00:00Can we just start with how difficult it might have been to put together a forecast in a moment
00:05like this? How complex was it for you and the team? Well, you know, obviously the level of
00:11uncertainty is extremely high. And so what we do in these circumstances is use technical
00:17assumptions. I mean, you know, the key factor, of course, here, you know, relates to the energy
00:22supply and the energy price shock. So, you know, the technical assumption that we have used as
00:28the basis for our projections is, you know, essentially aligned with the future markets
00:35pricings as I stood on 20 March. Now, the truth is we can't predict how much longer the conflict will
00:42last or how much worse it could get. So, I mean, we really don't have much choice but to use
00:49a
00:49baseline scenario. And of course, but we've also included like a worst case scenario in our report
00:56to die. And there clearly is a level of quite a significant level of downside risk to our outlook
01:02to die. Matthias, the inflation component of this is the piece that we can focus on now and then we
01:07can turn to growth. There are some people who believe the potential for second order effects
01:11is low because the economies aren't as strong as they were and maybe balance sheets for consumers
01:16aren't as well built resilient right now as they were coming out of the pandemic. Matthias, where do you
01:22stand on that? I remember the first time we met you were part of the Australian government. You know
01:25these things well, how to run a treasury. Do these governments have the fiscal space to respond to
01:30this energy shock and provide the fiscal support that consumers might be looking for?
01:37Well, I mean, debt levels across the world are elevated and including because of some of the
01:43fiscal responses, you know, in the wake of the COVID pandemic, but also, you know, structural
01:49pressures on spending around the world. But, you know, in terms of the inflation story now, I mean,
01:55the story really is, you know, different in different parts of the world. And I mean,
01:59in terms of the impact of the energy price shock and the flow on that has, I mean, you know,
02:04some are more directly exposed than others. I mean, here, the direct exposure, you know,
02:09is probably more into the Asian markets and to the Asia Pacific. But, you know, in other areas like
02:15Europe, you know, for example, I mean, the effect, the price effect is more indirect. But I mean,
02:20there is an impact on global prices. When we look at the United States, I mean, in the United States,
02:25the reason we say what we're saying about inflation is there. I mean, we do actually see
02:29that the labor market remains relatively tight. And, you know, in the context of now this energy,
02:35this global energy price shock, and also the light effects still of some of the tariff price effects,
02:42and but also the impacts on the labor market of slowing net migration. I mean, we do think that
02:48there is a combination of factors there that is likely to have a bearing on the inflation outlook
02:54in the United States. Matthias, we've been trying to wrap our heads around the idea that the ECB and
02:59the Bank of England are now expected to hike rates several times even potentially this year in response
03:05to inflationary pressures, at the same time that you and many others are downgrading their growth
03:12prospects. At what point do you see the necessity to hike rates as torpedoing any potential growth
03:19going forward, forcing you to lower expectations further on growth?
03:26Well, look, I mean, there's obviously now, you know, different, you know, factors impacting the
03:31inflation outlook, and that is going to have a bearing on the response of central banks. I mean,
03:36it is, you know, of course, true. I mean, our current expectation is that the energy price effect
03:41will be temporary. And as such, I mean, you know, central banks, of course, would be able to tag that
03:47into account. And there is a softening in labor markets and economic outlook in some economies
03:53around the world. But I mean, in the end, what we are saying to central banks is that they need
03:57to
03:57continue to focus, you know, very closely on the data as it evolves and be very prudent to ensure
04:04that, you know, inflation expectations are well anchored and that the inflation outlook,
04:09you know, is as they would want it to be. Do you see, Matias, a real concern about runaway
04:15inflation globally? I mean, this ultimately is the real question. Do you think that this shock
04:20is similar to what we saw in 2021, 2022, especially because inflation has been above the targets for
04:28quite a while? But I mean, inflation prior to this, you know, lightest shock was on a downward path.
04:36And, you know, we were certainly expecting that in most G20 economies, you know, inflation was going
04:42to get back within the central bank target range by the end of this year or sometime next year. But,
04:49you know, this now, you know, clearly is having a material impact. I mean, we are expecting or we
04:54have upgraded our inflation outlook for this year by globally by 1.2 percent, looking across the G20
05:01economies, I should say. Now, you know, it remains to be seen, as we've said at the beginning of this
05:08conversation, we don't know what we don't know. I mean, we don't know how much longer this conflict
05:12will last. We don't know how much worse it could get. And I mean, there's, you know, there's significant
05:17downside risk, but there's also upside risk or upside opportunity. I mean, things could turn
05:22out better than what we're fearing.
Comments