:00:00. > :00:00.how healthy is the global economy and are we past the risk
:00:00. > :00:13.When will the economy get back to normal, we are taking a health check
:00:14. > :00:18.on the state of the global economy and finding out what it means for
:00:19. > :00:20.your mortgage and your job. In Singapore, I am Linda Yueh, and
:00:21. > :00:45.these are my guests and we are Game It has been six years since the
:00:46. > :00:49.global financial crisis with the world economy almost grinding to a
:00:50. > :00:52.halt, we have seen a slow recovery and a few setbacks along the way.
:00:53. > :00:57.Things are finally looking as if they are on the mend and the
:00:58. > :00:59.International monetary fund 's latest predictions paint a more
:01:00. > :01:05.optimistic picture for the rest of the year. The IMF is forecasting
:01:06. > :01:09.global growth at 3.4% in 2014 but it is an uneven picture across the
:01:10. > :01:16.major economies. The United States and Britain are showing decent
:01:17. > :01:21.recoveries with good expansions this year, the Eurozone, previously
:01:22. > :01:26.expected to be stagnant is forecast to grow, by a sluggish 1.1%. Japan
:01:27. > :01:33.is still struggling to boost its economy with 1.6% growth expected.
:01:34. > :01:37.China is forecast to grow at 7.4%. Slower than what it is used to and
:01:38. > :01:43.below the target for the year. Other emerging economies will not be
:01:44. > :01:47.outperforming any more. The big question is, are we there yet? Will
:01:48. > :01:51.the recovery be sustained and when can we expect things to get back to
:01:52. > :01:56.normal? With me to look at the health of the global economy, the
:01:57. > :02:04.managing director from global economics for Asia, David Mann, from
:02:05. > :02:11.Standard Chartered. Welcome. Let me start with you. What grade would you
:02:12. > :02:19.give the global economy right now, grade A, grade B? Nothing lower than
:02:20. > :02:25.grade C? If we are going to use a US system, I would give it a grade C.
:02:26. > :02:29.Why is that? Six years into this, we still have growth rates in major
:02:30. > :02:33.parts of the world which are very low. Normally when you come out of,
:02:34. > :02:38.what you call the balance sheet recession where banks are not
:02:39. > :02:41.lending and households have debt, even then, normally you will have a
:02:42. > :02:45.period in which you are growing faster than potential. Those numbers
:02:46. > :02:52.you have cited are generally lower than the potential. What about you
:02:53. > :02:58.David, what grade would you give it? I might give it a B+, I am not sure
:02:59. > :03:02.whether it is the result of some inflation, asset prices inflation.
:03:03. > :03:07.It could also be because the focus is on the markets where we think we
:03:08. > :03:13.are seeing outperformance, even in the years gone by where we had a
:03:14. > :03:17.weaker growth outlook, we saw the performance in the Chinese region,
:03:18. > :03:22.even coming down to a trend rate of 7% which we think can be sustained
:03:23. > :03:25.this year and the year after. It is the envy of many economies in the
:03:26. > :03:32.West. You will see a diverging staying in place for a long time. I
:03:33. > :03:38.have got to ask this question, are we passed the point of crisis in the
:03:39. > :03:42.global economy? We are never passed it, it is how likely that the crisis
:03:43. > :03:46.is going to be passed or not. CHUCKLES
:03:47. > :03:52.Part of the complication and the way we are recovering, to a large extent
:03:53. > :03:58.we are relying on the inflation of asset prices to generate wealth. To
:03:59. > :04:05.generate spending. House prices, stocks, record highs, US stock
:04:06. > :04:10.markets. Exactly, it increases peoples wealth and they think they
:04:11. > :04:14.will spend. Until recently, in the US, you were not creating many jobs,
:04:15. > :04:18.you couldn't have a rise in real income from wages. Those who had
:04:19. > :04:25.assets, they were doing better. The problem with this situation is that
:04:26. > :04:32.ultimately you have to do have the productivity gains and income gains
:04:33. > :04:36.rather than asset prices, to the extent that asset prices are linked
:04:37. > :04:40.to interest rates and when the interest rates are risen, you can
:04:41. > :04:46.have difficulties with the continuation of the rise in the
:04:47. > :04:54.asset prices, maybe not so much spending, it might not cause a
:04:55. > :04:58.crisis, but the risk is probably quite low. Because we went through
:04:59. > :05:04.this and people remember, including households as well as policy makers,
:05:05. > :05:10.not to make the mistake again. Is there a risk of crisis any time
:05:11. > :05:14.soon? There are enough of the ingredients for one, you cannot rule
:05:15. > :05:21.it out. A good example, still top of the list would be something, if it
:05:22. > :05:25.went wrong, some new government in part of the Eurozone committed to
:05:26. > :05:29.exiting the euro and people start to panic about the situation resuming.
:05:30. > :05:35.This is a risk you could put on your worried list for the next ten years.
:05:36. > :05:39.It will not go away any time soon. You can also point to the
:05:40. > :05:44.problematic debt situation in China, and leveraged has risen
:05:45. > :05:50.dramatically, at a dramatic pace. It has been well in excess of what the
:05:51. > :05:52.GDP growth has been. The issue really, leveraging is also the
:05:53. > :05:57.middle of the crisis but you need the trigger. It is very much a
:05:58. > :06:02.mistake to think you're necessarily will go headlong into a crisis in an
:06:03. > :06:07.economy where so many key decisions are ultimately made by the same
:06:08. > :06:10.entity. Let's focus on diverging performance, there has been a
:06:11. > :06:14.separation from Britain and the rest of the Eurozone, when you look at
:06:15. > :06:20.Japan, a continuing to try to the economy. The US is another big one,
:06:21. > :06:25.it stumbled on the first part of the year, now picking up. In the
:06:26. > :06:32.emerging economies, China, India, relatively speaking growing faster
:06:33. > :06:37.than Brazil and Russia. The other big markets, Brazil is in recession
:06:38. > :06:40.and Russia is struggling. What accounts for such big divergences in
:06:41. > :06:48.the performance among the big economies? Do not ever put these
:06:49. > :06:53.economies into the same list, even between China and India, the stories
:06:54. > :06:58.are so different. In the case of China, so much growth is because of
:06:59. > :07:03.policies enabling it with the infrastructure spending, it should
:07:04. > :07:08.be able to grow faster than China. China and India, if you were to put
:07:09. > :07:11.them into one bucket, they would be the consumption related nations. In
:07:12. > :07:17.the case of Brazil and Russia, a lot of the growth benefits were from
:07:18. > :07:21.supplying that growth. What about you, what accounts for the
:07:22. > :07:25.divergences? When you think about where growth comes from it comes
:07:26. > :07:32.from input, either you have workers and the workforce is growing, or you
:07:33. > :07:35.have capital and you are building roads and factories. When you
:07:36. > :07:41.compare Brazil and Russia to India and China, you have in the first
:07:42. > :07:46.two, lower population growth. Much low investment. You don't have as
:07:47. > :07:49.many people coming into the workforce nor do you equip them with
:07:50. > :07:55.the same capital. You grow more slowly. On top of that you have a
:07:56. > :07:59.set of the policies which can get in the way of people and capital
:08:00. > :08:03.working effectively together. That is certainly what is going on with
:08:04. > :08:06.the complications that politics are imposing on the Russian economy,
:08:07. > :08:12.people are wondering what is going on, we do not want to invest, maybe
:08:13. > :08:16.we should take money out. There is an election, adding uncertainty in
:08:17. > :08:18.Brazil as well as the complications between the state working with the
:08:19. > :08:24.private sector and what decisions can be made. Where as, those issues
:08:25. > :08:32.also exist in the context of China and India. In a scaling which is not
:08:33. > :08:38.so can take `` not so conflict ridden. If you would choose one
:08:39. > :08:42.economy to give a grade A, for the rest of the year, and which one you
:08:43. > :08:52.would say, oh, might have to flunk you in terms of prospects, which
:08:53. > :08:57.would you choose? I do not think anybody gets grade A! It is hard to
:08:58. > :09:02.say, we have seen anything close to the things materialising. If you
:09:03. > :09:06.were to push on this one I would say that two making, the ones making the
:09:07. > :09:11.strongest efforts are up in Northeast Asia, China and Japan. And
:09:12. > :09:15.career. They are doing things, if you force me I would go on the
:09:16. > :09:22.borderline between grade A and grade B. `` and South Korea. Starting with
:09:23. > :09:26.China, they are aware of the situation, relatively new
:09:27. > :09:29.leadership, making a lot of steps towards the short`term pain for the
:09:30. > :09:33.longer term gains of a more sustainable path of growth. That is
:09:34. > :09:38.what we have wanted to see from long time. People have taken it badly on
:09:39. > :09:44.the assumption, growth is slowing. Let's not forget, if we do not track
:09:45. > :09:47.around 7%, there will be more stimulus and the momentum for reform
:09:48. > :09:53.is still there. That's the closest to the grade A. Where I would be
:09:54. > :09:59.more harsh, putting it at the lowest end, not flunking it, many parts of
:10:00. > :10:03.Europe. We are yet to see some major reforms that would help to make the
:10:04. > :10:08.long`term growth sustainable. It is a tough situation, which already we
:10:09. > :10:09.are seeing positive growth as opposed to negative growth. It is
:10:10. > :10:23.not all terror. `` it is not terrible. What about
:10:24. > :10:27.you? I think the economy with the potential to perform the best is
:10:28. > :10:32.Taiwan, we have had data showing it has the fastest manufacturing growth
:10:33. > :10:37.in the region. Relative to expectations, let's call it the
:10:38. > :10:40.purchasing managers index, business people, you ask them about the
:10:41. > :10:46.environment. The high as reading is from Taiwan. Rather than the other
:10:47. > :10:51.side of the straights. CHUCKLES In terms of the greatest risks,
:10:52. > :10:55.where life is most complicated, it is actually probably still some of
:10:56. > :11:02.the economies in the periphery of Europe. Yes, growth is coming back,
:11:03. > :11:09.but as interest rates globally begin to rise the attractiveness of those
:11:10. > :11:13.economies will diminish. In places like Portugal, they have high levels
:11:14. > :11:19.of debt. It creates vulnerability today and tomorrow. Thank you for
:11:20. > :11:23.joining us. Much of the world responded to the crisis by making a
:11:24. > :11:27.lot of credit available cheaply, this was aimed at encouraging
:11:28. > :11:32.businesses to borrow to invest and ultimately to try to spur growth.
:11:33. > :11:37.Since the crisis hit the US Federal reserve has kept their interest rate
:11:38. > :11:41.at virtually zero. Similarly the Bank of England has kept the
:11:42. > :11:47.interest rate at 0.5% since 2009, another historic low. The European
:11:48. > :11:50.Central Bank has also slashed rates and faces difficult challenges over
:11:51. > :11:57.the prospect of the flake shin or falling prices. This is associated
:11:58. > :12:02.with a stagnant economy `` deflation. That is what the bank of
:12:03. > :12:07.Japan has been facing for two decades and it is continuing to deal
:12:08. > :12:12.with weak price rises, so, where are interest rates headed and what will
:12:13. > :12:20.it mean for mortgages and jobs. Has the cheap cash than enough to
:12:21. > :12:24.discourage lingering investment? We are joined by the chief economist
:12:25. > :12:30.from the bank of Singapore and the head of research from ING financial
:12:31. > :12:35.markets. Welcome. Richard, when we will see the first interest rate
:12:36. > :12:39.rises in the United States? We are not far away, maybe the middle of
:12:40. > :12:43.next year the Federal reserve will start to push up short`term interest
:12:44. > :12:48.rates. Probably they will do it slowly and carefully. You have had
:12:49. > :12:57.six years of crisis, you do not want to rock the boat and risk tipping it
:12:58. > :13:01.over. Europe and Japan, we are years away, they are still looking to
:13:02. > :13:08.loosen policy rather than tightening, this seems to be over
:13:09. > :13:12.the horizon. What about you? We are in the same camp as Richard, US,
:13:13. > :13:21.maybe next year, at the risk of being brought forward because of the
:13:22. > :13:25.better employment gains in the US. In the Eurozone and Japan, into the
:13:26. > :13:29.distant future... I guess the question is, how much lower, if I
:13:30. > :13:35.were borrowing a mortgage in the UK, what would I be looking for in terms
:13:36. > :13:40.of the mortgage rate? I'm not sure I would say rates would be lower than
:13:41. > :13:44.the past, one thing central banks are trying to do is generate
:13:45. > :13:48.inflation. They are being slow to raise interest rates, even though
:13:49. > :13:52.economies are improving. You can see that in America and the UK. They
:13:53. > :13:57.will probably allow inflation to come through and they will raise
:13:58. > :14:01.interest rates slowly, inflation will overshoot, and interest rates
:14:02. > :14:07.will have to overshoot any concept of neutral, they will not stop at
:14:08. > :14:12.the neutral rate. They will overshoot to five, 6%. In order to
:14:13. > :14:15.squeeze the inflation. They are deliberately trying to create. This
:14:16. > :14:20.could be many years away, possibly the end of the decade. The logical
:14:21. > :14:27.outcome I think of the policies being pursued in America and the UK.
:14:28. > :14:30.If you are borrowing based on short term interest rates, you are going
:14:31. > :14:35.to see at some point a surge in the borrowing cost, you need to be
:14:36. > :14:39.careful. About the amount of leveraged and exposure you have in
:14:40. > :14:44.relation to your income. When interest rates rise, otherwise, from
:14:45. > :14:48.these depressed levels, you can find yourself overextended. Where are you
:14:49. > :14:53.on this, in terms of mortgage borrowing and Britain, should people
:14:54. > :15:02.be worried that interest rates could be 5`6%, or is it closer, to 1%,
:15:03. > :15:07.even lower? I have a different view from Richard, I think the world is
:15:08. > :15:12.in a Japan scenario, where we have a very sluggish growth picture. Their
:15:13. > :15:19.re`anaemic inflation pressure, despite central banks best efforts
:15:20. > :15:26.to generate inflation `` very anaemic inflation pressure. This
:15:27. > :15:30.presents a conundrum, understanding why this massive increase in central
:15:31. > :15:36.bank money has not translated into inflation. But it has not. I think
:15:37. > :15:40.it probably won't. As a consequence, I think we are looking very muted
:15:41. > :15:45.increase in short`term interest rates which are what in most of the
:15:46. > :15:54.world mortgage borrowing costs are tied to. I think that the concern,
:15:55. > :16:01.central banks are expressing for the fragility of these recoveries will
:16:02. > :16:05.stay their hands to a certain degree in hiking these policy interest
:16:06. > :16:10.rates. Short`term money market interest rates are tied to the
:16:11. > :16:14.policy rate. That will mean short`term money market interest
:16:15. > :16:19.rates, what mortgage rates are tied to, will be going up more slowly
:16:20. > :16:27.than I think that their case scenario would have it. It leads me
:16:28. > :16:34.to think, we are at levels below 1% now. Maybe over the next year we
:16:35. > :16:40.might get between 1`2% and I think that could be it for a while. Do you
:16:41. > :16:47.agree, Richard, because this is a different take in terms of inflation
:16:48. > :16:50.coming through? You need to differentiate by geography, Europe
:16:51. > :16:58.has similar problems to Japan. It's not surprisingly they didn't fix the
:16:59. > :17:03.banking crisis, they have pursued crazy austerity programmes, they are
:17:04. > :17:07.still with very high unemployment. Contrasting with America and the UK,
:17:08. > :17:11.America fixed the banks and cleared the bad assets. It seems like the
:17:12. > :17:20.economy is recovering, the unemployment rate is 12 months away
:17:21. > :17:25.from full employment, America is a much more normal recovery. I think
:17:26. > :17:32.the Eurozone is more Japan style. Very half`hearted recovery. UK is
:17:33. > :17:36.closer to the States, we have concerns about inflation as the
:17:37. > :17:39.labour markets tighten, you can see the evidence in the recent Bank of
:17:40. > :17:45.England minutes where they had a split decision on policy at the most
:17:46. > :17:49.recent meeting. Focusing on jobs, you think the US could get back to
:17:50. > :17:59.full employment within 12 months. What about the UK and Europe and
:18:00. > :18:03.Japan? The jobless rate has been coming down faster than expectations
:18:04. > :18:06.in the UK. Looking at Europe, it is a completely different picture, the
:18:07. > :18:11.unemployment rate has just begun coming down. Heading in the right
:18:12. > :18:16.direction but still very high to the peak levels, it is a terrible social
:18:17. > :18:20.environment, it is uprising there has not been more social distress
:18:21. > :18:24.related to this. The public has been surprisingly tolerant. You can see
:18:25. > :18:29.there is growing political pressure on the government 's to be less
:18:30. > :18:36.aggressive in pushing the German led austerity. Japan is another example.
:18:37. > :18:40.I suppose they didn't have the same unemployment shock Europe did. They
:18:41. > :18:51.had a long period of poor growth. We are having a big problem with
:18:52. > :18:55.unemployment because a lot of it was disguised within companies, keeping
:18:56. > :19:01.on employees. What do you think in terms of the appointment picture?
:19:02. > :19:09.Employment depends on growth and growth is slower. `` the employment
:19:10. > :19:14.picture. The recovery in the US labour market, we are getting closer
:19:15. > :19:20.to what is considered is full employment, people forget, before
:19:21. > :19:27.the global crisis it was below 4%, now we are seeing 5.5% as the
:19:28. > :19:31.non`accelerating inflation employment rate. Maybe that is
:19:32. > :19:38.right. We have dumbed down what we call full employment. We are getting
:19:39. > :19:44.there. It is happening without wage gains and any pressure, Richard says
:19:45. > :19:51.it is beginning to take up, that is a very muted thing. The direction of
:19:52. > :19:58.change is positive. It is just very slow. It is not just about
:19:59. > :20:02.unemployment, it is inequality, people are aware, it is creating
:20:03. > :20:06.more jobs, but a disproportionate amount of the income created is a
:20:07. > :20:11.crude to a small part of the population. Even though employment
:20:12. > :20:15.is increasing you don't get the same increase in spending activity you
:20:16. > :20:22.would have expected `` it is accrued. I have no idea if you guys
:20:23. > :20:26.are in the process of buying house, but if you were, given that you
:20:27. > :20:34.think that rates will go up in a couple of major economies would you
:20:35. > :20:39.fix your mortgage now? Longer term interest rates are going up, I am
:20:40. > :20:43.not sure it is really worth it. The difference with borrowing short and
:20:44. > :20:50.long is fairly wide difference. I am not convinced it is a good time to
:20:51. > :20:54.be locking in these interest rates. Locking in low rates now would be my
:20:55. > :21:02.judgement in the US and the UK and in the Eurozone I would wait. As we
:21:03. > :21:06.have discussed, the Eurozone is looking to cut borrowing costs
:21:07. > :21:11.further. You might get a break and you can lock in a lower rate in the
:21:12. > :21:15.years ahead. And for a long period of time. In the US in the UK, I
:21:16. > :21:21.agree with Richard, rates are heading up. I don't think in the US,
:21:22. > :21:25.for a 30 year mortgage that the rate is probably not that sensitive to
:21:26. > :21:30.the short`term money market rates. It is more key to the long`term
:21:31. > :21:37.borrowing costs. For the Treasury. Those are fairly stable. We have a
:21:38. > :21:45.2.4% ten year Treasury note yield today, it looks low. But even if I
:21:46. > :21:50.am wrong about that, 3%, this is the new normal, it is a very attractive
:21:51. > :21:58.rate to lock in. For the long`term fund. Thank you very much indeed.
:21:59. > :22:01.The global economy seems to be on the mend but thereafter risks
:22:02. > :22:03.including the fallacious, it could mean a continuation of the error of
:22:04. > :22:16.cheap money. Ash macro this is as the US and UK economies
:22:17. > :22:20.are getting back on their feet and it all makes for a challenging time
:22:21. > :22:23.for mortgage rates but one thing is clear, jobs are returning which is
:22:24. > :22:29.welcome news after six years of recession and a slow recovery. That
:22:30. > :22:33.is all we have time for, check out our website and myself on Twitter,
:22:34. > :22:38.join this next time on Talking Business, with me, Linda Yueh. ``
:22:39. > :22:50.join us. It has been a bit of a mixed bag
:22:51. > :22:56.across the United Kingdom today, if you were in Yorkshire, pretty cloudy
:22:57. > :23:01.with relentless showers. Many other places saw some sunshine but
:23:02. > :23:02.scattered showers. Further showers to take is through