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 in the coming week from our Daybreak
anchors all around the world. Straight ahead on the program,
and look ahead to the December jobs report in the
US what it could mean for FED policy moving forward.
I'm Tom Busby in New York.
Speaker 3 (00:25):
I'm Stephen Caroen and London.
Speaker 4 (00:27):
We're digging into some of the food and culture trends
to watch in Europe in twice and twenty five.
Speaker 5 (00:32):
I'm deg Prisner, looking at what's in store for the
world's second largest economy.
Speaker 1 (00:38):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven three year, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two to nine, Boston, DAB Digital Radio, London,
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Speaker 3 (01:02):
Good day to you.
Speaker 2 (01:02):
I'm Tom Busby, and we begin today's program with the
December jobs report. We get non farm payrolls data on
Friday eight thirty am Wall Street Time, and for more
on that data and what it could mean for FED policy.
We're joined by Stuart paul Us, economists with Bloomberg Economics. Well, Stuart,
let's start with November. Job growth really rebound. It two
(01:25):
hundred and twenty seven thousand jobs added thanks to retailer
staffing for the holidays, no major storms, no big strikes.
What do you expect to see in December's number and
will this give us kind of a clear picture of
where the US labor market is right now.
Speaker 6 (01:39):
Good day to you, Tom, and happy New Year. You're
absolutely right that hiring did rebound in November. That's after
hurricane season came to an end and the effects of
Hurricane Beryl and Milton really came to an end, and
the Boeing strike was resolved early in the month in November.
But we're not going to have some of those same
favorable wins for hiring in the December jobs report. It's
(02:03):
just about one hundred and fifty five thousand jobs that
were likely added during the month, and that's again far
slower than even the average pace that we saw over
the year, which has been running at about one hundred
and eighty thousand jobs per month. The hiring rate, Tom,
has been declining and quite rapidly in the last couple months,
(02:25):
which suggested the expansion of the labor pool is really
slowing down. And more importantly, I think Tom, is that
the Establishment Survey has been overstating the pace of hiring
in twenty twenty four by an average about ninety thousand
to one hundred thousand jobs per month. And after we
factor that in, the average pace of hiring over the
last year was likely just about seventy five to eighty
(02:48):
thousand jobs per month. And that's really inconsistent with a
steady unemployment rate. That's not enough hiring given population growth
to keep the unemployment rates steady. Are expecting to see
the unemployment rate rise in that December payroll report?
Speaker 2 (03:04):
Now in November it went from four point one to
four point two. Are you thinking just one notch four
point three or or are you looking at something maybe
a little more troubling.
Speaker 6 (03:16):
This is this is a little bit of a frustrating
knife edge estimate. When we really sharpen our pencils and
get right down to it. We're estimating a four point
three six percent unemployment rate and that could of course
round up if we're off by just a smidge. That
is just one notch higher at four point three percent.
But again, it's undoubtedly a cooling labor market, and even
(03:40):
with about one hundred and fifty five thousand jobs added
during the month, it's not enough to keep the unemployment
rate steady. We are seeing that unemployment rate rise, and
we do expect to see the unemployment rate continue rising
to about four and a half percent as we get
closer to mid year twenty twenty five.
Speaker 2 (03:56):
Now does that mean do you see it as more
Americans looking for work unable to to get one. Does
that mean more people re entering the workforce, more college
graduates coming out? I mean, what's the reason that you see?
Speaker 6 (04:08):
There are a couple factors at play, but I think
the most pressing is that the duration of unemployment is
rising as employers become a little bit more discerning, employers
are slowing again, the increase in headcount workers who are
in the labor force who have been having trouble finding
new employment. They're stagnating among the ranks of the unemployed,
(04:33):
and the duration of unemployment. The median duration of unemployment
has been steadily climbing throughout the previous year. It now
stands at about ten and a half weeks, which is
again getting rather along. So you have that stagnating pool
of workers who are in the labor force looking for work,
slower increase in headcount, and just general population growth all
(04:55):
creating a confluence of factors that are creating talo winds
for the unemployment rate.
Speaker 2 (05:00):
But you're not alarmed by this. I mean, even if
it goes up to four point three four point four,
it's kind of what the Fed expected to see right
in their last dot plot from last year.
Speaker 6 (05:10):
We are expecting that four and a half percent increase
around mid year. The Fed has been noting that there
is cooling in the labor market. This is a dynamic
that's not really a shock to anyone, And if you
really hold monetary policy makers feet to the fire, even
four and a half percent unemployment rate isn't the sort
of thing that's going to make them lose too much sleep.
(05:33):
The real problem is what ends up being the policy
outcome that comes from a rising unemployment rate amid a
stagnating or elevated but steady level of inflation.
Speaker 3 (05:47):
We still have two.
Speaker 6 (05:48):
Point seven percent headline inflation, so we have a long
last mile to the two percent average inflation target at
a moment when unemployment is starting to rise. That makes
it pretty difficult for the FED to have a clear
cut decision whether it should continue cutting rates to address
the cooling labor market or slow its pace of rate
(06:09):
cuts to continue putting pressure on inflation. Ultimately, we think
that this shakes out to a slower pace of rate cuts,
something like a quarterly cadence of quarter point cuts by
the Fed. So we're expecting the Fed, for example, to
skip cutting rates by a quarter point in January and
to then pick up with rate cuts again at its
(06:31):
subsequent meeting.
Speaker 2 (06:33):
This Friday, we get the December jobs report our thanks
to Stuart paul Us, economists with Bloomberg Economics. Well, we
move next to the airline industry, which has seen a
burst of travel demand this past year, and this coming Friday,
Delta Airlines becomes the first major carrier posting its fourth
quarter earnings, which will likely show continued strong demand right
(06:54):
through the holidays. And for more on what to expect
from Delta, along with his outlook for the airline industry
in twenty two five, were joined by George ferguson Bloomberg
Intelligence Senior Aerospace, Defense and Airline analyst, George, thank you
and Happy New Year to you.
Speaker 7 (07:10):
Happy New Year to you too. Thanks for having me on.
Speaker 2 (07:12):
Oh you bet well. Let's start with Delta now. It
posted record revenue in the spring quarter of twenty twenty four,
took a bit of a hit from that worldwide IT
outage in the summer, but boy, demand just keeps chugging along.
What do you expect to see for the falls fourth quarter?
Speaker 7 (07:28):
Yeah, so it's definitely been a good year for Delta. United.
Full service carriers especially have done very good this year
when it comes to profitability, and so, like you mentioned,
you know, record revenues for most of those carriers because
fairs have been quite strong. The challenge really has been
(07:49):
throughout the year that you know, costs, especially wages, especially
to the pilots, have really taken away sort of peak profitability.
We just haven't seen twenty nineteen levels of profit. But
so in four Q what we expect to see is
that we expect to see an increase of a little
(08:11):
bit one hundred basis points over twenty twenty three. EBITDAR
levels is where we measure earnings before interest, taxes, depreciation,
amortization and aircraft rentals. What's going to help drive this
increase in four Q is going to be fuel costs actually,
so fuel is going to be down twenty two percent
(08:32):
that was at the wholesale level for four Q. It'll
be different for every airline, but it should roughly coincide
with that twenty two percent decline. And we basically use
Golf Coast Jet as our measure, and that's going to
provide like a four hundred and fifty basis point gain.
(08:53):
You know, we think for Delta's earnings, pilot wages aren't
going down, right, so those wages still sort of take
away a bunch of the profitability on revenue, or the
potential profitability gains I should say on revenue. We do
expect fares to start the taper off for the big
(09:13):
full service carriers again, United Delta American are the ones
I'm mostly talking about there. You know, what we've seen
is we've seen growth in seats in four Q for
full service carriers up about six and a half percent
year every year. That beats inflation. So we think that
(09:34):
means that there's going to be more competition for filling
those premium seats, and therefore we're going to see again
sort of tapering off in fares for the broader market.
For the domestic market the most important for all the airlines,
we're seeing increase in seats of about two percent, so
that may help actually some of the low cost carriers
(09:54):
as we're starting to see some of the supplied demand
in seats tilt towards the the low cost carriers favor.
They've had more problems during the year, but so we
expect essentially Delta is going to increase capacity about four percent.
We think that yields maybe decline about one percent well,
so we think they'll be like a three percent revenue growth. Again,
(10:16):
we're kind of looking for a pick up, a slight
pickup and profitability.
Speaker 2 (10:21):
Now, have the major carriers have they now surpassed pre
pandemic levels for seats filled for af fares they.
Speaker 7 (10:28):
Have, they're all well above pre pandemic and fair level,
and they're also well above in the amount of capacity
they put in the marketplace. The entire marketplace is, you know,
sort of recovered back all the pre pandemic levels were up.
I think in the domestic market something around five percent
over pre pandemic seat levels.
Speaker 2 (10:51):
I think for domestic and which carriers I know you
make a difference between the full service carriers and the
low cost carriers, which have fair the best. We know
Spirit Airlines what happened there, But obviously, yeah, you know,
how have all the other carriers adjusted to that bankruptcy
that change?
Speaker 7 (11:09):
Yeah, so that's part I think what's driving some of
that improvement in you know, what we expect to see
in four Q in non premium leisure seating, right, and
so carriers like you know, Spirit went through it declared bankruptcy,
It knocked down a bunch of their schedule. Southwest was
(11:32):
a large adder of seats, if that's a great way
to say that during twenty twenty four, and their profitability
really suffered, and so they've pulled back on their expansion
because generally, I think those low cost carriers just haven't
done as well in twenty twenty four as the full
service carriers and the poorest of the low cost carriers
(11:56):
were the ones like Southwest and Jet Blue that have
been around the longest, gave the pilots maybe some of
the better pilot contracts. Jeff Blue was also embroiled in
the whole we're going to take over Spirit Airlines, you
know sort of mess and that I think sort of
hurt their momentum. And again the outperformers during the year
(12:17):
really were airlines that had premium seating capability.
Speaker 3 (12:22):
Wow.
Speaker 2 (12:22):
Our thanks to George Ferguson, Bloomberg Intelligence Senior Aerospace, Defense
and Airlines Analyst, And coming up on Bloomberg day Break Weekend,
we'll dig into some of the food and culture trends
to watch in Europe in twenty twenty five. I'm Tom Busby,
and this is Bloomberg. This is Bloomberg day Break Weekend,
(12:51):
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 we'll look at what's in
store for the world's second large just economy in twenty
twenty five. But first, the picture for the UK economy
right now significantly better than it was a year ago.
Inflation has come down dramatically. The Bank of England has
(13:11):
begun its easing cycle. Also, there are some bright spots
in the vibrant UK food and culture scenes to look
forward to.
Speaker 3 (13:18):
For more.
Speaker 2 (13:19):
Let's go to London in Bloomberg Daybreak. Euro Banker Stephen
Carroll Tom After what.
Speaker 4 (13:24):
Feels like years of gloom over the UK economy, there
are hopefully some things to be optimistic about heading into
twenty twenty five, even though the picture hasn't been great
in recent months. Bloomberg Economics is expecting moderate growth in
twenty twenty five and they say a recovery in consumer
spending has further to run, supported by higher real incomes
and falling interest rates. So that's the backdrop. But given
(13:46):
the time of year, we've decided to lean into the
optimism and talk about some of the highlights and trends
to watch in the dining, hotel and cultural scenes in
the UK and maybe beyond as well. For that, I'm
joined by our food outit O K Crater and our
Bloomberg Pursuits UK correspondents. Aera great to have you both
with us. Sarah, you have done and seen so much
in twenty twenty four, and I mean that in a
(14:06):
positive way. Talk us through some of your cultural highlights
of the year.
Speaker 8 (14:10):
Yeah, what, It's been a really fun year for London theater.
My actual favorite show this year was the Picture of
Dory and Gray with Sarah Snook from Succession Yes Shiv,
who was incredible playing all the roles all twenty six
incredible and she was captivating on stage. She used a
lot of live and prerect camera work, but it was
just like she controlled the whole stage for a good
two hours. I was tired just watching her like it
(14:33):
was exhausting. It was amazing. So that's transferring to Broadway
next year and I think it's going to do great there.
She won the Olivier for her performance in that. And
next week I'm actually seeing The Tempest. Ah, it's a
gourney Weaver in the andre Lloyd Webber Theater. I'm very
excited about that, So that might be my new favorite.
Next week you'll have to to see. But before that,
picture of Dorian Gray.
Speaker 4 (14:51):
Okay, got a good place to start anyway. Let's top
food though, Kate. I mean, how how has your year
been for food in London? Has this been a good year?
Is it a good vintage?
Speaker 9 (15:00):
The year has been delicious and an excellent vintage. What
a good thing to say. I think London's come on
really strong, and it's come on really strong, especially like
in an accessible, affordable way. There are a ton of
wine bars that also happen to serve that sort of
wonderful food. Wonderful compelling food. And you know London, it's
(15:21):
it's sometimes so hard to get into restaurants. They get jammed,
they get booked up early. You have to be a
major planner. And wine bars. A lot of these wine bars,
like there's one I love called Kaday up in Newington
Green and you just you walk in. I mean they
do take reservations now, but guaranteed there's a counter with
a seat that you can find and sit down and
eat at. And it's Marvelous Mountain which is in Soho
(15:45):
on Beak Street. I'm in love with that place. It
helps to book, but they also have just like dozens
and dozens of cool counter seats. You can sit there
with a delicious class of wine.
Speaker 4 (15:56):
Because it's true the counter seats aren't that big a
thing here in general. So it's always great to know,
especially places in central London that you can go and
you don't have a book it, which can often be
the situation that I find myself in. Do you have
a best meal of the year?
Speaker 3 (16:08):
I mean you have to eat out a lot professionally, so.
Speaker 9 (16:11):
I have to. Yes, it's a job.
Speaker 8 (16:14):
I will say.
Speaker 9 (16:14):
I just came back from Kyoto from Japan, and that
was you have to fly.
Speaker 8 (16:21):
For you have to you have to travel.
Speaker 9 (16:23):
Traveling for food. But I had a sensational, mind blowing
meal at a place called Cooke, which is Spanish Japanese,
which sounds really unpromising. I was wondering if it would
actually be one of one of the worst meals I
had this year, and instead it really was transformative. This chef,
and he's ever been to Spain, so I don't quite
know how he does it, but he does these like
(16:44):
genius forms of tapis using using local ingredients. And I
have a best Dishes story about to come out, and
one of them one of the dishes, which was like
a sort of charred winter melon, which is a boring fruit,
but he caramelizes it and serve it with like a
smoking a smoking butter milk soup and fermented cream.
Speaker 8 (17:04):
It's crazy, it's so good.
Speaker 3 (17:06):
That sounds incredible.
Speaker 4 (17:07):
Okay, So that's I'm glad you've given us a global
flavor to the conversation as well, Sarah.
Speaker 3 (17:11):
We're thinking globally.
Speaker 4 (17:13):
The strength of the dollar has been a really big
theme for tourism spending, I mean everywhere in the world,
but the UK has benefited quite a.
Speaker 8 (17:19):
Lot ye, the rich Americans are here.
Speaker 4 (17:21):
They're here and they're spending their money. We talked a
lot last year about the big hotel openings in London.
I wonder because this is a big part of your
job as well as looking at the best places to stay.
So what stood out for you of what's happened in
twenty twenty four.
Speaker 8 (17:33):
Well, London's a five star hospitality gold rush is continuing on.
Speaker 3 (17:37):
Okay.
Speaker 8 (17:38):
I really liked the Emory, which is a new hotel
from the Clarges Group and it's as an all sweet
hotel in Knightsbridge, and there's a gen doorge restaurant. It's
very fun, it's good, huge rooms. But next year what
I'm excited about is the Trancery Rosewood and it's in
the old US Embassy in may Fair. The last time
I was there was a twenty sixteen election night party
actually and different times. It's going to be a hotel
(18:01):
and they're going to have a carbone as Kate's aware,
they're gonna bring sort of American Italian flavors into central
London and they're just gonna have the Eagle from the
Embassy is going to be at the bar on the
top of the hotel, so look out for that next year.
Speaker 3 (18:13):
Okay, interesting features to watch.
Speaker 4 (18:15):
Now, why does it feel like that, all of a
sudden everyone has just discovered the English countryside. I feel
like I've seen so many pieces, not just from you,
but everywhere about the number of people that are coming
to stay in the beautiful parts of this country.
Speaker 8 (18:27):
Especially the Coswels. Everyone's in the Cotswolds now, I mean
me too. Taylor Swift to stay there this summer when
she was in the UK for her aerostour. Ellen DeGeneres
just bought a house in the Gospels. I don't know
why it's so trending so much. There's been a lot
of cool new hotels, like a still Manner's quite trending.
Lot of members clubs, places from London coming up, coming
up to the Cotswolds. It's getting kind of more seeny
and exclusive. There's always been the cozy country pubs and
(18:50):
it's like nice walks and cozy feeling, but now it's
kind of gotten. The London vibe as well is becoming
quite hip.
Speaker 3 (18:56):
Kate, look into your dining crystal ball. Is that a
crystal plate?
Speaker 4 (19:00):
Quite sure? I'll work on that metaphor what are you
excited about the foods. Even twenty twenty five are their openings.
We should be looking forward to.
Speaker 9 (19:05):
A Sarah was saying at the Rosewood. Besides Carbone, which
is this big deal Italian American restaurant, been, Richard Caring,
who is quite famous, is bringing back the Caprice, you know,
the Seminole restaurant. So that hotel is going to have
two really important dieting rooms. It's going to be a destination.
But even bigger, I would say, Gordon Ramsey, who hasn't
(19:27):
opened a place in years and years, is coming to
the city actually, and he's opening up five food and
drink concepts, including one a bar that's going to be
the highest bar. I think it's on the sixty second floor, Okay,
place with the best view probably in London. He's opening
up a dining room on the sixty first floor and
that is coming in February, so sooner than you think.
(19:51):
And there's also a fun trend. Jamie Oliver's opening up
a cooking school in John Lewis in the spring, and
Gordon Ramsey's going to have some kind of a culinary
school or culinary program at his new restaurant complex.
Speaker 4 (20:03):
So wow, and interesting to see those names that are
still worths of the British restaurants scene. I suppose having
a twenty twenty five renaissance.
Speaker 9 (20:10):
What's all this new?
Speaker 3 (20:11):
Right exactly? They're coming back.
Speaker 4 (20:13):
Not to bring down our conversation, but there's a lot
of talk about how there are tax changes that were
announced in the budget in October. They're coming into fourth
at April, particularly going to effect employers and the tax
they have to pay for their employees and part time
workers are keys. There's a lot of hospitality businesses say
they're worried about it. You know in conversations because you
speak to restauranteurs all the time, Are they worried about this?
Speaker 1 (20:31):
Yeah?
Speaker 9 (20:31):
You know what. In fact, Jason Atherton, who just did
a terrific Bloomberg TV interview and he has a really
cool new restaurant called Row on five, a very ambitious
restaurant on Saville Row, said that something everyone is worried about.
He said specifically, he's worried that entrepreneurs are going to
leave the UK and go to other places where there's
more chance of where the playing field looks easier to
(20:55):
navigate on.
Speaker 4 (20:55):
We've heard from some of the big particularly pub groups
have been talking about in their results as well, the
impact in terms of millions of pounds on their wage
bills for that as well. Now, Kate, you do travel
as well. You mentioned your trip to Kyoto there as well.
I wonder if you're thinking about Europe more broadly, is
there a foody destination. If people are thinking about a
break in twenty twenty five and they love food, where
(21:16):
would you send them.
Speaker 9 (21:17):
That's such a good question because you can almost make
a case for anywhere. I do think, you know, France,
it's such a boring answer.
Speaker 3 (21:26):
Or is that Paris? Or is it outside of say Paris?
Speaker 9 (21:28):
Actually, I think the energy in Paris is so good
right now. People are doing all these compelling little things.
You find these fantastic storefronts. People are doing that kind
of fusion cuisine, you know, I mentioned weird Spanish Japanese
and yet it works. You know, it's this fantastic combustible
experiment and then you taste it and you're like wow.
You know, it's like kind of little fireworks. And that's
(21:49):
happening all across Paris, like in the eighteenth in the
first it's I think, I don't know if it's like
the effect of the Paris Olympics. You know, there was
so much angst about it going into it, but I
think the after effect of it, the energy that people
put into it, has made it like, don't forget about Paris,
even as you're going to all these other places. You know,
even as you're going to Spain. Spain was you know
(22:12):
the rock star last year. I would say, yeah, and
it's going to keep going strong. Is relatively affordable, you know,
especially if you're coming from a place like London or
the US. But don't sleep on don't.
Speaker 4 (22:23):
Sleep on Paris in Paris in terms of staying places
across Europe's sah. I wonder as well if there are
places that you've kind of got some interesting hotels and
your horizon of anywhere in Europe that you've experienced or
excited about.
Speaker 9 (22:36):
Yeah, I think.
Speaker 8 (22:37):
Greek islands outside of Mikinos for Sansorini. One is where
you have to get on a ferry, which you know
can be maybe a little bit annoying and involves a
little bit of I guess planning is a way to go,
but they're less busy the beaches of Pristine The food's
really good, fresh fish, happy people, it's just, you know,
a lovely thing to do. And there's a lot of
cool new Boutiko hotels popping up on places like Paros
(22:57):
or Anti Paros as well. Yes, just supposed to get
international airport in twenty twenty six, So come now for
all the crowds to do, is what I'd say. Next
to year, next summer, go before the American masses with
their dollars come over.
Speaker 4 (23:08):
What else are you putting in your calendar for twenty
twenty five? So there are the things that your booking.
So you mentioned you've got The Tempest coming up there
as well. Are there are cultural highlights you have on
your agenda, things that you're already definitely making sure that
you're going to be doing.
Speaker 8 (23:21):
Jamie Lloyd is my own, my favorite directors and he's
doing in a big Shakespeare season that includes The Tempest
but also as you like It with Tom Middleston and
Haley at Well coming next year in February in March.
That should be really fun to see. And also the
National Theater is doing a bunch of really cool stuff.
They just announced a thing of Jane Krakouse gably so
pick on their website, but book that.
Speaker 3 (23:41):
Soon, very excited about that.
Speaker 8 (23:43):
It's always good things on at the National at the
South Bank. You can always get return tickets as well.
Even if something looks booked. I would show up on
the day and you can normally get returns because there's
a big theater de Olivier and there's always returns.
Speaker 4 (23:53):
Such a good tip as well, because as you say,
so much feels like in London you have to plan
it months in advance, so the idea being able to
do something last minute can be certainly very tempting.
Speaker 3 (24:02):
Kate.
Speaker 4 (24:02):
I do wonder if we're thinking about trends for next year.
I mean, famously you predicted the death of small plates.
I can't remember if that was a year or two
years ago. And yes I still see a small plate
in many places.
Speaker 10 (24:12):
You know.
Speaker 4 (24:12):
I'm sure you're one hundred percent of the money. But
is there anything that we should be excited about in
terms of trends coming up?
Speaker 9 (24:18):
I think we're going to see more and more Japanese
food here in London. It's been coming and coming. You
might have seen more sushi restaurants from high end ones
to casual one casual places that specialize in hand rolls.
Tourism to Japan has been crazy. In October, I think
three million people went. I think it was a record
breaking number for them, and so I'm seeing and hearing
(24:42):
more Japanese concepts that are coming. I think also there's
going to be a fun this is a bit random,
but a fusion pizza thing where you'll have buttered chicken,
a buttered chicken topping. You're neapalatan pie. I'm looking for
things like that. The bakery, the bakery trend is just
not stopp I mean that's going to keep going.
Speaker 4 (25:02):
Never mid about more begs goods. That's a good thing
to going forward too. I love to Stephen Okay, creditor,
our food editor on our Bloomberg Pursuit's UK correspondent, Sarah Rappaport,
thank you very much for joining us. I'm Stephen Carolyn London.
You can catch us every weekday morning here for Bloomberg Daybreak.
Here at begetting at six am in London and one
am on Wall Streets.
Speaker 2 (25:19):
Tom, thank you, Stephen, and coming up on Bloomberg day
Break weekend, we'll look at what's in store for China's
economy in twenty twenty five. I'm Tom Busby and this
is Bloomberg. This is Bloomberg day Break weekend, our global
(25:42):
look ahead at the top stories for investors in the
coming week. I'm Tom Busby in New York. Threats of tariffs,
trade curbs, and risks linked to excessive economic stimulus just
some of the challenges looming over the world's second largest
economy in the new year. For more, let's get to
the host of the Daybreak Aisha podcast, Doug Krisner.
Speaker 5 (26:02):
Tom, we know the weak state of the Chinese economy
and how authorities in Beijing have pledged more stimulus to
support a more robust recovery. The big question is will
those steps lead to a prosperous twenty twenty five or
we'll China continue its struggle. For a closer look at
the road ahead, I'm joined by Bloomberg's Jenny Marsh. She
is team leader for Greater China Eco GUV. Jenny joins
(26:25):
us from our studios in Hong Kong. Thank you for
making time. I know it's a busy end of year
season for you. Where do things stand, particularly in light
of what we've heard recently from the polit Bureau on
stimulus and what may the year ahead hold for China?
Speaker 10 (26:42):
I think going into next year, there are high expectations
that the Communist Party now has woken up to the
idea it needs to be supporting the economy forcefully and
then it's really taking the challenges ahead seriously. And I
think the return of Donald Trump to the White House
has only helped Hugenpeeing and his fellow leaders arrive at
that point, because you know, we've had this two track
(27:05):
economy this year, and exports was sort of doing a
lot of the heavy lifting. And I think looking into
next year, there is a very sort of sobering realization
that with Trump returning and this sort of tariff war looming,
that isn't something anyone sensible would bank on. And so
since September we've seen this sort of change in rhetoric
(27:26):
from the senior ECO policy makers talking about bolder steps.
And then I think the Politbering meeting in December, which
always focuses on the economy and sort of sets up
the year ahead, really made clear that they are going
to sort of switch gears. You know, they talked about
they changed the monetary policy stunts to moderately loose, which
is something they only ever is there sort of a
(27:48):
phase they only ever go into at times of crisis.
So the last time was the Great Financial Crisis. They
went to this moderately loose sort of zone of monetary policy,
and then they named boosting consumption. Is that the number
one goal for twenty twenty five, but just something you know,
foreign governments and economists have been calling for for a
(28:08):
long time. So I think, you know, while obviously the
need for Chining to become sort of a self sufficient
text superpower that can rival America, that ambition is not
going anywhere. They're now much more serious about Okay, we're
going to do that, but we also need our own
consumers to start spending, and there's like a whole kind
of menu of reasons for that if you like. But
(28:30):
I think policymakers are now taking it seriously.
Speaker 5 (28:33):
So we can talk about the consumption story in a
little more detail momentarily. You know, for such a long time,
when you and I have spoken in the past, the
debt problem in China has been a hot topic, and
it's curious that officials have now agreed that the government
should be allowed to have a larger budget deficit to
borrow more along with the cuts in interest rates that
(28:53):
you just kind of suggested there is anyone concerned about
increasing debt levels or is that no longer a problem?
Speaker 10 (29:00):
You know, I think China has a lot of space
to increase central debt levels, right So, and what they're
planning for next year, to be honest, is fairly modest.
So an extra one percent of GDP for the government
spending the fiscal budget that was sort of on the
conservative side of estimates. It's the highest or ever of
ben but it's still not you know, that's not pulling
out all of the big guns, so it's still sort
(29:21):
of relatively modest. But they have ways of augmenting that,
right So there's like the official budget, and then there
are all these unofficial ways they can spend. So we
saw them making this unprecedented step in recent months singling
out two big state owned companies that can now issue
what people are calling central government financial vehicle bonds. So
while you had these like local government companies before that
(29:44):
were kind of create issuing debt to be spent on
the economy, now perhaps the central government is showing science
it might do that. So you've got this expanded government
spending on the official books, but they might place more
sort of in other ways, which a sort of less
baked in, if you like, in natural official budget. But
the task they have ahead of them is huge. You know,
how arey going to get people spending? Because the things
(30:05):
that are holding back the Chinese consumer. It isn't just
sort of an idea of like the economy is bad.
It's sort of the property crash is the biggest one, right,
Like everyone, yeah, had their money invested in property. And
while there are some signs that you know that is
that the crash is sort of slurring and maybe you
are reaching a bottom, very very very tentative. You know,
(30:26):
time prices are still declining, but the declines are easing,
so it's still not anywhere out of the woods on that.
That's one reason people in China want to put all
their money. They squirrel them into savings accounts.
Speaker 5 (30:39):
So the decline that we've been talking about in property
prices kind of moves out more broadly to include consumer goods, food, electronics,
and the like. And this obviously is going to complicate
things for Beijing because it's been mired. The economy in
China has been mired in this deflationary trap for a while,
particularly at the wholesale level. Is there a way that
(30:59):
you're familiar with where Beijing has been able to articulate
first that there is a problem with deflation in a
way that calls for a much greater response, And what
are they suggesting those measures may look like.
Speaker 10 (31:14):
So to your first point, I think you know, no
one in the Chinese system is using the word deflation.
Still that is still a dirty word, even though with
the GDP deflator, which is the economy wide sort of
measure of prices, that will have been its longest period
deflation ever on record in January or it will match
the longest record and then most economists expected in Q
(31:35):
two to exceed it.
Speaker 3 (31:36):
So this is a.
Speaker 10 (31:37):
Serious problem they do need to face. And the polit
Bureau meeting did talk about prices, so they're not talking
about deflation using that word, but they are talking about
sort of prices as a problem.
Speaker 7 (31:47):
Now.
Speaker 10 (31:48):
I was just in Beijing recently. You know, behind closed doors,
all the economists that you talk to see deflation is
sort of the biggest threat to the economy right now,
and many of them make the comparison with Japan when
it was going into last decade and talk about the
sort of three arrows policy that they had to sort
of roll out, you know, to try and defeat deflation,
which obviously in Japan wasn't necessarily particularly successful. But the
(32:11):
way the economists see it is this is going to
take a forceful and coordinated policy approach. You would need
to go all in on fiscal, all in on monetary,
and then rescue the housing sector if you really want
to stop the deflationary spiral. It takes that kind of
a response. It can't be sort of what you're seeing now,
which is, you know, this year, for example, they rolled
(32:32):
out enough fiscal and enough rate cuts, enough sort of
sprinkling of measures to get to the growth target. And
I think for a lot of economists, both in and
outside China, you know, the growth target is one thing
meeting that is possible. If they said it at about
five percent again next year, that's possible because GDP is
really a measure of sort of activity.
Speaker 1 (32:52):
Right.
Speaker 5 (32:53):
So, even with what we've heard from the government in
terms of what stimulus may look like, the sketch that's
been provided, has that been enough in and of itself
to move the needle when it comes to sentiment. Have
things become a little bit more optimistic or is there
too much to say.
Speaker 10 (33:09):
I haven't sensed any increase in optimism at all. You know,
I'm sure people don't feel optimistic. They feel very pessimistic
about where things are going. And I think the return
of Trump is only adding to that, right, this sort
of sense of like foreboding of what is de harmon,
what is around the corner. I think there's a real
sense China was facing some serious challenges. The only positive
(33:30):
I think is that the government is now showing some
signs of being more proactive. You know, I think there
was a sense that like some of the stimulus that
came before Trump came into office, like changing the monetary
policy stance for example, before Trump came in that afterwards
was being more proactive than reactive to something happening in
the economy. But it's still you know, changing the stance
(33:52):
is one thing, but sort of how deeply were they
cut rates next year? You know, you have economistsay, maybe
up to sort of fifty bit, sixty bits, So we
don't know yet, right, so it still remains to be
seen how forcefully they actually will roll out those particular
sort of stimulus.
Speaker 5 (34:06):
Jenny will leave it there. Thank you so much for
making time to chat with us at the end of
the year. It's always a pleasure. Bloomberg's Jenny marsh is
team leader for Greater China Eco GUV, joining us from
our studios in Hong Kong. So we've taken a look
at China from the ten thousand foot view, so to speak.
Now we want to zero in on one particular sector, automobiles,
(34:27):
especially those evs. We know that President electromp has vowed
massive levies on vehicles imported from China. Joining me now
for a closer look is Chiao Fung. He is co
head of China Industrial Research at CLSA. Chiaofung, thank you
so much for making time to chat with us. I
think we can agree that one cause for concern, at
least from the US side, is what has been called
(34:51):
an overcapacity issue in China, and that relates to a
number of industries in China, especially as we know electric vehicles.
I'd like to get your assessment on the degree to
which we're going to begin to see maybe a little
bit more in the way of consolidation in the EV
space in China for the new year.
Speaker 11 (35:09):
What do you think So for now, I think when
most of people are talking about overcapacity or low capacity
utilization for the EV industry. People refer to the whole
industry data which is right now running at around forty
to fifty percent of capacity utilization.
Speaker 3 (35:24):
It's very low.
Speaker 11 (35:25):
We have around forty to forty five million units of
capacities in China, while the auto sales is really twenty
to twenty three millions a year. But if you look
at the structural issues here, EV makers in the meanwhiles
running at a much higher capacity utilization, generally around eighty
percent or above, while the ice car makers, the traditional
(35:47):
ice co makers, are running at the below fifty percent.
So that's a structural difference here. As the overall, I
believe EV makers will continue that trend. They will be
growing much more faster at the losses of the ice makers.
We are focasting in the PS and your vehicle market
to be at low fingle digit growth next years, But
in the meanwhile EV will be growing at twenty five
(36:08):
to thirty percent versus twenty five to thirty percent losses
from the ice carmakers. The second thing is really the
consolidations of the industry. We believe twenty twenty five will
start to see a materialization of the industry conthoridations, which
already happening this year. We're seeing some joint ventures are
shutting down the factories in China. We're seeing some exit
(36:28):
of the brands from the new forces of the EV makers,
which we're going to be materialized in twenty twenty five.
So I think the industry counthoridations will continue to help
drive up the capacity utilizations.
Speaker 5 (36:41):
When I think of EV's I think of a not
only domestic demand, but I think of a very strong
export market as well. But when it comes to the
issue of domestic demand, how much more can the government
be doing? There is a lot that's already been communicated.
Are you expecting a lot more in terms of fiscal
policy from Beijing in the year head.
Speaker 11 (37:00):
So I used to cover commodities. If you are talking
about the large scale stimulus like we saw in the
two thousand and nine after financial crisis, we probably will
be disappointed because from my perspective, I think the Chinese
government will stop doing that kind of large scale stimulus. Instead,
we are seeing a shift of the policy focus from
(37:20):
the production side investment side to consumer site. In China,
investment has to be used to be the biggest growth driver,
accounts for more than one third of the fixed act investment.
Speaker 3 (37:30):
But for now, with.
Speaker 11 (37:31):
The shrinking of the property space and struggling local government financials,
we're seeing the manufacturing industries, the value adding industries are
accounting for a larger share of the economy. So that's
why going forward we'll see the policy will be more
focusing on driving the consumption rather than pushing for the production.
This is what our reports is saying, a change of
(37:52):
the policy from push to pull.
Speaker 5 (37:54):
Chao Fun, thank you so much for taking time to
chat with us. Shall Fung is co head of China
Industrial Research at CLSA, and I'm Doug Chrisner. You can
catch us weekdays for the Daybreak Asia podcast. It's available
on Apple, Spotify or wherever you get your podcast.
Speaker 2 (38:11):
Tom, Thanks 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
markets overseas and the news you need to start your day.
I'm Tom Buzzby. Stay with us. Top stories and global
business headlines are coming up right now.