Stephanomics

As Xi Jinping embarks on his third term as China's president, the world's most populous nation has lost some of the zeal for growth, experimentation and global collaboration that defined it two decades ago. In its place, both Xi and China are focusing on security above everything else, argues Bloomberg Chief Economist Tom Orlik. Today, Beijing is "fighting with the US, fighting against pandemics, trying to secure what it has rather than open up and explore new opportunities," Orlik says. Everyone else is left trying to figure out how to cope with this less-freewheeling China.

On this week's Stephanomics, we delve into the present and future of China's relations with the rest of the world following the Chinese Communist Party Congress. First, host Stephanie Flanders talks with Orlik about what a third term of Xi means. It's arguable China isn't in immediate danger of slipping into bad governance, and that--for all the economic turmoil of its "zero Covid" policy--China has done a better job protecting citizens from the coronavirus than the West. In the long term, though, there are dangers. Vital positions in China's central bank or its Ministry of Finance could be staffed by old-guard bureaucrats instead of dynamic reformers, Orlik says.

Next, reporter Carolynn Look and editor James Mayger share how Europe's own relationship with China is fraying over reports of Chinese human rights abuses and anger over aggressive trade tactics against Lithuania. Still, for all the handwringing, few European companies show signs of scaling back investments in China. Finally, we reflect on an alarming speech by Scottish-born historian Niall Ferguson at a recent Group of 30 conference. He argues that, while everyone's worried that the 2020s will see a repeat of the inflationary 1970s, we may be fortunate if that's all that happens, given the prospect of economic calamity and global war.

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If the combination of inflation, Russia’s war on Ukraine and a surging dollar don’t send the world into recession, disastrous policy mistakes surely could. That’s the increasingly gloomy outlook among some who gathered in Washington this week for meetings of the International Monetary Fund and the Institute of International Finance. One pessimist, Martin Wolf, a longtime columnist at the Financial Times, predicts a deep downturn in Europe, one that includes the UK. That country has been dragged down by a leadership team Wolf calls “mad, bad and dangerous.”

This week’s episode delves into the dicey economic and political climates enveloping three continents. First, Wolf joins host Stephanie Flanders to discuss Europe at the IIF’s annual membership meeting, where he unloads on UK Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng for their panned efforts to enact tax cuts—which created chaos in the British bond market and sent the pound plunging. Beyond the UK’s borders, natural gas prices that have soared thanks to the Kremlin’s war will pull Europe into contraction, Wolf said. But there’s a brighter scenario, according to Flanders. If it’s a mild winter and natural gas prices fall faster than expected, Europe could end up with too much gas.

Then, reporter Maria Eloisa Capurro details how politicians across Latin America are struggling to avoid protests over inflation that’s reached double digits in some nations. Already, people have blocked highways in Panama, rioted in Ecuador and demanded state assistance for the poor in Peru.

Finally, we hear from reporter Colum Murphy, who reveals how the Chinese Communist Party tries to keep foreign journalists in the dark. The party holds its congress in Beijing next week for the first time in five years, and Murphy will be looking for the smallest clues that party members still support President Xi Jinping. In a country where few dare speak out, Murphy said reporters glean what they can from the level of applause to Xi’s speech, which lines get the most attention and whether the party gives him another official title to the three he already holds.

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The UK's politics and policies have always been a bit quirky. But international investors have long trusted that the country would, in the words of prominent British economist Malcolm Barr, see itself from point A to point B. Lately, those investors could be forgiven for calling that premise into question. A series of unforced errors by new Prime Minister Liz Truss and her financial team have shaken confidence in Britain's leadership at a time when its public is reeling from soaring energy and mortgage costs.

In the first episode of this season's Stephanomics podcast, we deliver a triple dose of UK turmoil. First, Bloomberg UK political editor Kitty Donaldson details Truss's arguably terrible debut. Donaldson spent the week at the Conservative Party conference in Birmingham, where some of the prime minister's fellow Tories are "hopping mad" after tax cuts proposed by Truss and Chancellor of the Exchequer Kwasi Kwarteng spooked financial markets and sent the pound to its lowest level since 1985. In an embarrassing U-turn, Truss had to scrap her plans to cut the 45% tax rate on top earners.

Next, Stephanie Flanders talks with Barr about what the market chaos means for the UK (both now and later) as well as its trading partners and investors. Head of European economics for JPMorgan Chase & Co., Barr argues that some of the guardrails that have steered British politicians toward sound, orthodox economic decisions in the past have fallen away. An independent central bank, a proficient civil service and functioning parliamentary oversight have all been undermined to the point that it's "hard to imagine a similar set of errors having been made by any incoming administration over the last 15 to 20 years."

Finally, Bloomberg Senior Editor Brendan Murray takes us to Liverpool, where dockworkers say they're missing out as the port city bustles with tourists and expensive new soccer stadiums. They're staging a strike to demand higher pay amid soaring inflation and interest rates, and for now, have the sympathy of the public.

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Young people unable to buy homes because of stratospheric price increases are cheering the downturn in some housing markets around the world. But they'd better be careful what they wish for: Frothy housing prices, empty office buildings and even a refusal to pay mortgages by many Chinese have the potential to turn a global economic slowdown into something much worse.

In this season's final episode, we explore the confounding real estate market, where prices in many countries have reached unsustainable levels despite a global pandemic. First, reporter Maria Paula Mijares Torres relates the struggle many low- and middle-income Americans face following rent increases averaging 14% nationwide, with some places like Miami seeing a 41% spike. About 8.4 million people in the US are behind on rent payments, and with the end of many Covid-induced eviction moratoriums, advocates for the poor fear a surge of people will be made homeless.

Bloomberg economist Niraj Shah crunches price-to-income and price-to-rent ratios to determine which housing markets are the frothiest. Topping his list are New Zealand, the Czech Republic, Hungary, Australia and Canada, with the US coming in seventh. While the subprime-fueled financial crisis is still fresh in some people's minds, better mortgage quality and the growth of fixed-rate mortgages means "there is some hope that we are not going to see the worst of this," Shah says.

Stephanie talks global real estate risks with John Authers, Bloomberg Opinion columnist and author of "The Fearful Rise of Markets." The commercial real estate market is "probably the single greatest cause for concern," Authers says, particularly in New York. For developers there, a sharp increase in the supply of commercial real estate in recent years, a steep drop in occupancy rates and rising borrowing costs have created a very tricky situation. Meantime, he sees China navigating its way around a domestic property crisis without triggering a global financial crisis, though not without risks.

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Despite all the highfalutin advances in automation and just-in-time inventory, Covid-19 has still managed to upend the world's supply chains. But all this pandemonium may be a dress rehearsal for future chaos, courtesy of challenges such as political unrest and the climate crisis, warns one author who's tracked the global flow of goods.

In this episode, we take a deep dive into the problems plaguing the retailers, warehouse operators, truckers and shippers who labor to get widgets from factory floors to your doorstep. First, reporter Augusta Saraiva explores why everything from baby formula to Teslas can still be hard to find in the US, even though the epic West Coast container ship backlog has eased. In part, consumers are to blame since they've continued buying at levels far beyond what analysts had expected, given 9.1% inflation and fears of a potential recession.

Meantime, importers are fighting over scarce capacity on trucks, ships and in warehouses, creating additional backlogs. One company was so spooked by delays last year that by April it already had 600 containers of artificial Christmas trees waiting at the Port of New York and New Jersey. In a follow-up discussion, Stephanie talks about how supply chains got so fragile with Christopher Mims, author of "Arriving Today," which traces advances allowing for same-day delivery. 

Mims argues that efficient supply chains that were developed before Covid-19 struck weren't battle-tested for pandemics, wars and extreme weather. While unionized years ago, truckers today are largely non-unionized, and as a result earn about two-thirds less in real terms than truckers did 40 years ago. They are also burning out quickly from 14-hour days, Mims says. Alternately, a unionized longshoremen workforce has resisted automation, creating some of the world's least efficient ports. Eventually, supply chains will have to shorten, Mims says, with corporations bringing production in-house or nearshoring it to neighboring countries.

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Dispirited by pandemic lockdowns and a massive real estate crisis, today’s young Chinese workers are dreaming less about becoming super-rich entrepreneurs and more about the workaday lives of bureaucrats. Their new distaste for private-sector jobs has caught the attention of the ruling Chinese Communist Party, which is trying to change opinions and recruit for private-sector manufacturing jobs that are going begging.

In this week’s episode of “Stephanomics,” reporter Tom Hancock discusses the unrest brewing among China’s youth. Many have newly minted degrees and a growing number have embraced anti-capitalist idealism, exacerbating a mismatch between the jobs that are available and the jobs they actually want. Meantime, younger workers see the country’s state-owned enterprises as more stable than privately-owned ones amid Covid-19 outbreaks and lockdowns, creating intense competition for public-sector jobs.

The upshot is the jobless rate among China’s youth is likely to hit 20%, which has alarmed President Xi Jinping’s government. Host Stephanie Flanders talks to Bloomberg Chief Economist Tom Orlik about the outlook for the world’s biggest country. He says China likely has been overstating its growth for years, giving critics reason to question how big its economy actually is right now. But China’s leadership has proven it can develop that economy, and “it would be a big mistake for us to underestimate how big they will likely become in the next 10 or 20 years,” Orlik says.

And, Flanders also talks worker wages with Rachel Reeves, who as the UK’s Shadow Chancellor of the Exchequer is the chief economic voice of the opposition Labour Party. It’s a risky topic to address since Bank of England Governor Andrew Bailey got lambasted last winter for suggesting workers forgo seeking pay raises because they might be inflationary. Reeves wouldn’t say what a reasonable increase for workers would be, given ongoing discussions over pay by UK authorities, but suggested the trick to giving everyone a raise is boosting the economy. 

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The global appeal of Italy’s fashion, food and sports cars long ago proved that the country’s businesses have few equals when it comes to marketing abroad. But selling Italians themselves on the merits of the nation’s economy has been a bigger challenge. Italy’s politicians, central bankers and academics contend the global capital of style can’t reach its full potential until it persuades more of its own citizens to seek employment.

In this week’s episode of “Stephanomics,” reporter Alessandra Migliaccio explores why 2.6 million Italians who could be looking for work aren’t. Bank of Italy Governor Ignazio Visco discusses how the country has one of the lowest labor force participation rates in Europe, and that demographic trends aren’t likely to make things better. The number of Italians between 15 and 64 is expected to fall by 5 million over the next 15 years, with many of those remaining living in the nation’s economically disadvantaged South.

To be sure, other countries have seen workforce challenges throughout the pandemic. But Italy faces unique structural problems, Rosamaria Bitetti, an economist and lecturer at Luiss University in Rome, tells host Stephanie Flanders. First, Italians tend to spend more time in school and away from work, partly because the nation’s university system encourages students to linger, Bitetti said. Other challenges include a dearth of childcare providers and a growing elderly population that relies on younger generations for care.

Finally, economist Nouriel Roubini (nicknamed Dr. Doom for his often ominous predictions) lives up to his billing as he warns that the US, UK, euro zone and other advanced economies have little hope of avoiding recession. During a talk at the recent Qatar Economic Forum, Roubini said the combination of Russia’s war on Ukraine, inflation, a Chinese Covid-zero policy that’s hurting supply chains and loose monetary and fiscal policies suggests “a situation similar to the 70s.”

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The US Supreme Court’s decision last week to overturn the federal right to an abortion will have profound effects on American women. And while prime ministers and presidents of the UK, France, Belgium and New Zealand criticized the ruling as a setback for women’s rights, it’s actually part of what observers call a global retrenchment when it comes to gender equality.

In this week’s episode we explore the economic and societal fallout of the end of Roe v. Wade, the landmark 1973 ruling holding that there is a Constitutional right to abortion, and how it fits with that worldwide trend. First, reporter Katia Dmitrieva shares the story of Jane, a Honduran immigrant living near Dallas who induced an abortion through pills she obtained from a friend through the mail, a practice prohibited in Texas even before last week’s decision. Jane (not her real name) answers phones for a construction company that doesn’t provide paid time off or health benefits. She has neither the time, nor money to care for a child. Reverend Daniel Kanter, senior minister at the First Unitarian Church of Dallas, has called efforts to restrict abortion “a war on the poor.”

Next, host Stephanie talks with Ngaire Woods, dean of the Blavatnik School of Government at the University of Oxford, about how many countries are rolling back protections for women’s rights. Even developed nations with robust laws, including the US and UK, are seeing declining rates of prosecution for rapes, Woods says. Meantime, women politicians are often subjected to a level of personal attacks on social media rarely endured by their male colleagues.

Finally, reporter Claire Jiao shares how some Southeast Asian nations (among others) are trying to make the remote working trend more permanent. While many travelers would love to log into work from the beaches of Bali, they or their companies have feared the potential tax consequences. Jiao finds that Thailand is creating a long-term visa for remote workers that frees them from any tax obligations.

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As the US, UK and other wealthy nations grouse about the prospect of stagflation and risk of recession, people in some emerging nations are facing more perilous questions about how to find medicine to stay alive. A financial crisis gripping Sri Lanka’s 23 million people threatens to spread across the developing world and sweep up hundreds of millions more.

This week, we explore profoundly different economic climates. The first are emerging markets exemplified by Sri Lanka and burdened with pandemic-related debt, double-digit inflation and food shortages; the second is Qatar, an already rich petro-state that’s getting richer thanks to a global energy crisis. Reporter Sudhi Ranjan Sen surveys the chaos in Colombo, where protesters angry with 40% inflation and days-long waits for fuel and cooking gas are demanding the ouster of President Gotabaya Rajapaksa. In the words of one Sri Lankan woman who was unable to find pharmaceuticals for her parents: “It’s really hard to see somebody die without medicine, because you have the money, you don’t have a place to buy the medicine.” 

For the wider world, the risk is that Sri Lanka’s financial crisis spreads to other developing nations that also face high debt levels, rising interest rates and weakening currencies. Ziad Daoud, Bloomberg's chief emerging markets economist, counts five countries most at risk of following in Sri Lanka’s footsteps: Tunisia, El Salvador, Ghana, Ethiopia and Pakistan. Lenders to Sri Lanka stand to lose half of their investment, Daoud tells host Stephanie Flanders, but it’s unclear how the island nation will treat its debts to China. In the past, China has been unwilling to join multilateral agreements to write down debt. But what happens if other lenders forgive much of Sri Lanka’s debt, while the nation makes good on what it owes China?

Finally, correspondent Simone Foxman relays the remarkable turn of events in Qatar, which this week hosted the Qatar Economic Forum. Until very recently, analysts questioned the wisdom of Qatar’s plan to boost its liquefied natural gas exports by 60%, at a cost of $30 billion. Where analysts figured Qatar was overestimating demand, Russia’s war on Ukraine has European nations lining up for Qatari energy. Meantime, the Persian Gulf nation is readying its stadiums ahead of the 2022 World Cup in Doha, set for November and December. By one estimate, the nation has pumped $350 billion into badly needed infrastructure and other improvements ahead of the games.

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US inflation is at a 40-year high and the UK is effectively in recession as demand slows for Chinese-made goods. Prime Minister Boris Johnson, though addressing the British economy, could have been speaking for the whole world when he said in a recent interview that “we’re going to have a difficult period, and we’ve got to be absolutely clear with people it is going to be difficult, and the government cannot solve every problem.”

On the heels of a massive interest rate hike by the Federal Reserve, this week’s episode of “Stephanomics” tackles the bumper crop of trouble facing the globe’s central bankers—not to mention finance and trade ministers. First, host Stephanie Flanders speaks with Bloomberg Chief Economist Tom Orlik, who says the Fed’s 75 basis point hike in interest rates was necessary to help cool inflation, but it doesn’t address the root causes of spiraling prices. To do that, the Fed would have to persuade Saudi Arabia to boost oil production, Russia to stop blocking Ukraine’s wheat exports and Taiwan to produce more semiconductors.

What’s more, the Fed’s move is likely to boost borrowing costs for emerging nations and likely won’t prevent a US downturn, Orlik says. While it may duck one this year, a recession by 2023 “is going to be pretty hard to avoid.”

Next, correspondent Lizzy Burden discusses why the UK may want to brace for a sustained downturn rather than a short one. Consumer confidence has declined to levels last seen in the 1970s and the housing market is cooling. So even if Britain avoids two quarters of contraction, Burden says, “almost every other economic metric is screaming slowdown.”

Finally, reporter Enda Curran reports on how Chinese manufacturers are also feeling the pinch from inflation and rising interest rates faced by their US and European customers. While it hardly qualifies as a trade recession since consumers are still spending, Chinese manufacturers such as Prime Success Enterprises, a maker of pop-up swimming pools for dogs, warn that demand is drying up. 

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