:00:00. > :00:00.Welcome to London, I'm Tanya Beckett.
:00:00. > :00:10.What is on the horizon for the economic landscape this year?
:00:11. > :00:14.2015 was dominated by concerns over the slowdown in China,
:00:15. > :00:19.falling oil and commodity prices, and the worst refugee crisis
:00:20. > :00:25.since the Second World War, as migrants fled into Europe.
:00:26. > :00:29.to stay competitive in such a tough environment.
:00:30. > :00:32.On this week's Talking Business, we'll be looking at what's likely
:00:33. > :01:04.Disappointing and uneven is how Christine Lagarde
:01:05. > :01:08.has summed up growth prospects for the global economy in 2016.
:01:09. > :01:10.The managing director of the International Monetary Fund
:01:11. > :01:14.believes the world's sputtering economic recovery will continue
:01:15. > :01:17.to disappoint this year, with rising US interest rate
:01:18. > :01:21.and a slowdown in China continuing to take their toll.
:01:22. > :01:24.In its latest global growth forecast, the IMF estimates
:01:25. > :01:28.that the world economy will expand by 3.6% in 2016,
:01:29. > :01:35.In the eurozone, growth is expected to be a whisker up
:01:36. > :01:43.Advanced economies will also hardly change, rising from 2% last year
:01:44. > :01:48.to 2.2%, while emerging markets are expected to achieve growth
:01:49. > :01:57.So how realistic are those growth figures,
:01:58. > :02:01.and what's in store for businesses this year?
:02:02. > :02:04.We've brought together a panel of people who have lived
:02:05. > :02:08.through the ups and downs of recessions and recoveries
:02:09. > :02:11.to hear where they think the risks and opportunities lay.
:02:12. > :02:14.Bronwyn Curtis is an independent economist who's worked for some
:02:15. > :02:17.of the biggest banks and financial institutions in the world.
:02:18. > :02:20.Lord Digby Jones has held some of the highest positions in British
:02:21. > :02:24.business, he was director general of the employers' federation,
:02:25. > :02:27.the CBI, for six years, and then UK trade and
:02:28. > :02:34.And Diana Choyleva is chief economist and head of research
:02:35. > :02:42.Digby, let's start with you, because of your background
:02:43. > :02:45.of being very closely involved with business -
:02:46. > :02:49.the world is a very complicated place at the moment,
:02:50. > :02:52.particularly so, I think it's fair to say, and the economic forecasts
:02:53. > :02:55.from the IMF, although they are better than they were for last year,
:02:56. > :02:58.they almost belie a rather more complicated picture, don't they?
:02:59. > :03:00.Yes, in your introduction, I was pleased to hear but surprised
:03:01. > :03:05.that the average growth of the world's economy was as high
:03:06. > :03:07.as it is going to be, and that is good news,
:03:08. > :03:10.because I think the penny is dropping, or the pfennig
:03:11. > :03:13.is dropping, or the yen, the renminbi or anything else
:03:14. > :03:17.is dropping that no part of this global economy can ever again say,
:03:18. > :03:21."What's happening over there is nothing to do with me."
:03:22. > :03:24.I think the whole thing is so interlinked, so you have,
:03:25. > :03:29.politically, somebody who invades Crimea, so somebody in Washington
:03:30. > :03:32.put sanctions on that, so someone who makes a piece of kit
:03:33. > :03:37.in Birmingham and sells it to Russia is told they can't.
:03:38. > :03:41.I think people are now understanding that whatever happens politically,
:03:42. > :03:45.economically in the world, it is no longer in isolation,
:03:46. > :03:47.and the butterfly that beats its wings does create
:03:48. > :03:54.Bronwyn, I think this has become painfully clear in the context
:03:55. > :03:56.of the oil price, hasn't it, in its dramatic fall
:03:57. > :04:00.that we've seen over the last 18 months or so?
:04:01. > :04:04.Would you say that is the largest factor on the horizon at the moment?
:04:05. > :04:09.No, because there are some money factors, and Digby obviously
:04:10. > :04:18.One of the things about the IMF forecast is they are going to be
:04:19. > :04:21.wrong, and the history of forecasting since the crisis
:04:22. > :04:24.is that most of the big forecasters overestimated growth,
:04:25. > :04:28.and of course oil falling and, as you said, it is a big lever,
:04:29. > :04:31.and it has fallen to such a level, it starts causing political
:04:32. > :04:40.Whether this is just cause, and that is why I am worried
:04:41. > :04:45.by the slowdown in China, or, you know, lots of credit that needs
:04:46. > :04:49.to be paid back by emerging markets, or something else, then,
:04:50. > :04:53.But what it does is create huge political pressures
:04:54. > :05:01.Diana, how would you describe what you are seeing right now?
:05:02. > :05:06.The two key things that markets have been worried about
:05:07. > :05:09.at the start of this year, the sharp slowdown of growth in China,
:05:10. > :05:13.the mismanagement, if you like, of the equity market there,
:05:14. > :05:17.and also the collapse in oil prices and commodity prices more generally,
:05:18. > :05:23.is exactly what this world, still lacking genuine consumer
:05:24. > :05:25.demand, actually needs, because lower commodity prices,
:05:26. > :05:29.oil prices, on the one hand caused by the much weaker growth in China,
:05:30. > :05:35.on the other hand of course the global supply glut,
:05:36. > :05:41.they transfer income from producers to consumers.
:05:42. > :05:47.So, actually, the omens are good for the developed markets,
:05:48. > :05:51.and in particular the consumer in those developed markets.
:05:52. > :05:54.Digby, what Diana seems to be saying here is we shouldn't worry so much
:05:55. > :05:56.about China, because there is always another market -
:05:57. > :06:00.That's right, inasmuch as China is one market,
:06:01. > :06:06.but I would actually put a complete barrier between two
:06:07. > :06:15.The oil glut, the reduction in oil prices is entirely manufactured.
:06:16. > :06:19.But China's slowing down is not the reason why Saudi Arabia turned
:06:20. > :06:21.every tap on known to man to get the oil production up
:06:22. > :06:26.It's enormously, strategically political.
:06:27. > :06:29.It is not about a response to any form of global slowdown.
:06:30. > :06:35.I do on commodities, Australia and Chile from the Atacama,
:06:36. > :06:37.not pumping it out into China as it used to.
:06:38. > :06:42.But the concept being a product of something like the Chinese
:06:43. > :06:46.economy or Brazil closing, slowing down, is not true.
:06:47. > :06:49.Let's ask Bronwyn this question as well, oil has always been
:06:50. > :06:51.highly politicised - perhaps the game changer
:06:52. > :06:54.was the fact that the US very desperately wanted to become energy
:06:55. > :06:57.independent and has gone a great way down that path to achieving that,
:06:58. > :07:01.and that is what has queered the pitch a bit, isn't it?
:07:02. > :07:08.Well, yes, I don't agree entirely with Digby about this idea
:07:09. > :07:13.that they have just turned the taps on.
:07:14. > :07:18.All commodity prices, as we said, have gone down,
:07:19. > :07:21.and there is a lack of demand in the world.
:07:22. > :07:23.You look at every country, look at the US, OK?
:07:24. > :07:26.Consumer demand is going to drive growth there this year again.
:07:27. > :07:31.I look at the UK, exports will struggle.
:07:32. > :07:34.But how is it, then, we can have this very dramatic fall
:07:35. > :07:36.in commodity prices, and you are explaining it is in part
:07:37. > :07:39.at least by a physical mismatch between supply and demand,
:07:40. > :07:41.and yet we are getting the economic forecasts which are suggesting
:07:42. > :07:50.Those things don't fit together, do they?
:07:51. > :07:54.I think they are more a reflection of a lack of demand in the global
:07:55. > :07:58.There is a lot of supply, but it is both things.
:07:59. > :08:00.There is not a global reduction in demand in every country.
:08:01. > :08:02.Let me just address one of the mismatches,
:08:03. > :08:05.that we are seeing a huge migration crisis at the moment.
:08:06. > :08:08.Bronwyn, what economic impact has that had?
:08:09. > :08:11.Firstly, I come from a country of immigrants, OK?
:08:12. > :08:18.I am a great believer in immigration,
:08:19. > :08:22.and I think having younger people, people who are really keen to work,
:08:23. > :08:25.to make a new life, I think really helps
:08:26. > :08:31.The problem is that you are seeing so many, and managing so many
:08:32. > :08:36.new people coming in so quickly is really difficult.
:08:37. > :08:39.And I think the biggest fallout, of course we've got elections
:08:40. > :08:42.in 2017 in Germany, and we've got elections in other countries
:08:43. > :08:47.in Europe this year, and you'll see this move to the left
:08:48. > :08:54.and mostly to the right, and the right wing will become
:08:55. > :08:57.anti-immigration, will become a much bigger thing,
:08:58. > :09:01.Digby, just briefly, from a business point of view, how
:09:02. > :09:07.We have a dearth of skilled labour in Britain, for instance,
:09:08. > :09:10.and it is not much better in America, nor is it anywhere
:09:11. > :09:13.near good enough in Germany, so not just a British issue.
:09:14. > :09:16.But productivity is damaged by one thing mainly,
:09:17. > :09:19.which is the lack of application of skilled labour
:09:20. > :09:22.to the production process or the delivery of goods or services.
:09:23. > :09:25.Instant fix is bring in some skilled people,
:09:26. > :09:29.say, I'd like a skilled person from India before
:09:30. > :09:32.I have an unskilled person from Slovakia, say.
:09:33. > :09:37.Now I'm being told I can't stop the unskilled person from Slovakia,
:09:38. > :09:41.whereas you can stop the skilled person from India.
:09:42. > :09:46.There is another important aspect in the euro area.
:09:47. > :09:49.When it comes to the immigration from Syria.
:09:50. > :09:54.The point is that, actually, the euro area has not adjusted
:09:55. > :09:59.You can't say it has rebalanced successfully
:10:00. > :10:04.at the huge rise in unemployment in Spain, Greece, Portugal,
:10:05. > :10:10.and those with a huge loss of income.
:10:11. > :10:15.Now the euro area has started to improve, but if you have this
:10:16. > :10:20.influx of even more skilled or unskilled labour,
:10:21. > :10:28.it becomes very difficult for the euro area as a whole
:10:29. > :10:34.to adjust properly, and it creates the unnecessary political tension.
:10:35. > :10:36.The problem you have got, as you rightly say, in southern
:10:37. > :10:39.Europe you don't have an infrastructure or economic growth
:10:40. > :10:43.The genuine asylum seeker escaping conflict you can accommodate that.
:10:44. > :10:47.You can't do it if you mix it with millions, probably,
:10:48. > :10:52.of people who just want a better life.
:10:53. > :10:54.Thank you all for now, and later in the programme
:10:55. > :10:57.we'll be looking at the prospects for business in Europe.
:10:58. > :11:01.But first let's hear some thoughts from our comedy consultant
:11:02. > :11:05.Colm O'Regan, who is venturing into the murky world of financial
:11:06. > :11:07.forecasting in this week's Talking Point.
:11:08. > :11:09.It's January, broadcasters all over the world
:11:10. > :11:13.Predictions are great fun, you can't be wrong yet,
:11:14. > :11:16.and if you are wrong, it will be a year
:11:17. > :11:19.before anyone calls you up on it, and to be honest, no-one ever
:11:20. > :11:24.bothers to check back, they just get on with their lives.
:11:25. > :11:28.Even economists themselves don't take it too seriously.
:11:29. > :11:31.As JK Galbraith once said, economists don't forecast
:11:32. > :11:35.because they know, they forecast because they are asked.
:11:36. > :11:40.Some people say forecasting the economy is a game of chance,
:11:41. > :11:42.but I still have faith in forecasting.
:11:43. > :11:45.I just believe in reducing the term of the forecast
:11:46. > :11:52.I call it, O'Regan's rainfall radar theory of economic forecasting.
:11:53. > :11:55.You see, I am a rainfall radar fanatic, I cannot
:11:56. > :12:01.take a trip of more than ten yards without checking my phone
:12:02. > :12:04.to see where and when exactly it is going to rain.
:12:05. > :12:06.Some people in Ireland prefer to just do a more vague
:12:07. > :12:08.version of forecasting, like it'll either be grand
:12:09. > :12:13.Not me, I want to know exactly, and in a way it's a bit
:12:14. > :12:16.like the economic forecasting, knowing what's happening now
:12:17. > :12:18.and extrapolating a little bit forward
:12:19. > :12:24.It's just like what Jim O'Sullivan does.
:12:25. > :12:27.The big question for markets, and certainly people
:12:28. > :12:29.who are trying to track what the Fed is going to do,
:12:30. > :12:34.The interest rate that the Fed controls is arguably just one
:12:35. > :12:37.influence on the overall economy, so they are really
:12:38. > :12:41.trying to calibrate all the pluses and minuses for growth,
:12:42. > :12:44.the headwinds and tailwinds, at all times.
:12:45. > :12:47.It's funny you should say that, Jim, I was watching the hype
:12:48. > :12:50.about the Fed rate rise, and to be honest, I want a piece
:12:51. > :12:54.In fact, I've got my very own weather forecasting
:12:55. > :12:58.Of course, they say that weather forecasters
:12:59. > :13:01.were invented to make economists look good.
:13:02. > :13:03.It is also said that predictions are difficult,
:13:04. > :13:08.So moving to the global economic weather forecast,
:13:09. > :13:13.It looks like dark clouds on the horizon, but the Chinese
:13:14. > :13:16.authorities ensure us that it is fine, it is actually just smog.
:13:17. > :13:19.In America later in the year, Storm Trump will provide a stimulus
:13:20. > :13:22.to the construction industry with plans to build a giant wall
:13:23. > :13:27.Turning to Europe, and an organised weather system will break up
:13:28. > :13:30.with one isolated shower moving off in its own direction.
:13:31. > :13:32.And looking to the longer term,
:13:33. > :13:36.climate change - sure, we'll all be dead by then!
:13:37. > :13:40.If you ask what is going to happen in 2016, you'd say, well,
:13:41. > :13:43.the long-term trend is 2% growth or 3% growth,
:13:44. > :13:46.whatever you think it is for your particular country.
:13:47. > :13:48.But of course, in the short run,
:13:49. > :13:54.there can be huge fluctuations depending on cyclical forces.
:13:55. > :13:56.There are pluses and minuses all the time.
:13:57. > :14:01.animals spirits which jump up and down.
:14:02. > :14:04.Yes, animals, I suppose he means how confident are animals
:14:05. > :14:10.Frankly, they are the hardest part of the forecast to model.
:14:11. > :14:14.What we've learned from Jim is that the quality of your forecast
:14:15. > :14:17.depends on the quality of your data, the quality of your ability
:14:18. > :14:19.to interpret that data, and most importantly
:14:20. > :14:22.your flexibility in adjusting your forecast if that data changes.
:14:23. > :14:26.Speaking of which, my rainfall radar tells me
:14:27. > :14:35.that it's going to rain very soon, and I am going to adjust.
:14:36. > :14:38.Our fair-weather friend Colm O'Regan there,
:14:39. > :14:43.with his own take on the stormy world of forecasting.
:14:44. > :14:45.And remember, you can see more of his short films
:14:46. > :14:52.on our website, bbc.com/talkingbusiness.
:14:53. > :14:54.Now, continuing the weather forecasting analogies,
:14:55. > :14:57.let's find out if our experts think there will be much sunshine
:14:58. > :15:01.Here in Britain we have doubts, of course,
:15:02. > :15:04.as to whether we want to stay within the EU.
:15:05. > :15:06.Digby Jones, let's come to you first.
:15:07. > :15:09.I think for many, many years now, the British
:15:10. > :15:12.business community, especially those under the big business,
:15:13. > :15:15.have failed to see the value added of being within.
:15:16. > :15:18.Everybody thinks it's best to be within a trading bloc
:15:19. > :15:22.What they are failing to understand now, and its becoming clear every
:15:23. > :15:28.There is an enormous lack of competitiveness coming out
:15:29. > :15:32.of Brussels, and they are saying, how
:15:33. > :15:35.are you helping me when China wants my lunch, India
:15:36. > :15:38.wants my dinner, and you are sitting here tieing my hands
:15:39. > :15:49.Diana, do you think the progress of Europe has been called
:15:50. > :15:55.Well, my view is that Europe as a whole has not
:15:56. > :15:57.adjusted, and, actually, Britain sitting in between,
:15:58. > :16:00.if you like, not part of the euro area but has not
:16:01. > :16:05.adjusted as far in terms of its imbalances as America has,
:16:06. > :16:10.the economy here has recovered, and consumer spending is likely
:16:11. > :16:19.But when it comes to the supply side, and all the bureaucratic
:16:20. > :16:26.constraints that come out of Brussels, I can understand
:16:27. > :16:35.Actually, most likely the decision will be
:16:36. > :16:38.made on emotion, rather than sound discussed arguments,
:16:39. > :16:43.I think it might cause huge pressures
:16:44. > :16:45.within Europe too, you know, and in the eurozone,
:16:46. > :16:48.and could it lead to the splitting up of Europe?
:16:49. > :16:54.to put that worry there, but one of the reasons that the euro
:16:55. > :16:59.was put in place was to stop any war in Europe again,
:17:00. > :17:02.and keeping France and Germany in the same place,
:17:03. > :17:06.and I think the risk of the UK leaving is that Europe breaks up.
:17:07. > :17:13.And to add to that, the first thing that would happen is Ireland,
:17:14. > :17:17.inside the euro, and Sweden, outside the euro,
:17:18. > :17:19.would both say, "I think we might have some of this."
:17:20. > :17:21.You know, there is a knock-on effect, politically
:17:22. > :17:23.and economically, which I think at the moment
:17:24. > :17:28.Brussels and Berlin are incredibly worried about. Yes.
:17:29. > :17:32.Actually, though, if I can interject,
:17:33. > :17:35.the likelihood of the euro area not remaining what it is right now
:17:36. > :17:41.whether Britain exits or does not exit, is quite high.
:17:42. > :17:45.The problem is that the Second World War, for the calamity it was,
:17:46. > :17:48.did not actually result in political union
:17:49. > :17:52.in the European or the euro area.
:17:53. > :17:55.And the single biggest economic problem for that area
:17:56. > :18:03.is the existence of the euro without political union.
:18:04. > :18:10.Right, let's move on to another discussion,
:18:11. > :18:13.and that is interest rates going up in the United States.
:18:14. > :18:15.Inevitably, it is the responsibility of the central bank there
:18:16. > :18:18.to act in the interests of the domestic economy,
:18:19. > :18:21.not the international economy, but with the benefit of hindsight,
:18:22. > :18:24.to start to tighten monetary policy there?
:18:25. > :18:29.The Federal Reserve should set interest rates
:18:30. > :18:31.depending on their domestic conditions.
:18:32. > :18:36.And in fact, rising interest rates in the US is not necessarily
:18:37. > :18:40.what is causing problems in the rest of the world.
:18:41. > :18:45.Digby, there was a debate just before interest rates went up
:18:46. > :18:49.about whether, actually, persistently low interest rates
:18:50. > :18:52.were a bad thing, because people just saw that as being normal -
:18:53. > :18:55.is there a risk of complacency among businesses and borrowers,
:18:56. > :18:59.wherever they are, that interest rates, you know,
:19:00. > :19:04.I don't think it's about complacency, because complacency
:19:05. > :19:07.means, in one way, we're going to make a while the sun shines
:19:08. > :19:11.and not care about tomorrow, and that is not what this is about.
:19:12. > :19:15.Firstly, what Yellen did, she shot the market fox.
:19:16. > :19:24.Yes, what she has done is shoot the market fox.
:19:25. > :19:26.They have been talking about this for six months,
:19:27. > :19:27.nine months, every month went by,
:19:28. > :19:30.and finally done, finished, get it out of the way.
:19:31. > :19:33.So in that respect, do I think it is hurting anything
:19:34. > :19:37.Do I think it has mattered a lot? No.
:19:38. > :19:39.I think in the UK too, I think interest rates
:19:40. > :19:47.Well, I actually think we are creating distortions.
:19:48. > :19:50.I think there is borrowing that is going on,
:19:51. > :19:54.low mortgage rates, that, you know, you should be able to withstand
:19:55. > :19:58.another couple of rises here. But why?
:19:59. > :20:02.Because, actually, if you have a downturn,
:20:03. > :20:07.another downturn, you do need to have something in the tank...
:20:08. > :20:13.You tell that to the house builders in this country,
:20:14. > :20:18.who create loads of especially young jobs,
:20:19. > :20:21.you tell that to small businesses watching this programme.
:20:22. > :20:23.At the end of the day, if the only reason
:20:24. > :20:26.you are going to do it is because people think we should...
:20:27. > :20:28.It is creating distortions, I mean, people are doing...
:20:29. > :20:30.No more distorting than if you put it up.
:20:31. > :20:33.Can I just ask Diana what she thinks about this?
:20:34. > :20:35.Well, I certainly disagree, Bronwyn, that you should raise interest rates
:20:36. > :20:39.so you can bring them down again, because at the end of the day,
:20:40. > :20:40.they could if necessary use quantitative easing
:20:41. > :20:42.and quantitative measures to ease monetary policy.
:20:43. > :20:46.But what I firmly believe in is that, if you have created
:20:47. > :20:51.distortions in the economy am a big distortions,
:20:52. > :20:54.as we did in the run-up to the financial crisis
:20:55. > :21:04.to clean those distortions as soon as possible.
:21:05. > :21:06.Bronwyn, I'm going to ask all of you,
:21:07. > :21:09.but Bronwyn first, very briefly, how do you see the outlook for 2016?
:21:10. > :21:10.Just a sentence. Difficult!
:21:11. > :21:14.And I say difficult because I think China is leading the renminbi,
:21:15. > :21:18.their currency, fall substantially, which
:21:19. > :21:22.means they will start to export deflation.
:21:23. > :21:26.So inflation is already very low in the world,
:21:27. > :21:28.and so we will see, perhaps,
:21:29. > :21:30.it being pressured on the downside even more.
:21:31. > :21:32.OK, Digby? I think globally as you were.
:21:33. > :21:40.But never underestimate the resilience of the US economy,
:21:41. > :21:44.is doing much better than people thought.
:21:45. > :21:47.UK-wise, I would say that the Chancellor,
:21:48. > :21:49.he is being necessarily politically cautious,
:21:50. > :21:53.because he doesn't want to be a hostage to fortune,
:21:54. > :21:55.but I think the UK economy at the moment
:21:56. > :21:57.is doing better than people think. Diana?
:21:58. > :22:00.My view is that developed markets, in particular the US,
:22:01. > :22:04.will do well, and also the euro area cyclically.
:22:05. > :22:07.The trouble will be for emerging markets, in particular China,
:22:08. > :22:10.which goes through a very difficult adjustment,
:22:11. > :22:16.but also commodity producers and other emerging markets.
:22:17. > :22:18.Well, thank you very much to all of you,
:22:19. > :22:21.Bronwyn Curtis, Digby Jones and Diana Choyleva.
:22:22. > :22:24.That it from Talking Business in London,
:22:25. > :22:26.but do join us again next week when Karishma Vaswani
:22:27. > :22:53.will be in Singapore discussing the new Asean economic community.
:22:54. > :22:55.Good evening. Some of us have seen quite a bit of