00:00Now, global growth could fall to levels last seen during the 2008 financial crash and the COVID pandemic,
00:07if there is a prolonged war in the Middle East.
00:10That's the stark warning from the Organization for Economic Cooperation and Development.
00:15The OECD has cut its growth forecast for this year to 2.8%
00:20and warned that if the conflict continues into 2027, global growth could slow to as little as 1.8%.
00:27Asian economies that depend on crude oil, fuel and natural gas from the Gulf are expected to be the hardest
00:34hit.
00:35Joining me now is the Head of International at Crane Shares, Shaolin Chen.
00:39Thanks so much for your time.
00:41You know, given this uncertainty, OECD has got two scenarios.
00:44One is an end to the conflict quite soon.
00:46Another is prolonged disruption into next year.
00:49Which one do you think we are currently closer to?
00:56Thank you, Haley, for having me on your program.
00:58It is very hard to predict exactly the geopolitical risk at this moment.
01:03One day we could have an agreement on the table.
01:05One day we could learn from the media that could be a breakdown in the negotiation and discussion.
01:10I think the market initially reacted to this geopolitical risk quite in a shock way because they didn't expect it
01:16to happen.
01:16So market repressed quite sharply, if you remember, they sell off quite sharply.
01:21Then they rebounded, stabilized.
01:22Now I think market take a bit of like, you know what, take a break and then see what is
01:27happening next.
01:28Seems to absorb a lot of the volatility in the media shock quite well at this point in time.
01:33But again, if any significant breakdown of negotiation and agreements between U.S. and Middle East,
01:40this could be another shock of, you know, volatility to come to market.
01:45How many months do you think we've got before we start seeing countries tip into recession territory?
01:51This is a great question.
01:53I think for countries particularly more sensitive to energy and oil storage, so on and so forth,
01:59namely in Europe and namely in the U.K., are very much the front line.
02:04In a very awkward situation with very high oil price, high cost, very damping demand.
02:12Households start to feel the bills to come in in higher energy bills again.
02:18Inflation going to be, you know, show numbers in the coming months that is elevated.
02:22And at the same time, the growth is start to show very sign of weakness.
02:27This is going to be, I think, impact probably European countries, most likely Asian, obviously, will get impacted too.
02:35But some of the countries can, you know, absorb some of the shocks from the neighborhood, from locally.
02:41But the whole economy globally will get impacted one way or the other.
02:45Yeah, absolutely.
02:46How do you see China faring?
02:49China actually have – China will not be immute from the situation.
02:54That is clear to the market.
02:56But China has two or three other toolkits in their hands, actually position them better or slightly better,
03:05relatively speaking, to their counterparts, globally speaking.
03:07One, namely, they have a very high reserve in the oil.
03:11So they do have hundreds – no one knows the exact date, but the market expectation was hundreds, nearly to
03:17200 days of reserve they have.
03:19So that at least gave them a cushion to negotiate or find alternative source for them.
03:25Secondly, China has a lot of dry powder in terms of policy and monetary policy in hand still can be
03:31implemented in China
03:33to help their own domestic economy if shall need it be.
03:36So those are in a very unique situation for the country to be actually stable.
03:41If you see OECD's prediction with China to grow at 4.4 percent and next year at 4.3 percent,
03:47if the scenario continues,
03:48that shows China growing slowly but growing, not sharply collapsing.
03:54Thank you so much.
03:56That's Head of International at Crane Shares, Xiaolin Chen.
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