IBDE Chairman's Business Briefing with Citi's Global Chief Economist

On 29 June 2020, International Business and Diplomatic Exchange (IBDE), hosted its regular Chairman's Business Briefing with members of the IBDE. We were delighted to have two distinguished speakers providing the opening remarks: Catherine L. Mann, Global Chief Economist of Citigroup sharing her views on the global economic outlook and Tina Fordham, Partner and Head of Global Political Strategy at Avonhurst, offering her views on the political outlook before the meeting was opened to discussion and comments by participating diplomats and business leaders. Thanks to Alan Houmann, IBDE Chairman of Policy for moderating the discussion and to Rex Rexhmati for producing the discussion summary below.

In the next 6 months, significant contractions in all economies will become even more apparent. Economists from China and US are more hopeful on a quick recovery. China will lead the way with US following shortly and this is because the former having experienced the pandemic first. Forecast for Europe have improved, and the European countries are expected to recover by end of 2021 and everybody else by 2022. It is to be noted that there was a stark difference between the US and Europe in that US came out big and early. This is subject to neither China nor US veer off from the V-shaped recovery. If either stumble then, these stumbles will negatively impact other countries’ recoveries as well as the global supply chains. Global Trade will struggle not just because of the pandemic but also headwinds ahead.

What are the consequences of a sluggish recovery? In short, a loss of 5% - 7% of the global GDP with similar effects to the 2008 global financial crisis. There will be a return to growth trend, but the loss will not be recovered. Increases in disenfranchisement and social unrest and the question of debt sustainability. Nothing to encourage business investment. Consequently, potential output may suffer, thus labour markets will be scarred.

To add to this, the financial markets are almost completely disconnected as they are not matching the sobering projections and its outlook on inflation is more pessimistic.

The word unprecedented has been used an unprecedented number of times during the pandemic. Economic downturns often lead to a resurgence of protectionism, nationalism and populism. A public health crisis plus a severe downturn is uncharted territory. The numerous elections which will add to the mix, starting with the US election, which is not easy to call. Despite the chaos ensued by the pandemic, Biden lead is modest. Inability to campaign combined with limited voter enthusiasm undermine Democrats’ prospects. A VP candidate is not expected to make much of a difference. Meanwhile Trump’s base is loyal and will turn up to vote. There is a real risk of electoral malfunction and/or delayed/disputed results.

In the UK, economic toll of a “no deal” Brexit will exacerbate Covid-19 generated downturn, but government determined to proceed. The pandemic crisis, and the government’s struggle to respond, has limited political oxygen for EU trade negotiations.

In terms of geopolitics, the pandemic has exacerbated tensions with China. China trade tensions are on the rise ahead of US elections and amid a revival or economic nationalism and shortening of supply chains.

Nine out of ten Americans regard China as a threat, suggesting that regardless of who wins US elections in November, US-China tensions will endure. But will Beijing fight back? From a business point of view, the moment of choice, between US and China, is nigh.

There are concerns that social unrest may be building up due to zombie companies and zombie jobs being sustained by the governments, particularly in the hospitality, leisure and tourism industries. Zombieism is more prevalent in Europe and in turn it hurts productivity. Airlines may have to adjust to new conditions with businesses being reticent about travelling when technology can facilitate service delivery. Businesses are reassessing their cost structures. However, it will be a matter of time before sales staff will eventually take up travelling again as it is seen as the only way to recruit new business.

Will we have another financial crisis? The central banks have pulled all the stops to prevent it. But that is not to say that we would recover without scarring. Consumer behaviour will likely change and business will have to adopt which affect employment, investments and so on. So there is a transition period but the private sector needs to pick up the ball and move forward to the new equilibrium.

Selected forthcoming events:

1. Meet the CEO - IBDE CEO briefing with David Craig, CEO of Refinitiv - 3 July
2. Meet the Minister - IBDE Chairman's Business Briefing with Lord Grimstone, UK Minister for Investment - 9 July

More details about the upcoming meetings available at https://www.ibde.org/upcoming-events