南方财经全媒体记者李依农 上海报道

As the global financial stage evolves, all eyes turn to the U.S. Federal Reserve's recent decision to hit the pause button on rate hikes. Among uncertainties towards global economy, China's economy is undergoing a transition to domestic demand. 

Will there be a U.S. recession? What's the future of global trade? And in terms of China's economy, are the dynamics of the country's economy actually changing? To answer these questions, SFC Markets and Finance interviewed Richard Yetsenga, Chief Economist at Australia and New Zealand Banking Group.

Recession is not very likely

SFC Markets and Finance: Is the Fed's recent temporary rate hike pause a good reason to be optimistic? And do you think it's possible that we'll see a policy pivot sometime in 2024?

Richard Yetsenga: I think we should be optimistic. Firstly, because a recession doesn't look very likely. The market has gone through various phases of recession on, recession off and recession on, and I don't think there's ever been a big chance of recession. So, it's good news that people are recognizing that. Also, good news: the Fed is trying very hard to get inflation back to target and not have a recession, which is the phase the Fed is in at the moment. And I do think we'll get a policy pivot next year. Fed funds is at 5.5%. The inflation target is 2%. As inflation comes down, I think the Fed will have some room to bring its interest rate down as well, not until the second half of next year.

SFC Markets and Finance: Do you think that inflation is going towards the right direction as the Fed hopes?

Richard Yetsenga: I hope so. But there is some chance that Fed may have to sneak interest rates up a little bit more, or keep them higher for even longer than the market is currently expecting. But the good news is inflation is heading back towards target and no recession. When we started this interest rate hiking cycle, I think this is quite a good outcome.

Geopolitics should not be overemphasized in global economy

SFC Markets and Finance: How do geopolitical events, such as recent conflicts and international tensions, impact the global economic outlook and its stability?

Richard Yetsenga: Geopolitics has changed, obviously, in the last five or six years. The world is not quite the same as it used to be. We shouldn't overemphasize how much has changed. Because of course, most global trade still happens without significant restriction, trade agreements are still being reached between countries, regional trade organizations are still accepting new members. Maybe we're in a more skeptical phase of globalization. Globalization brought enormous prosperity to the world, increased global trade, helped keep inflation low... If we're in a more skeptical phase of globalization, we should expect maybe a little bit slower economic growth, a bit less trade and a bit higher inflation. 

SFC Markets and Finance: So, what is your perspective on the future of global trade? Will it continue to be globalized, or will it shift towards more regional focus?

Richard Yetsenga: I mean, perhaps, but new words have arisen, onshoring, reshoring, friendshoring. I think there is just a different perspective around trade, and a recognition that it doesn't just bring economic benefits, but potentially in some situations, exposes you to supply chain vulnerability or supply vulnerability. So, I think global trade is occurring in a different environment. And I think there will be more consideration about having trading relationships that are closer.

SFC Markets and Finance: We're actually being really optimistic about the soft landing because the outcome is obviously better than what we expected from the starting of this year. What's the overall outlook for global economy?

Richard Yetsenga: I think the recession view came from two ideas, both of which I disagree with. One is the idea that most of the inflation had come from supply side problems. And the second idea is that balance sheets in places in economies, like the US, are quite vulnerable, that consumers are quite vulnerable. When actually, consumer balance sheets on average are quite strong, not just in the US, but in Australia, New Zealand, the UK and many other advanced economies. And most of the increase in inflation, I think, has come from demand that is too strong. There are some supply side factors, the pressure on the climate transition and the investment and change that's required. From that, demographic aging is a supply side factor. The readjustment in global trade is a supply side factor. And they're different from the last one or two decades. But most of this inflation challenge has been a demand challenge. And interest rates have risen demand, I think, is coming back to some level which is more sustainable.

Australian economy is still solid 

SFC Markets and Finance: According to the OECD, Australia's Real GDP is projected to grow by 1.8% in 2023 and 1.4% in 2024. So, what's your insights into Australia's economic trends, and the bilateral trade between Australia and China?

Richard Yetsenga: The Australian economy has been slowing under the influence of 400 basis points of interest rate hikes. That's been uncomfortable for some parts of the economy. The good news is the slowdown in demand is occurring with a still very healthy and stable financial system. And it's bringing inflation back towards target. And maybe a bit like the US, inflation has come from about 7% to about 4%. The inflation target is 2% ~ 3%. So, there's still some ways to go. I'm hopeful that current interest rates are high enough for inflation to keep coming back towards the target. But a little bit like the situation in the US, if the Reserve Bank has to do something in the next three or six months, it will be to increase rates rather than decrease rates. I think most would agree the economy's handled higher interest rates quite well. And even though growth is slower, the economy still looking quite stable.

SFC Markets and Finance: What's your thoughts on inflation trends in Australia, and how might they influence the monetary policy and investment decisions?

Richard Yetsenga: The Reserve Bank is very focused on inflation dynamics, because their primary objective is a 2% to 3% inflation target. We're down at 4%, a little bit further to go to 2%~3%. And I'm hopeful over the next 18 months, we'll get back there. As for investment, there's two sides to the story, though. One side is higher interest rates, which I think a lot of people are focusing on being a challenge for investment. And that's true, but the economy is still quite solid. So, there's still demand for businesses to add capacity, still demand for governments to add infrastructure, still demand for the climate transition to electrify, move forwards in the climate space. And what's been holding some of these back actually is not just interest rates, but availability of inputs, materials, transport, labor. And as demand in the economy has slowed, some of those things have become a bit more accessible. So, I think actually, even with higher interest rates, investment in the economy will stay quite solid. 

China has an enormous role to play from an economic perspective

SFC Markets and Finance: Thank you. So, next moving to China's economy. So, what's your view of the outlook for the Chinese economy, considering the various challenges we are facing right now? Are the future dynamics of the Chinese economy actually changing?

Richard Yetsenga: I think the future dynamics are changing. In the last couple of years, I think you've already started to see that. Maybe where I start on China is just to remind people, it's an $18 trillion economy. A little bit smaller than the US at No. 1, but a lot bigger than Japan. More than three times larger than Japan at No. 3. So, China has this enormous role to play in the region and in the world from an economic perspective. But as a large economy also, exports can't be the source of growth forever. At some point, there needs to be a transition to domestic demand. And I think that's already started to occur. And that means more of what drives China will be domestically driven rather than being influenced by external events. China is still, maybe, towards the top of the middle-income range on the World Bank's scale, but still a middle-income economy. So, plenty of runway for development yet. While China is undergoing structural transformation of its economy, with a focus on high-quality development, and technological innovation.

SFC Markets and Finance: So, what's your perspective on this transformation?

Richard Yetsenga: The transformation, I think of China as having the last 20 years as maybe the first stage of modern development. In fact, we're talking here in Shanghai. My first trip to Shanghai was almost exactly 20 years ago. So, I've seen the way this transition has happened as a very export-focused economy, a very investment-focused economy to delivering those exports. And I think we're in another phase now, where that approach is giving way to one where domestic consumption is more of a source of growth. So, investment will consume less resources, but the Chinese consumers will become more important and potentially the most important consumption trend in the global economy. This is what's going to be happening right here in China.

SFC Markets and Finance: China's economy, what will be the major driving force? And how would it impact the region around China?

Richard Yetsenga: Every economy, when they go through a shift in the primary driver of growth, finds that it can be a complicated period for many economies. For instance, shifting from a fossil fuel driven world to a more green energy world is going to be a quite a difficult transition. China's transition from investment and exports towards domestic consumption, during which and we should expect to have some periods where maybe it doesn't feel so comfortable. But ultimately, what will come out of that is an economy which determines more of its own destiny. It's dependent more on domestic consumers. Also, China will probably start importing more from overseas rather than a lot of the trade now being to import with the purpose of exporting. It will be to import for domestic consumption. China on any projection is still by far and away the largest economy in the region: about half of Asian GDP and about two thirds of Asian GDP once you exclude Japan. China has taken about 53% of regional foreign direct investment flows in the last 20 years. China has taken about 75% of regional portfolio inflows in the last five years. I think China's economic status in the regions is assured. This transition will just mean the growth drivers, I think, will be different. And growth is probably slower than it used to be. China is at the upper end of the middle-income phase. No economy can grow quickly, forever. But China can become wealthy by growing more slowly but over a longer period of time.

SFC Markets and Finance: Well, just to wrap up what we talked about today. What's your overall outlook for the global economy as we move into next year?

Richard Yetsenga: I think the most important issue for the global economy is avoiding a global recession. I think it would be very unfortunate if after having the biggest inflation problem in a few decades, central banks then over tightened and created a recession on the other side, that would be in a way, compounding one error with the opposite error. So, I'm optimistic but also hopeful and expectant that we're not going to have a recession. And that's probably the first mistake to avoid. And the global economy is still growing, which I think is our most important objective. I'm quite optimistic from a growth perspective. But you know, the challenges are also there as well.

SFC Markets and Finance: Do you think everything actually turns out to be better than what everyone expected in the beginning of this year?

Richard Yetsenga: You know, I've been an economist for quite a long time, people typically like to talk about what's wrong. So, let's spend some time talking about what's right. Global demand is still growing, inflation is coming back to target in most economies, and that's occurring in a way which is better than most people thought. It seems likely we'll avoid global recession. And the global financial system is in very stable and very strong shape. There are some domestic examples of maybe some financial instability. We had some challenges in the US banking system earlier this year. But I think there's a lot to be optimistic about.

策划：于晓娜

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记者：李依农 谢鸿州

摄像：胡凯文 实习生杜雨佳

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出品：南方财经全媒体集团