00:00One thing that is very clear is the growth inflation mix, which we expected to be very good this year,
00:05has deteriorated quite a lot.
00:06And even if this conflict were to solve itself very, very quickly, then I think that's still going to be
00:12the case.
00:13You're still going to get lots of pass-through. Chemical companies are already raising prices.
00:17You'll still see people seeing higher energy costs, etc., and therefore lower confidence and lower growth.
00:22PMI surveys, for example, have already started to come down.
00:25So I think there's already been damage. It's really a case of how permanent that is or not.
00:30Yes. And I know that you've been, well, the team at Goldman Sachs, and you've been reflecting this in your
00:34research, no doubt,
00:35have been cutting the expectations for eurozone growth and also for UK growth as well.
00:40Talk to us about the things that differentiate the various parts of the world here.
00:45Yeah. So Europe is badly hit. There's no doubt about that. Very energy gas dependent on the rest of the
00:52world.
00:53I would say one difference between now and when we saw energy prices spike in 2022 is back in 2022,
01:00it really was a hit almost entirely to Europe, not at all to the rest of the world.
01:04This time around, it's more something the rest of the world is seeing too.
01:07So on a relative basis, I think Europe is less hit this time.
01:11But undoubtedly, in absolute terms, there's a negative growth. We've taken down our GDP forecast.
01:16For the UK, for example, we had one, one and a half percent growth through this year.
01:20Now we're expecting just half a percent. Yes. So it's a big hit.
01:23And I don't say this to make it sound like this is not serious for Europe because clearly it is.
01:27But are you surprised that month to date, when we look at how much the Nasdaq has dropped, S&P,
01:31they haven't dropped all that much less than we've seen overall European markets?
01:35I mean, there are other dynamics at play, but we have been hugely focused on Iran.
01:39Absolutely. I agree. To some extent, I think there was a surprise, at least initially in this war,
01:44that you didn't see equities react more strongly.
01:46You almost saw the bond market react more strongly than you did equity markets.
01:50So that was one surprise. And then I do agree that European markets have had up a little bit better.
01:55I think, as you say, though, there are other things going on.
01:58There's private credit worries, which are more focused on the US than they are in Europe.
02:02There's concerns about the valuation and investment that the big AI-related tech companies in the US are doing
02:09and what that means for their performance.
02:11All of these things perhaps are more – there's more exposure in the US than there is in Europe to
02:16those things.
02:16The other thing, final point on Europe, is that the energy sector is bigger as a share of the European
02:21market.
02:21It may not be as an economy, but as an equity market, you do have a bit of an offset.
02:26Well, Sharon, where you have seen yields lower because concerns have been turning from inflation to growth,
02:31how much is that going to change appetite for equities?
02:34Yeah, it's a tricky one because if yields are falling because there's sort of an expectation
02:40that inflation is coming down, then that's generally good for equities,
02:44particularly when inflation is quite high.
02:45But if yields are coming down because there's concern about growth, then that won't be good for equities.
02:49You only really then want to be the more defensive parts of equity,
02:53things like consumer staples, maybe utilities, telecoms, etc., rather than more cyclicals.
02:57It depends on what's driving those yields down.
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