hello and welcome to cross talk where all things are considered on people about what is the state of the global economy and where is it going and why are economists using the term normal. welcome to my guest today here at the st petersburg international economic forum they are charles robertson he is the global chief economist and head of macro strategy at renaissance capital we also have robert may he is managing partner at robert may consulting group and we have. the chief economist and head of research at deutsche bank russia. go to you first we just had at the end of last week g. eight their announcement about the global economy as least as it concerns the g

seven g eight point nine i would say they all on the same page. you have a steady in europe and you have sequester in the united states you talk about job creation and both don't create jobs well i think the developed economies are very constrained in undertaking a significant stimulus either through monetary policy or through fiscal policy i think part of the reason why you had such a statement was simply because there's not a lot of arsenal. tools left in the tool box exactly exactly i think if we're talking about fiscal policy. very high there's not a lot of room for maneuver and then you take monetary policy interest rates in the u.s. at close to zero there's not much that they can do we'll talk about quantitative easing in a second there but do you think about that i mean our. it reflecting the true

condition of the global economy because we would expect from these countries to say the best possible thing they could you know putting in the best face on a rather dismal situation still for us unemployment coming down seven point six to being created the employment rates come down. by my view in the in the twenty years of the greenspan credit boom when debt doubled in the states the number of jobs the employment rate rose from about fifty nine percent where it's been for thirty years to sixty four percent we're not back to fifty nine percent i think five percentage points of americans who would never have got jobs were not for it unsustainable the americans that are not looking for jobs as well that's the point that they are dropping out of the workforce they are giving up that's why the unemployment rate can continue to come down even with. the illusory it's in it it means you stabilized in a different way in a different place ok that's going back well i want to talk about the new normal

here. about the new normal yes. it's very interesting we heard the plenary session with. chancellor merkel and president putin here at the forum. and they were discussing this point and they were saying that in some respects it seems as though the crisis for two thousand and eight two thousand and nine is essentially not ended in sort of a new normal you're seeing this tightening while they're kind of stepping back and saying things are not as good as they should be we better be a little bit more careful but it's a fairly good point because that's the system they created i mean if you look at the emerging markets where how are they react to this i mean the major economies of the world least in the west are going to be stuck for what a generation well. a tremendous problem for emerging markets and i think they will need other things to look for new ways to boost trade to boost growth partly that is going to be on their part efforts to boost infrastructural development infrastructure projects so domestic demand. internal means of boosting the economy

but also i think say if you take for example a lot of its trade was focused primarily on europe and now russia is trying to diversify into asia into the faster part of the world economy and i add on that. it really looks like you know we have this globalization phenomena that we know in the light but at the same time when you see mistakes being made in a certain part of the world but in the west right now i mean why should the rest of the world follow it maybe you can't get out of it it's a trap i mean they talk a lot about the. basically it's a interconnected world in the economies are interconnected what i was looking more on the infrastructure point that was raised the amount of investment that the president was talking about and to me i mean we're looking at you have a supposedly a lot of money a lot of cash sitting out there somewhere for investment but it's not being invested because it's cautious and i look at russia where they're talking about we need to innovate except for the infrastructure that they were talking about it was mostly about railways pipelines etc all essential focus on energy and commodities

again so i don't see that as innovation per se but at the same time it makes russia indispensable to the global economy and there is a diversification maybe a different way the best way to diversify the russian economy and that's where the greatest demand for the development is so i think you know a lot of these projects of course the big concern is how effectively and efficiently they will be conducted and hopefully war of the funds will be coming from the budget sawley for the budget but also from the private sector that is the biggest challenge i think right it's a great that's the biggest opportunity for foreign investment right now in russia absolutely i think. has been probably one of the key themes in the discussions in the forum and clearly russia is trying to make every effort to attract not just private capital but war and capital into. the the infrastructure in.

transportation the specialist so you know the. russia certainly needs more roads it's always been it's from charles you know president putin said long ago that russia would not the social welfare state it's founded in western europe what do you think he means by that. the maze is no going to push welfare spending pension spending and so on unemployment benefits to create a situation where the government spending fifty percent of g.d.p. on france's case i think fifty seven percent of g.d.p. spent by the federal govt by the main government in france in russia or it's it's more like twenty to thirty percent the only problem with that is that he has already pushed up and spending and he's done that quite dramatically in the last five or six years and with the demographics russia's got this is not a sustainable. situation that the good news is that you've got some very good performers who just you know we speak of the four who are talking about the need to sort out the pensions issue to try and make it sustainable in the long run it's

important he's thinking about it so it's basically. a variation on a theme i mean it's going to be a russian social welfare state it's not going to be a certain model or russia may just special model of course they always need to special model but i think at some point. if there's an increased investment coming into russia i mean if there's a slowdown in the amount of capital that's leaving russia because you see it's pretty high already for the first quarter was like twenty five billion already and it was estimated it was going to be ten billion for the years and i already had twenty five and they're not saying it's capital flight actually being invested in other countries which is. a complicated situation but if you don't see this new money coming in it's going to be challenging because they'll have to start dipping into this reserve fund where they've been putting the excess. revenues from you know previous sales and that's very interesting because remember we talked earlier on and another program about how private russian individuals are. investing their

money all over the world ok so this is again something the russian government has to do with this kind of globalization of independent private investment yeah i think there are a lot of aspects to this theme one of the aspects is that yes the russian consumer is becoming a global consumer and so part of that is leading to capital outflows i don't think you can call it capital flight because this is more an indication of how mature the russian consumer is but another aspect is of course that a significant part of the outflows is russian strategic russian corporates to acquire assets abroad and this is again not something that you can throw in capital flight but this is simply russian companies this time it's almost impossible to control or it i mean it's the open market yes exactly and i would say there are problems on this front because a lot of this investment by russian corporates the still somewhat in the fashion. to improve on this and certainly some of these assets of their properly used by

russian companies would be a contribution could be a greater contribution to russia's g.d.p. growth it just raises the question if the russians themselves or are investing outside of russia how does that support the theory or the argument that we need more foreign investment in russia when your own because everyone is. everyone's valorously there is the best return to show you that you get as much as. of the last five years three percent of g.d.p. goes to china or us goes to part and so the same money comes in but russian companies diversify fomor outside. those other countries such. as about one percent of g.d.p. russian f.b.i. alex wellen everybody wants chinese investment quite a few countries in the world that actually block their ability to buy assets in the world but there is russia still experiences on the russian i think there was an element where post cold war that was normal russian companies should want to diversify one hundred percent local risk. much like south africans off the post

wanted to invest abroad but it's eighty twentieth's now you should want your business environment to improve such that as the russian companies are saying. investing in her. relatively how is russia doing to its peers and with the g seven because economies well i think it's always understated ok no of course even you know in terms of restrictions say with regard to. destruction as with regard to its strategic. companies they have analogs western economies whether it's the us or you're. talking about russia's economy certainly the quality of the. reserve the reserve that has been built in terms of the. it's far better states. what you have than western countries in terms of obviously russia is ten percent of g.d.p.

. in the west we know that that can approach one hundred or even more percent of g.d.p. and then in terms of growth growth very frustrating but for a lot of the western economies it would be great to see those growth rates of evil one to two percent that russia has in the first a question of what is the growth based on i mean really where is it coming from. another point i had was just about again on the investment in bringing money in there's always been discussion about you need the state to kind of back out to privatized more so that you can have more competition here and really help to innovate the economy and the figures i had maybe your figures are different but i was i was told that in two thousand and six about thirty four forty three percent of government involvement in their careers about forty three percent was government involvement in the economy and now this year it's like fifty two percent that the actual government involvement is much higher than it was so i guess it depends on what you mean by. involvement i mean is that head count is headcount is going down

. going down according to this some going to have to go to a short break here and after that show break we'll continue our discussion on the russian economy and the global. mission free cretaceous free. for charges free. range humans free. three. free. old free blog. free media.

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back across up were all things considered i'm about to remind you we're discussing

the global economy. before we went to the break we're talking about russia but i want to talk about this new normal here because it seems to me the new normal if that last a decade or a generation is lower expectations of economic growth in the traditionally rich western countries how the government gets through that we see europe going in one direction the americans going to another but let's look at the other parts of the world i mean ever since the the end of the second world war the end of the cold war there's heightened expectations it's always going to get better always going to get better and in two thousand and eight two thousand and nine that proposition hit a brick wall but we have most of the growth in the world now outside of those traditionally rich western industrialized countries so i mean do you give up on the expectations model or you have to redefine it or do it.

because growing on the basis of. i think. the most telling case is that of china i think they're starting to think about not just the quantity of growth but the quality of growth. going forward. only have that kind of expensive growth just for so long even exactly exactly so i think this is really the issue of the mix of different factors that constitutes growth and the quality of what it means for social development for the broader economic development because after all g.d.p. . he is not the only and not probably only indicator of the quality of economic conditions most would think about that i mean you know we see these emerging market world kind of stuff because they looked at the west what they did emulated quite a few things we've already discussed the dangers of debt and i know that russians

are getting a little comfortable with that but most people are kind of skittish about it and maybe because of what happened in the us i mean is it a hybrid here where you continue to take some of these things but he served with other issues. i think was totally right about the chinese moving towards quality but i also think that that thing is misunderstood that in germany the chinese. growth in germany. but that's only because they were lower income level mathematically impossible for them to continue to grow. ten percent a year they are now an eight trillion dollar economy another trillion dollars as they were a decade ago a decade ago they added america each year to the global economy hundred billion hundred twenty five billion dollars now they add mexico over a trillion dollars a year and next year china is going to last well i think maybe one point four trillion the u.s. will add six hundred billion dollars to the world economy that's two trillion from these two alone still pretty helpful growth for the rest of the world it's not

quite so bad as some people fear i think also if you have to look at if we're talking about where is the money coming from if it's trade i mean. the economies have to do well enough that there's a demand for the for the imports whether it's from europe or from asia or what have you and if the european economies slow down the per capita spending is going to slow to slow down i mean you know i mean it's already it's already bad but the problem is who's going to be the purchasing power coming from they don't have it so i can say that you're going to see a shift in the trade patterns that's going from one country to another but. i just . it's going to be water what is the products or services that are going to be in demand in these economies that's going to have the impact that's accepting if you haven't pointed all let's go to all quantitative easing ok we heard that it's it may come to an end in the middle of next year and that is clearly a lot of the original game when i'm asking the question ok well yeah if there is

life after quantitative easing well i think there will need to be some further injections probably further down the road and i think the wording from the fed will be more about the peas in the markets and probably some more drawn out pattern of this withdrawal of monetary easing clearly given the withdraw i like that term using it in multiple definition where we have gotten used to it particularly a lot of people on wall street like this very shortly and i think another issue with the stimulative that we've seen whether it's fiscal or whether it's monetary in a lot of the developed economies there are diminishing returns from these injections of liquidity that i think is as another problem with which the policymakers will have to. think about that you think that you know i mean bernanke getting his head of that's possible because in looking at the actions of the fed they said they would relax taper off if they thought the economy was recovering in

a real sustainable recovery i mean is he trying to is he projecting hope or is he reflecting reality that the economy is on the mend where he can step aside and this what eight hundred fifty billion dollars a month can be you know withdrawing the eighty five billion dollars a month you can start cutting that down to the next year he's assuming growth will be three and a quarter three and a half the markets are saying two and three quarter three that everybody's agreeing to us a bit and better next year so that's fair i think they are here which you can't do anything about if you're not still so much worse than where we are today that's a real dilemma for europe just because i was a big part of the. discussion here at the forum because we have some kind of me to perform well in germany for example and they have spain greece others that are portugal that are in really. deep mass and how europe. as a unified group can address it and i think that's a concern it's confusing sometimes that you're hearing some days you're hearing really good figures coming out something's changing for the good and the next day

it's bad so i have a problem with understanding really words going long term in europe and i don't i think still the center of concern is still europe i would agree because i agree also. probably the u.s. is going to excel the way. we also for the european union will accelerate in terms of growth and probably will no longer be in the recession territory next year but look at the as a into the euro zone europe as e.j. in general but if you look at the pattern of west's clearly there are so many risks associated with europe especially in this. southern part of europe where the weakest links could go wrong again we're not seeing much progress in terms of really normalizing their economies especially the physical cd go ahead but i was going raise that is a terrible problem on on friday the day the person was giving a speech at the greek government losing one of his cool coalition phone it's

dropping down you really want to think is actually where does politics come in and so because it's here we you know the condom is always had these broad strokes you know when we look at these figures it's three point one or three point four but what about people in greece in portugal and spain and ireland places like this i mean this is not sustainable we see the rise of the political right now it's economists i'm not going to ask you to talk to specifically about that but there is a political dimension here where you can say sustained growth over certain amount of time but things actually happen on the ground people actually make the decisions and politicians have to react and what you've seen them is actually a rise of the left and the right. ok. and indeed the populist i hate you will the parties in the u.k. and greece and italy and spain are all coming up the thing with grace is that no country can ever find in the history of the survives the unemployment rates that you now get greece and spain on a fixed exchange rate regime in the one nine hundred thirty s. everyone on the gold standard of fixed exchange yes but if you just continue the

austerity you'll get that extra injection from matter merkel ok that's not creating a healthier economy it's not raining if you leave the euro. we were did this last year i think that's it's just people prematurely they missed they didn't recognise the political will to stay in the euro but if we look back at the great depression you see can take five six or seven years after a recession when unemployment to go up to thirty thirty three percent in the netherlands before you leave but that's when you can just value you can't devalue well i mean clearly some of these countries were facing this choice relatively recently and i think that's the issue how far can the suffering go because to normalize the fiscal situation the economic situation more broadly you have to pursue such as that is going to be. what are you on holiday i want to go back to this term that the new normal here is that the new normal and i know that doesn't

apply because russia is kind of in the middle of things because it's still an emerging market but it certainly feels the effects of the eurozone as we've pointed out before that's where they were turning so much of their trade and now they see the euro zone is not as favorable as it used to be so this is a good dundrum for russia but let's look at this new normal here i mean what is the new normal is just austerity for the next twenty him kotoko into the new normal they were talking about the u.s. they were talking about lower growth for a sustained period europe's in a different situation it's got the choice of either paying it's a pound for the last twenty years twenty years of just managed to climb or most people being ok sort of but but actually because. in the eurozone rather than one single country like japan that will entrenched incredible division of wealth in germany and deep deep pockets in greece which will last for years and years and i struggle to believe that people in greece will continue to put up with. it sorry but i mean even the there's a stronger economies in europe i don't see them really coming forward in

a big way to try to. help greece in the long term and they just didn't have the economic back bone before this crisis is a matter of timing they didn't even have a chance to get their institutions and their fiscal could really hold any way that merkel made a point on friday at the forum that demographics mean germany can't afford to just pay out it has a fiscal terrible fiscal problem has a pensions similar to russia in fact but the sort of more acute because german debts already eighty percent of g.d.p. and russia and russia can afford to make mistakes some pensions germany can't germany can't afford to bail out spain and greece and italy a portugal they can't afford to do so. the normal means lower growth weights in the developed world and i think we will see. by very definition we might not be using the term developed world anymore. the world of lowered expectations a lot of maybe a lot of terminology will need to be explored but let's put it this way ok money

amount talks about no growth and growth economies and say he's moved away from economies of hope and no hope he doesn't even talk about brics anymore it's growth versus no growth and why russia's concern people in the last twelve months is because this approach to no growth environment or a gentleman were brought out of time i want to thank you for joining me here is the same people who are going to national economic forum and i want to thank our viewers for watching us stay with r.t. . more news today bought lim says once again flared up. these are the images cold

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