The global economy: good news and bad news from economist Dambisa Moyo

Transcript

Listen: In the latest episode of the GZERO World Podcast, Ian Bremmer sits down with economist, author, and member of the UK parliament’s House of Lords Dambisa Moyo for a hard look at the health of the world’s finances, the impact of geopolitical crises in Europe and the Middle East on trade flows and inflation, and how China’s economic woes are impacting everyone else.

Right now, US indicators are strong, but Germany and the UK are slipping into mild recessions, and China’s collapsing real estate sector, local government debt, and exodus of foreign investment is dragging the world’s second-largest economy into stagnation. Not to mention, Global South countries hold record amounts of debt. So what does it all mean moving forward? Is the global economy still shaking off its post-Covid hangover or are some of these problems more entrenched?

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Dambisa Moyo:

We need to be growing at 3% per year in order to double per capita incomes in a generation, which is 25 years. Most of the "Global South" is growing below that number.

Ian Bremmer:

Hello and welcome to the GZERO World Podcast. This is where you'll find extended versions of my interviews on public television. I'm Ian Bremmer, and today, we are taking a hard look at the health of the global economy.

The world's post-COVID recovery has been a mixed bag. The U.S. has fared pretty well all things considered. Inflation is cooling, wages are up, unemployment has been under 4% for the longest stretch in decades, but other G7 economies like the United Kingdom and Germany are slipping into a mild recession. China's economy is stagnating led by a collapsing real estate sector, and an exodus of foreign investment. And debt among Global South countries is at record highs. Add to that geopolitical risk from ongoing wars in Ukraine and the Middle East, aging populations in G7 countries, and the impact of climate change, and it's no surprise that the World Bank predicts the slowest half-decade of growth in 30 years.

So, where are we heading now? Is the global economy still shaking off its post-COVID hangover, or are some of these problems much more entrenched? I have some good news. There are reasons for optimism, and I'll talk about why that is, along with a Chinese economy, inflation around the world, and how AI factors into all of this with my guest today, Dambisa Moyo. She's an economist, a bestselling author, and member of the UK Parliament's House of Lords. Let's get to it.

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Ian Bremmer:

Dambisa Moyo, welcome back to GZERO World.

Dambisa Moyo:

Thank you, Ian. I'm delighted to be back here. Thank you.

Ian Bremmer:

The global economy right now, if you had to give it a grade, not on a curve, what is it?

Dambisa Moyo:

Solid B.

Ian Bremmer:

Solid B. Now see, in the geopolitical world, things seem to be going to Hell. And yet, when I talk to the heads of the IMF, the ECB, that sort of thing, they do feel a little more comfortable. B sounds good. Am I wrong?

Dambisa Moyo:

It actually really depends where you are. If you're in the United States, and again, from a top-down level, things seem pretty good. We're seeing inflation a little bit sticky, but it's not at the numbers that we saw a year, a year and a half ago. And in terms of growth, the mood music coming out of the IMF, certainly for the United States, seems pretty constructive.

But if you look outside the United States, even large developed regions like Europe, we still see recessionary pressures. You've got the Germany situation, the UK. Across emerging markets, the large emerging markets still are concerned about slow and low growth, so I think the story is more complicated if you start to look at a disaggregated level.

Ian Bremmer:

The thing that people seem to be most negative about is we're not seeing pickup in China. Consumer sentiment is poor. Structural conditions for the economy almost everywhere you look seem to be negative. First of all, is that correct? Is that really the large economy that is under the most pressure right now, and is the Chinese government responding to it appropriately?

Dambisa Moyo:

I think there are two things. The China thing for sure in the economics realm is a big drag on the narrative. As you know, China is the largest foreign direct investor, lender, and basically in terms of trade-

Ian Bremmer:

To the developing world.

Dambisa Moyo:

... trading partner to the developing world and actually to many developed economies as well as. As you know, it's in the top three largest foreign lender to the United States government with Japan and Saudi Arabia, possibly the other two. Then, of course, you look at the Chinese influence across Europe and the Middle East, and you can't discount the sort of slowdown that we're seeing there, the deflationary pressures in China as being a global drag.

Then the other thing is the geopolitical risks. I think really if you take a step back and think about what has changed in the global economics narrative is that global risks from the geopolitical side have become quite material, and they do have knock-on effects we know from the inflationary side, but obviously, now they have knock-on effects in terms of trade is particularly what we are seeing, the disruptions of trade flows coming out of the Middle East.

Ian Bremmer:

Coming out of the Middle East historically the last couple of years coming out of Russia, Ukraine definitely, and even all the nationalism in terms of industrial policy from different governments around the world.

Dambisa Moyo:

Absolutely. Absolutely. I think that's a very important point because I think people tend to think of geopolitical risks emanating from the Middle East and Ukraine-Russia, but we are forgetting that there are actually political risks that are putting pressure on the trading environment coming from nationalism.

Ian Bremmer:

Is the biggest concern on the Chinese side the fact that the consumer doesn't have confidence or is it more structural in terms of government and corporate debt and real estate sector overbuild, that kind of thing?

Dambisa Moyo:

I think it's a confluence of factors. First of all, I think there's a sense that the Chinese political class has been a little bit slow in responding to what people feel is a number of negative factors, which some of them you've mentioned, the consumer sentiment issues around the debt, but also the sort of broad geopolitical, I'm going to call it, anti-China sentiment through the regulatory statements out of the United States, notwithstanding some of the more recent constructive conversation that mean fundamentally, China's been offside, concerns around tariffs.

So, all those put together, I think, people have been expecting a much more, shall we say, enthusiastic response from the policy side. We're seeing bits and pieces that have come from the Chinese policy side-

Ian Bremmer:

From the Chinese policy side. And we haven't.

Dambisa Moyo:

... and we haven't seen that-

Ian Bremmer:

It's incremental so far.

Dambisa Moyo:

It's been a little bit piecemeal all things considered. I think a lot of people, particularly last year this time, people were hoping that post the Chinese New Year and post-COVID with some of the changes in the policy there that we would've seen a massive return to China's strength. We haven't seen that.

Ian Bremmer:

Now, on the United States front, is it close to Goldilocks? In terms of coming out of the pandemic, we heard so many and massive concerns about how high inflation was, has come down pretty significantly.

Dambisa Moyo:

But it's not at target.

Ian Bremmer:

Not at 2%, but it's under three now, isn't it?

Dambisa Moyo:

Well, it is, but as you saw just in the last week, we've seen numbers that are still quite sticky on the consumer side as well as on the wholesale side, so I think there is questions. Larry Summers has been very vocal that it may very well be the case that the next rate move, contrary to market belief, could be up and not down.

Ian Bremmer:

You don't buy that.

Dambisa Moyo:

I think we have to wait and see. I think that I've been to Jackson Hole for the past 10 years, and-

Ian Bremmer:

Which is where all the Central Bank governors meet.

Dambisa Moyo:

Exactly right, and in August. I think it's pretty fair to say that Chairman Powell's been very clear about the general view that inflation is very problematic, even though there might be wisps of moving in the right direction, so lower. We have to wait and see. I say this because the market was pricing in three cuts for the year. Now, we've definitely seen a move. People think June 12th is now when they expect to see the first rate cut.

Ian Bremmer:

The first cut, yeah.

Dambisa Moyo:

I think that there now there's much more caution around with that, when and how big the rate cut might be.

Ian Bremmer:

Is 2% the right target for U.S. inflation? Is there really such a massive difference in terms of two and three?

Dambisa Moyo:

That is the question. There is a big difference. A hundred basis points does make a material difference. I think the more fundamental question is should there be ... and I know the discussion is occurring ... should we be moving that target given the way the world is, the geopolitical, both supply and demand factors that have emerged on inflation, supply factors such as de-globalization, the wars creating supply challenges, and therefore, raising inflation pressures there, but then the demand side as well, with all of us coming out of quarantine and back into the economy that was also creating pressures.

I think together those factors both on supply and demand side of inflation have meant should we fundamentally be thinking about a different rate target. It's very complicated. It's something that's being debated, as you can imagine, quite feverishly among wonky economists. But at this point, I think they've decided to stand pat on 2%.

Ian Bremmer:

I'm getting a sense from you that you wouldn't necessarily think it was wrong if they came out and said, "You know what? In this environment, our rate target should be 2.5," for example.

Dambisa Moyo:

Well, I think it's too early to say that. There's a wonderful chart that the AEI put out a number of years ago, and I think it gets refreshed.

Ian Bremmer:

American Enterprise Institute down in Washington, yeah.

Dambisa Moyo:

American Enterprise Institute, that's exactly right. I'm sorry. Thanks for clarifying. But the American Enterprise Institute has a chart showing that actually there've been enormous declines in a number of, I'm going to call, technology-led types of inflation. Things like food production, transportation, telecommunications have come down materially, but we still see increases in a number of what I'm going to call public goods. Education costs have gone up. Healthcare costs have gone up.

So, I think it's a fine balance for public policy to figure out where the right target might be, and so it would be a bit too simplistic for me to say, "Oh, absolutely, it should be two and a half." I think we still have to do the wait-and-see, which is incredibly frustrating for market participants because we'd love to have more visibility on what that target should be. For now, it's 2%, and I think given all the moving factors and variables, I think it's probably on balance the right place to be.

Ian Bremmer:

Now, I remember you mentioned Larry Summers, the former secretary of Treasury. He was talking about the fact that there were real concerns about how fast the Americans could potentially move on rates. He also was the one that was saying most prominently that unemployment needed to come up and needed to come up quickly.

Now, a lot of Americans don't understand that. A lot of Americans would intuitively say low unemployment is a good thing, and if wages are going up and labor has more influence, well, labor rates had been pretty low, pretty stagnant at the bottom of the economy for a long time, so isn't that okay? Where do you come down in that debate and why?

Dambisa Moyo:

I think I would start by saying a lot of the traditional modeling in economics has certainly been challenged in the last, certainly five to 10 years, partly because models like your intimating right now, so the Phillips Curve, looking at unemployment, looking at where interest rates can be have been challenged because we faced a number of large unexpected hits to the economy, whether it was COVID in 2020 or the 2008 financial crisis. Why that matters is that models and theoretical thinking around how the economy functions work well in a textbook sense and in theory, but obviously, when we're hit with these challenges, we have to adapt and adopt new policies that might challenge-

Ian Bremmer:

That help your people, exactly.

Dambisa Moyo:

Help the people in the interim. You might have to be quite aggressive, and we were, in terms of rate cuts. As you know, from 2009 to about 2020, we were in zero interest rate policy. That is something that in textbooks is seen as antithetical.

I'm again quite hesitant to throw the models out because I think there are some baselines there, but the truth of the matter is in economics, we tend to look backwards rather than predict the future. For a whole host of reasons, we're not good at that. But I think it's very dangerous to make assumptions about what the correct unemployment rate might be or what the correct, what they call NAIRU, the non-accelerating interest rate might be because I think all of these things together are great in theory, but when you're faced with two wars or a pandemic or inflationary pressures in one large economy and deflationary pressures in what's arguably the second largest economy in the world in China, these are things that make practical choices quite different.

Ian Bremmer:

I understand that economists, everyone's good at looking backwards, but if you and I were sitting here in 2020 at the beginning of the pandemic, could you imagine that the U.S. economy would rebound and be as resilient as it seems to be today? Would that have been a shock to you?

Dambisa Moyo:

It would've been a shock because I would not have properly calibrated just how aggressive the public policy response might've been, in our case actually turned out to be PPE, the QE, the amount of money that was put into the system, what we were willing to do with interest rates. This is true also for the 2008 financial crisis. It's very hard to calibrate how far public policymakers will go.

I am reminded when I worked at Goldman Sachs many years ago, a trader once told me that you never trade based on what public policymakers should do. You trade off of what they're going to do. And I think what is that they're going to do is always hard to predict. Clearly, they've gone much further, both in terms of interest rates and quantitative easing than I would've anticipated in 2020, and historians and economists will always perennially debate whether it was enough. Was it too much? And we're still doing that with 1930-

Ian Bremmer:

But in retrospect, that feels like the right move.

Dambisa Moyo:

Yeah, absolutely, and I think this once again ... Future people will say, "We want small government, and we're looking at the consequences in terms of debts and deficits." People like Stan Druckenmiller, the hedge fund manager, but also Paul Tudor Jones, also a hedge fund manager, have talked extensively about how the concerns about the big debt and deficits, this is becoming a big political issue. The CBO, the Congressional Budget Office, forecasts around where deficits in the United States could go. All these are things that are making the decisions that have been made during crisis points quite a political football.

But the fact of the matter is, if you're a public policymaker in situ, when you're facing a lot of highly challenged risks that are unanticipated and hard to calibrate, I think sometimes you do have to be a bit more aggressive.

Ian Bremmer:

With the developing world, what we now increasingly call the Global South, developing world in economic frame, Global South in political frame, but either way, countries that are more challenged in periods of crisis, so if we are coming out of this period of pandemic, but nonetheless still are experiencing all of these geopolitical and political risks, does that make you structurally more negative on the Global South writ large, understanding that there are pockets that are more attractive, or can they also experience the same kind of rebound given all the money that's been pumped into these economies historically?

Dambisa Moyo:

So, Ian, there's a fundamental problem that we've not been able to resolve, which actually it's been a problem since pre-2020, and that is the situation of economic growth. We need to be growing at 3% per year in order to double per capita incomes in a generation which is 25 years. Most of the "Global South" is growing below that number materially. So, I'm talking about the largest economies, countries like Brazil, South Africa. These are countries that have over 50 million people.

You've seen what's happened in Argentina with Milei coming in with these new shock therapies essentially to try and get the economy growing again, facing huge debts, but also all the external factors that we've talked about and that they've had to import such as inflation, et cetera. Fundamentally, the problem of growth has not been resolved.

This is a problem that's been going on since you could look back and argue since it was 2008 in the aftermath of the financial crisis, and if countries, these large economies are growing suboptimally, the risks are being felt not only in those economies, but we're feeding them in the south border of the United States and elsewhere with disorderly migration around the world.

So, I would like to remain optimistic that these emerging market economies are ... They're net importers of things like technology. They could gain considerably from decarbonization and some of the new energies that are emerging from the science side and technology. But fundamentally, if we cannot boost growth, and if you look at the IMF World Bank in particular has been talking about this decade being one of the most challenging in the next-

Ian Bremmer:

Globally for the Global South and for Africa specifically.

Dambisa Moyo:

Globally, absolutely. Exactly.

Ian Bremmer:

I keep hearing that, yeah.

Dambisa Moyo:

Remember also in 2020, that pandemic actually moved 200 billion people back into-

Ian Bremmer:

Extreme poverty, yeah.

Dambisa Moyo:

... extreme poverty. These are the headwinds that we're facing at a time of massive debt deficits and real inequality both within countries as well as between.

Ian Bremmer:

And we haven't mentioned climate change, but, of course, the reality is that climate change is affecting precisely these populations much greater. The geopolitical conflicts you've talked about that I spend my time thinking about have affected these countries, these populations much more harshly. Is it reasonable to expect that we can get global growth to hit those numbers that they require without massive amounts of redistribution from wealthy countries?

Dambisa Moyo:

Well, I should hope so because I fundamentally believe that we should be investing, we should be thinking about risk mitigation strategies that don't put a stranglehold on growth and investment. I did mention decarbonization. That's, to me, the evolution of what people call climate change. And I think even the sort of narrative coming out of the COP to me feels more constructive about what's possible.

We all want to see, and I think there's a great acknowledgement that there are headwinds emerging from the carbon situation and climate issues that we're all very familiar with. But in order to really get the growth numbers, it's not just going to be a matter of risk mitigation. It's going to be also about investment as well as really thinking about technology and some of the gains that we can get from there.

Ian Bremmer:

Decarbonization, of course, a potential plus for the developing world. We haven't talked about artificial intelligence, and I have thought of AI as potentially a new wave of globalization, but how long is that going to take, and do you think it's going to be a major benefit in the near term for the developing world?

Dambisa Moyo:

I am very optimistic about technology in general being not only a tool or a pathway to boost productivity, which is very important from the growth for the growth story, but I think it's also very important in our ability to deliver public goods such as education and healthcare as well as infrastructure, so things like technological access across the world. I'm actually fundamentally optimistic.

That being said, I think it's fair to say that the ability for the gains to materialize from AI, I think it's still too early to know when that might occur. I've seen like you have, I'm sure, a lot of forecasts that the gains just from AI, generative AI could be over $4 trillion per year. This is McKinsey surveys but also Goldman Sachs and others have put up some net gains even with the concerns about-

Ian Bremmer:

They're GODI numbers, GODI numbers.

Dambisa Moyo:

They are. And they recognize that there could be some job losses, et cetera, but fundamentally, we're moving in the right direction.

Ian Bremmer:

Recognize that there will be many job losses.

Dambisa Moyo:

Well, this is true, but on net-

Ian Bremmer:

We should be honest with people.

Dambisa Moyo:

Yeah, no, and I think that's fair. But look, I think on a serious basis, I think that AI has a lot of promise like many other technologies that have come and gone, and we just have to wait and see. The role of economists is to forecast and think about what the impacts might be in terms of productivity gains, but also recognizing what this might do for business models and recognize what it might mean for job losses.

So, I'm fundamentally optimistic. I do think, to use the late Rüdiger Dornbusch's phrase, the thing about these things is that they always show up later than you expect, but their impacts are much bigger. I think he was talking more about crises, but I think it also applies to something like AI and technology gain.

Ian Bremmer:

Absolutely. Dambisa Moyo, thanks so much for joining us.

Dambisa Moyo:

Thank you, Ian. Thank you.

Ian Bremmer:

That's it for today's edition of the GZERO World Podcast. Do you like what you heard? Of course, you did. Why don't you check us out at gzeromedia.com and take a moment to sign up for our newsletter. It's called GZERO Daily.

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The GZERO World Podcast is brought to you by our lead sponsor, Prologis. Prologis helps businesses across the globe scale their supply chains with an expansive portfolio of logistics, real estate, and the only end-to-end solutions platform addressing the critical initiatives of global logistics today. Learn more at prologis.com.

And from our friends at Foreign Policy. Each week on Foreign Policy Live, editor-in-chief Ravi Agrawal sits down with world leaders and policy experts to discuss the issues that matter most from the U.S.-China relationship and the Israel-Hamas War to the Global South's growing clout. Listen and follow on Apple, Spotify, or wherever you get your podcasts.