Germany peeled off
from the rest of the pack, because.
Speaker 3 (19:32):
I mean, there is something in common that China and
Germany have is weakness in their economies as well for
slightly different reasons. Are there matters of common ground that
we could see sort of flagship announcements or issues where
they emerge at some positive cooperation.
Speaker 9 (19:48):
Well, certainly it's not just a one way street.
Speaker 1 (19:50):
And that's a really important point that you make I mean,
obviously Germany in the US need China economically and for business,
but China also needs them for business. The Chinese economy
has been quite weak of late. It's showing a few
green shoots at the moment, but certainly it's nowhere on
the level that it was some years ago pre pandemic,
(20:11):
and Cgping is very consciously aware of that. He does
need his economy to be stable, and so there are
some mutual interests there. You can imagine there'll be lots
of positive rhetoric in a way like there was with
Janet Yellen, also about the relationship about being open for business,
about China being ready to engage with these companies that obviously,
(20:32):
you know, doesn't necessarily reflect reality, but there'll be that
rhetoric and that sense of mutual need. You can also
imagine there'll be conversations around areas of mutual interest globally
between Germany and China. And one key one there obviously
is Russia's actions in Ukraine with the war there. You
can imagine there big conversation around that. There'll beg conversation
around the Middle East and the war in Gaza, There'll
(20:55):
be conversations around disruptions to shipping and global supply chains.
So some of those broader topics will definite they come up.
Speaker 3 (21:00):
Of course, and some of those issues are also going
to feature with the other big geopolitical event in the
coming days, which is the G seven Foreign Minister's meeting
that's happening in Italy. What are we likely to hear
on things like Russia Ukraine at that meeting.
Speaker 1 (21:14):
We'll certainly going to expect general expressions of support for Ukraine,
of unity because the G seven has been very unified
in general around the need to keep supporting Ukraine, and
what you may see, of course is disagreements over in
what way to keep supporting Ukraine, because of course the
US is sitting on a very very big aid package
for months that's unlikely to be unlocked anytime soon, in
(21:38):
a sense that maybe Europe is left holding the can
more than they did previously for military and financial support
for Ukraine. So that's definitely going to be one topic
for conversation, is that they all need to be pulling
their weight when it comes to that. There'll probably be
conversations with Ukraine on the table in terms of the
future of the war. Is there a need at some
(21:59):
point to crack open the door to negotiations with Russia.
Does there have to be some sense of getting a
deal as this war goes on and Ukraine certainly is
on the back foot a bit at least on the
ground inside Ukraine itself, So that will probably be the
two major topics when it comes to Ukraine. And then
that broord a conversation around how Europe can beef up
(22:21):
its own defense and its own defense spending.
Speaker 3 (22:23):
That's our EMEA News director Roslind Mathieson knows Roz was
telling us geopolitical tensions high on the agenda at the
G seven meeting. The wars in Ukraine and Gaza led
to calls for countries to increase defense spending, and Bloomberg
Economics recently estimated that an increase to four percent of
GDP soort by some would cost governments of G seven
countries more than ten million dollars per year over the
(22:47):
next decade. Global economist to Bargabi Schuchtoweale joined us on
Bloomberg Daybreak Europe to discuss their forecasts.
Speaker 10 (22:54):
We looked at two specific scenarios for defense spending, one
in the US and has partners spent at least two
percent of their day of their GDP on defense, and
then we lost at a more extreme scenario which emulates
the Cold War levels. So if they raise defense spending
to four percent, for countries like Germany and Canada with
relatively low levels of forecast to debt and physcal headroom
is higher, spending may be painful, but it's actually feasible.
(23:17):
But for a lot of governments, especially Japan, Italy and
maybe even France, it's they kind of struggle a lot
to increase defense spending substantially without there being additional spending
cuts somewhere higher taxes, additional debt, or some combination of
the lot. France, Italy and Spain would be particularly exposed
if if the extra funding spending is funded by borrowing,
(23:38):
which Italy is public debt jumping to one hundred and
seventy nine percent of output by twenty thirty four f
one hundred and forty four percent this year. For the US,
which is already spending three point three percent on defense,
debt could still increase to one hundred and thirty one
percent from ninety nine percent this year over the next decade.
If we pushed up military spending to four percent. That's
where we get potentrally indolar numbers from the US and
(23:59):
major allies together. If they were to reach such levels,
that's going to be a large number.
Speaker 11 (24:04):
Is an increase of defense spending to two percent, which
is the sort of NATI goal. Would that be enough
to meet the challenges? What's the sort of thinking behind that?
Speaker 10 (24:14):
In Europe, there's been this particularly in this need to
catch up because the industry has been shrinking at the
years of low spending on defense, particularly like we've been
see seeing these new style of wars in Ukraine with
a lot more focus on air defense, and allies will
need to invest in more on that in air defense
and ammunition. And there's also these plants for NATTER to
(24:35):
put as many as three hundred thousand troops on higher readiness,
and all of that is going to cost a lot
of money. And there's also promise of aid to keep
which needs to happen. And some officials are pointing to
Cold War levels where native allies spent about three to
four percent on defense as what may be needed to deal.
Speaker 8 (24:50):
With these sets.
Speaker 3 (24:50):
That was global economist at Bloomberg Economics Pargavi shops Well,
speaking to myself and Caroline Hepger. I'm Stephen Carroll in London.
You can catch us every weekday morning here for bloom
day Break. Here at begetting at six am in London
and one am on Wall Streets. Tom, Thank you, Steven,
and coming up on Bloomberg day Break weekend to look
ahead at some key economic data in China. Could there
(25:12):
be signs of recovery for the slumping Chinese economy? I'm
Tom Busby and this is Bloomberg.
Speaker 2 (25:28):
I'm Tom Busby in New York with your global look
ahead at the top stories for investors. In the coming week.
We'll be getting a slow of economic data out of
China this week, including GDP, industrial production and retail sales data.
Let's get to Bloomberg Daybreak Asia hosts Brian Curtis and
Doug Krisner as we look for signs of recovery in
the Chinese economy.
Speaker 4 (25:48):
Tom, China may be close to turning the corner on
its economic recovery, but the jury is still out. Manufacturing
picked up in March and risk assets have seen a
bounce of late, but consumer activity has lagged.
Speaker 12 (26:01):
And in the coming week we'll get retail sales numbers
along with data on home prices that would be both
new and used. These data could give us some insight
into the health of the Chinese consumer.
Speaker 4 (26:12):
Can consumers emerge from the doldrums and get the economy
going again? We put that question to Mark Conan at AIA.
Speaker 13 (26:20):
Coming out of the pandemic and then uncertainty around policy,
the confusion around geopolitics, the weakness on the currency, the deflation,
the cut in rates, all of these have compounded upon sentiment,
and I think it's going to take a little bit
longer for people to recover from that and for us
to see a significant improvement within consumption. That's at an
(26:42):
aggregate level. But of course within that picture there are
those that are prospering, that are able to offer a
relative advantage and are continuing to make progress well.
Speaker 4 (26:52):
Joining us now to discuss the plight of the Chinese
consumer is Eric ju Bloomberg economists covering China and Hong Kong,
and Jenny Marsh, team leader for a Greater China Eco Goz.
Speaker 12 (27:03):
Welcome to you both. We're glad you can help us
take a look at what's happening with the Chinese domestic economy.
A moment ago Markcnin mentioned that there have been some
winners of late. Two areas of the economy seeing a
pickup are manufacturing and exports.
Speaker 13 (27:18):
Exports so far this year have surprised on the upside
for China. As we've say in the rest of the
world has perhaps continued to grow more vigorously than was expected.
China has benefited from that, but that transition towards more
of a domestic focus for the economy is certainly a
long term policy.
Speaker 4 (27:36):
That's Mark Conan at AIA talking about both internal and
external inputs into Chinese growth. We thought for the discussion
today that we would focus a little bit more on
domestic consumption and what it takes to get consumers going again. Jenny,
how important is it for the Chinese economy to see
some sort of turn up in consumption and is it coming.
Speaker 14 (27:59):
It's absolutely crucial that they see turn up and upswinging
consumption because they cannot rely on the factory floor alone
to sort of turn the economy around. This year, there
have been some green shoots, you know, over the recent
Chingan holiday, torres spent more per trip than any time
since twenty nineteen, so you know that was encouraging, but
(28:21):
you know, outside these sort of big holiday events where
pent up demand is being released, there's still a lot
of pressures on people and the sort of the general household.
Speaker 9 (28:30):
You know, the property crisis is.
Speaker 14 (28:31):
Still weighing on confidence, you know, and you can see
that the CPI is sort of a reflection of that
week demand. You know that people are not buying enough
and there before prices are continuing to sort of feel
these deflationary pressures at the moment.
Speaker 12 (28:46):
Eric, the service's economy is a very broad category.
Speaker 1 (28:49):
We know that.
Speaker 12 (28:50):
But when you look at the sentiment vis A VIV,
the official PMI data, what do we know about business
centiment in the services industries?
Speaker 7 (28:58):
I think if you look to in my you know,
services in earlier this year, I think it's generally sure
that they're doing well. They'reing the holiday, but if you
look at peers outside of a holiday, you know, those consumption,
those high frequently data actually is show that people are
not really spending much except for the holiday. And even
(29:19):
if you look at holiday data, we just got the
early April holiday and the per day you know, the
capital spending was still not as strong as before, right,
so you see, yeah, lots of people are traveling, but
they're not really spending as much. So some part of
it can be, you know, some culture shift, right young people,
they no longer spend lots of money on shopping around.
(29:42):
They did more value experience, you know, in the travels.
And we also see similar patterns even in overseas tourism.
If we look at data from a visitor from China
in Hong Kong, in Japan, we did some anasis and
see it's a very similar story. People coming back to
those tourists vidits, but they're not already spending on the
(30:05):
mntrets before.
Speaker 4 (30:06):
It seems like housing is at the root of a
lot of the spending issues. That people just don't feel
so confident with their overall wealth and about their security
economically going forward, and so we need to see some
improvement there. And Eric, let me put a question to
you that's tied to policy making. And we did see
a few newspapers talking about this just in the past
(30:28):
couple of days, about cities removing some of the lower
limits for mortgage rates on first time home buying and
generally just loosening the strings a little bit on housing policies.
Is that going to work?
Speaker 7 (30:41):
I have to say, those incremental, those small steps. It
has proved that it's not working very well so far.
I think since the second half of last year, we've
seeing lots of you know, easing steps from local governments
and losing mortgage rates and you know, relaxing some home
purchaser rules. But it's all step steps, small loosening, and
(31:05):
we haven't seen any you know, big impacts from those policies.
So that's that suggests you probably need more aggressive, you know,
more proactive eating steps. Someone would suggest that you should
have relaxed, removed, just like Hong Kong, remove all the
home purchasing, you know, relaxed the restrictions especialty in the
Tier one cities in China.
Speaker 12 (31:26):
Jenny. Last year, I think the government unveiled a plan
to boost household spending on everything from electric appliances to
furniture things like that. How is that working. Is it
been an effective prescription to try to revitalize a bit
of spending.
Speaker 8 (31:41):
Not so far.
Speaker 14 (31:42):
So this is the sort of cash for clunkers program
they rolled out, and it's really the government sort of
big swing at trying to boost consumer spending, essentially raising
the standards for electronics across a broad range of sectors,
forcing people to sort of hand in their old goods
and buy new ones.
Speaker 9 (32:01):
It's very I think that it's going to.
Speaker 14 (32:02):
Be rolled out sort of in a piecemeal way, province
by province, and we've been monitoring closely to sort of
watch for the beginning of this program, and we haven't
yet seen signs that it has sort of been put
into effect. But you know, the rollout has been quite
slow so far, so we're not going to see the
effects of it yet. It was a note this week
saying it could raise GDP by zero point nine percent
(32:22):
when you look at the industrial impact of everything that
would need to be manufactured for the program, so it
could be significant. But it's going to be rolled out
over a series of years and it hasn't yet come
into effect.
Speaker 4 (32:34):
Recently, in a discussion about the latest CPI and PPI data,
we caught up with way Yaw, chief economist for the
Asia specific at stop Gen and it was kind of
interesting because you know, it was a mixed bag. You
had very negative PPI, but everybody expected that, and it
was in line consumer prices. As you mentioned earlier, Jenny,
(32:54):
they did advance, but only just just zero point one percent.
So what was interesting was I I mentioned to Wai yea, well,
at least that's a little bit of positive news, and
we can listen to her answer here. She also started
to bring in policy in China.
Speaker 15 (33:08):
Maybe it's just a wee bit of good news, but
I think structurally things haven't really changed much. If you
look at economic situation in China, it continued to be
a challenge of not enough do miss the demand and
a lot of supply so and a policy on the
policy front, there is not much significant to address this issue.
Speaker 4 (33:29):
So, Jenny, if we were looking at policy, if we had,
you know, a wish list of things that we thought
would be necessary to be done by the policy makers
to get consumers moving, what would be high on your list?
Speaker 14 (33:41):
I think there are no quick fixes. I mean, they
could offer consumers sort of direct stimulus, I sort of
give them cash handouts to be spending. But you know,
if you do that, the underlyinging structural problems still remain right,
so you'll still have the property crisis, which is really
underpending household wealth and sort of the root of a
lot of the problems. You know, when Janet Yellen came
(34:03):
to Beijing last week, and she basically advocated sort of
a rethink of the Chinese economic policy in order to
boost consumption and rebalance the economy. And the things that
she was proposing were not short term suggestions. You know,
she was saying, improve pension security, make education more affordable,
you know, things that make people feel like they don't
(34:25):
need to keep saving. Because of this high household saving
rate in China, the social security net isn't there. If
something happens and you feel very ill, you know you're
going to have to pay for your medical care. You
know you need to say for your retirement because there
isn't a good state funded pension program. So this is
all part of the broader framework and there's no easy fix,
(34:46):
in my opinion, for getting people spending again. Obviously, if
things improve in the economy looks better, people will feel
more boyd. But you know, there's some big problems there,
and these are sort of deep seated spending habits.
Speaker 12 (34:56):
So playing off that, Eric, I'm wondering, if you're a
policy maker, would you necessarily push banks into reducing deposit
rates as a way of discouraging savings and maybe forcing
some more money, more liquidity into the economy.
Speaker 7 (35:11):
That could be helped. But I think the fundamental problem,
the Postumaker neutral address is the acceptation of the household
and the business.
Speaker 8 (35:19):
Right.
Speaker 7 (35:19):
So in the past, it's everybody is expecting that economy
is booming, right, the product market is booming, so I'm
going to you know, make more money and my property
is going to work more in the future, so it's
it's okay for me to you know, spend more now.
But I think now the expectation is kind of you
know reverse, right, So everybody was expecting, they're having probably
(35:42):
a harder time looking forward, especially you know, giving you
see lots of news about you know, some some financial
sector they're cutting salaries, right, They're cutting you know, payments.
So I think that the people's acceptation is not very
high at this moment with economy slow in with lots
of restrictive kind of regulation trying to you know, contain
(36:06):
the income growth, and that's put more pressure on you know,
people feeling if really my life is going to get better,
you know, looking forward, so I would probably you know,
spend save more and now just to prepare for words days.
Speaker 4 (36:21):
There are some technical reasons too, sometimes where people don't spend.
For instance, the government just asked hotels to accept foreign
credit cards for people traveling. Could could the Chinese authorities
do more to to try to really stimulate domestic tourism,
light a fire there and even encourage people to go
to maccount.
Speaker 7 (36:39):
I think people are really going there, but I'm not
sure if they're really spending to the casinos, because they
really they they're not as you know, as willing to
spend as before. So it's not only on spending money
I'm putting in good. It's also applied to, you know,
spending money around gambling.
Speaker 12 (36:58):
Jenny, I'm curious about out the degree to which the
story on weak domestic demand is tied to a labor
market that may be struggling, particularly where young people are concerned.
Is that a part of the narrative here.
Speaker 14 (37:10):
Yeah. You know, you've got very strong youth unemployment, and
even the overall employment rate last month erased all the
gains that had made since the previous six months, so
you're seeing declined and employment rates overall. So you have
this weak labor market. So the overall landscape for the
Chinese consumer is pretty poor. I do think on the
(37:30):
sort of the sentiment side, the flip of it is
after three years of COVID, there is pent up demand
for experiences and people are sort of excited about traveling.
We're seeing that in the numbers, but they're changing how
they're spending, so they're preferring to go to third and
fourth tier cities. It's not as high value spending as before.
Speaker 4 (37:50):
We'll have to leave it there, Jenny, thanks so much
for joining us. Jenny Marsh, team leader for Greater China
ecogov at Bloomberg, and Eric ju Bloomberg economists covering China
and Hong Kong. I'm Brian Curtis here in Hong Kong
along with Doug Krisner. You can catch us every weekday
for Bloomberg Daybreak Asia, beginning at eight am in Hong
Kong and eight pm on Wall Street. Tom.
Speaker 2 (38:11):
Thank you Brian, and thank you Doug. And that does
it for this edition of Bloomberg day Break Weekend. Join
us again Monday morning at five am Wall Street time
for the latest on the market's overseas and the news
you need to start your day. I'm Tom Buzby. Stay
with us. Top stories and global business headlines are coming
up right now.
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