00:00So, as you know, some of the numbers that come out of the United States because of the government shutdown,
00:05not giving a lot of clarity on jobs, unemployment rate for September, October, a bit muddy as well.
00:12How would you rate how the U.S. economy is doing right now?
00:16You've talked about the great bifurcation because there's growth, but then there are significant risks out there.
00:22You know, my surprise this year has been that the U.S. economy and indeed the global economy as well
00:29have continued to show ongoing resilience.
00:34And we have seen tariffs come on as President Trump advertised.
00:40But the economy has been able to rewire and adjust to those tariffs surprisingly well.
00:46Now, having said that, is everything perfect? No.
00:49And that's what the Fed is focused on.
00:52Inflation is running higher than their 2% target.
00:56And the labor market looks like it may be easing and softening at the moment.
01:03Right. So, as companies cut costs, that's really having a feed-through on hiring, right?
01:07So, that's one of the risks, again.
01:09But AI boom is still ongoing for now.
01:12Yes. I think, as you're suggesting, the softening we're seeing in the labor market reflects a variety of factors.
01:20One, over the last few years, there's been a lot of hiring in the economy.
01:24And those workers are being integrated into business and production.
01:30There are some pressures on margins as a result of the tariffs, as you suggest.
01:35And AI's in play.
01:37And I think we're hearing more and more announcements of future layoffs, and maybe even a few today,
01:43that are associated with the increased efficiencies, or at least desired efficiencies associated with AI.
01:50So, of course, the markets are reacting now that the government shutdown issue is at least temporarily solved,
01:56is on the bets on the Fed, obviously.
01:58And now I think it's tipped to just below 50-50 on whether they're going to ease in the next meeting.
02:05Again, does that play to your point about the risks of inflation coming in early part of 2026?
02:11Because inflation, even to your admission in your recent report, hasn't been as noticeable after the tariff shock.
02:19Yeah, the economy has absorbed the tariffs with less inflationary pressures.
02:24And I think a lot of it is still in the corporate sector.
02:27And one of the big debates we have internally is to what extent we're going to see the corporates pass through more of that in 2026.
02:37And that stands as an inflation risk.
02:39And these are the issues that the Federal Reserve will be debating.
02:44On the one hand, inflation is higher than its target.
02:47On the other hand, they're thinking about the labor market and where that's going.
02:51And when you put it together, it is a very, very close call for this meeting.
02:56This is a remarkably divided Fed.
03:00And in line with that, I think the markets at the moment are pricing it roughly 50-50.
03:05And I think what will determine what the Fed does is the tone of the data that are released between here and the meeting in December.
03:13Right. So how much did the government shutdown muddy the clarity on the numbers?
03:18Because we've had to use kind of independent, non-official numbers for September.
03:23Well, during the period of the slowdown of the shutdown, rather, there was significant uncertainty as to how the economy was performing.
03:32And now that the shutdown is over, we'll see the September data.
03:36We should see that, say, over the next week or so.
03:39And I think the government can collect successfully data for November.
03:46But it leaves a big question mark about will we ever know how the economy was performing in October.
03:53That's a very challenging proposition for the statisticians at the statistical agencies to figure out.
04:00We're here in China. What is your pulse check on the challenges, obviously, facing authorities and policymakers here?
04:06Consumption is the big issue, obviously.
04:09How do you get consumption?
04:11How do you combat persistent deflation?
04:14Now, well into its fourth straight year, three consecutive years, you have an ongoing property mess.
04:20What's front and center in your mind?
04:21Well, on the one hand, in continuing my theme of resilience, the overall economy, overall growth, has continued to perform reasonably well.
04:31We see Chinese growth over the next year running in the 4.5% to 5% range.
04:37And I think the key driver of that has been export performance.
04:42It's notwithstanding the tariffs and the declining market share in the United States, export performance has been strong.
04:50But how sustainable is that?
04:51And 4.5% is below target.
04:53Yes, yes.
04:54And it is a big debate that we have internally as to how sustainable those exports are.
05:01That China's been able to rewire its trade toward ASEAN and Europe and elsewhere.
05:06But was that an echo of front-loading in the United States, the anticipation of the tariffs, or is that something that we'll see on an ongoing basis?
05:16And then, of course, in addition to all of that, as you suggested, lots of questions about private demand and the property sector and the robustness of spending outside of exports and outside of government stimulus.
05:31How do you read the importance of the detente that was sort of reached, the truce?
05:37So we're going to sort of renegotiate these longstanding issues every year.
05:42So we might have a 14-month pause right now until the end of next year.
05:47But again, as we've seen, hiccups come along the way and derail trade truces before.
05:52So how much time is it for detente and getting back on what some would say is the right track?
06:01Or are we going to have these shocks that are going to destabilize?
06:05A path, really, that is towards de-risking on both sides.
06:09Yes.
06:09And I think what we're going to see going forward is much like what we've seen over the last five years.
06:15I call it strategic competition, even a degree of rivalry, but also with the recognition that, one, these are the two largest national economies in the world, and what they do matters for themselves but for everyone else as well.
06:31And second, there are some key issues where we are still interdependent and where China matters meaningfully for the United States and vice versa.
06:41So I was encouraged by the detente, by the trade deal that was struck.
06:47And my baseline would be that we'll see these periods of tension, but ultimately, deals like this will continue to be agreed to going forward.
06:58And it will be rocky, it will be bouncy, but in general, it won't be too disruptive for either economy.
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