What's going on here exactly. Some countries of course have been
trying to support their currencies. Probably to a little effect ultimately.
So John where does this leave ISE. Look I mean on an overall basis I think
we are seeing a rotation of growth from the first half to the second half.
So in all of this gloom and doom we need to concede the fact that the largest
economy in the world US which tracked about minus one point two will probably
deliver one point five percent growth on average in the second half the second
largest economy in the world. China was delivered minus half in the
first half of this year. And regardless of your concerns about
slowing growth from log dams et cetera it is going to be somewhere around 6
percent on average for the second half of the year.
I think where the problem is that the rotation that the growth drivers of the
first half of the year just Europe is probably looking at a recession in the
fourth quarter ending. It's stretching into the first quarter
of next year. And emerging market ex China.
And there I think much of the concern is in Latin America and EMEA which is now
would not have to face the brunt of the significant amount of monetary
tightening that they did starting with the second half of the year.
And I think that you know in all of this I think people are forgetting that the
first and the second largest economy in the world are actually going to perform
better in the second half of the year than the first half of the year.
That doesn't really help us very much because that also means that the largest
economy in the world will continue to raise rates and keep financial
conditions very very tight or even tighter from where we are.
So what does it mean. I guess you did a half and half
comparison there. What does it look next year for example.
Do you think 2023 globally will look a lot slower than already when 2020 looks
like. In general it should be.
But again you know much will depend upon how big the recession fears are and how
much do they realize. In Europe I think that's the key.
That if Europe actually manages to get away with a mild winter to bend into
what's less you know rationing and with the kind of fiscal support and therefore
the recession is shallow. I think that you know in this in 2023
global growth is not going to look as bad.
But on the other hand if those recession risks actually get realized then we are
we are in trouble. But more importantly I think it also
depends on how quickly or how when does the Fed tightening start impacting both
labor market in the US and slowing down the economy.
We've seen haven't seen that. And I think those are the two factors
that I think is going to drive 23. Our sense is that 23 probably is going
to still be a subpar growth. But you know fears of the impending
collapse and a complete implosion in the global economy.
I think we still have to wait for some book some more time if it actually has
not going to stick your neck out of that.
What are you done. Okay.
Don't you give us a sense of how this whole
tightening of policy in the US is playing out in Asia.
I mean it's obvious that many banks have had too many central banks have had to
raise rates protecting their currency which then produces this negative
feedback loop of them seeing their own economies down as well.
And so it's just not really an idea that if you are a proponent of a strong
dollar. How long does it continue for and how
much pain does this inflict on E.M.. I think that's the key.
I think more than where the Fed funds rate go you know apart from a few
countries like Mexico et cetera where their monetary policy is very closely
tied to the Fed funds rate. Most other emerging market economies are
really closely tied to the Fed funds rate
except when it hits the dollar. I think it's a dollar dollar strength
that drives emerging markets central banks thinking more than just the Fed
funds rate. And I think that in that aspect I think
if we look at the Latin American economies and let's say barring Hungary
if you look at European Central European emerging market economies they already
have tightened quite a bit. They've already paid the price and bowed
down to dollar strength in terms of letting the currencies depreciate.
So much of the adjustment is over there. So even if growth is going to slow over
there and clearly it will because of the impact of the monetary tightening I
think as far as I said markets are concerned.
Know fears of another big leg down in exchange rates are a big leg up in rates
goes up probably a bit far fetched at this point in time.
On the other hand if you look at this time zone I'm speaking from Singapore in
Asia I think those are the ones that so far have defied dollar strength and I
think they haven't adjusted as much. And I think that going forward it is the
Asian economies particularly that recalcitrants you know high egos.
That's what I'm thinking about India and India and Philippines over here and
probably even Thailand and put it in the mix.
Those will actually would have to take the brunt of the adjustment going
forward. John Tucker let's flip that question
around and see if we had a big leg down for the dollar.
That may well start actually. Then importing inflation from the rest
of us because of course inflation is in the US has a big trade deficit that
could be exacerbating inflation as goods only become more expensive in dollar
terms. So that could then create this other
feedback loop which is higher interest rates in the US which could have all
sorts of repercussions. Look I mean we are obviously in very
uncharted territory. You know 10 12 years without zero
interest rate the regime has shifted. You know people are struggling to get
used to this new regime not just of recycling but also off of the.
But you know the process of inflation. Inflation expectations have moved up.
And clearly the dollar and how it affects for example commodity prices on
one hand and how it always affects exchange rates in emerging market
economies are clearly important important aspects of it.
I would point out that you know this the fact that the dollar is so strong has
actually dampened down commodity price movements.
So it isn't that the emerging market countries are facing you know all
negative shocks from the high dollar. I mean on a net basis it is a bad thing
for emerging market economies. But at least on the commodity front
they're getting some relief because commodity prices are being are being
kept down simply because the dollar is so strong at this point in time.
Final question. I mean when you look at where nominal
exchange rates are it's easy to make a headline out of dollar Philippine sixty
dollar and get 450 dollar bond replied two thousand lowest.
Do you think we'll we'll see a lot more weakness in those currencies and
anything going to be a problem. Is it gonna be a big disturbance to
those economies. That's the other part of the question.
Right. So I think I think the disturbance that
comes about is when you sort of defy and go against you know whatever the
fundamental strength is. Right.
And then you build up his expectations of a very disruptive one time force move
and these exchange rates. I think allowing the exchanges to adjust
in a orderly fashion I think is probably the best thing for these.
These currencies to do. And that gives the markets get used to
it. I'm not saying that there are no
negative effects in different. But the.
But the disruptive effect on capital flows et cetera that gets much lessened.
I think I think you know using fixed reserves to sort of stem against the
trend rather than just smoothing out volatility I think that's what gets
emerging markets into trouble and feels the Asian economies have been.
I've been following that process. And I think that's where the chances of
a disruptive exchange rate adjustment forced by market is becoming bigger and
bigger.