SFC Markets and Finance | Adrian Cooper: China strives to lead in tech innovations

（原标题：SFC Markets and Finance | Adrian Cooper: China strives to lead in tech innovations）

南方财经全媒体记者 李依农 上海报道

Editor's note:

After over 40 years' booming, is China's economy collapsing? The recent data gave the answer. China's economy grew faster than expected in the first five months of 2024, showing its strong growth momentum. As the 20th Communist Party of China Central Committee is set to meet at its third plenary session in July, known as the Third Plenum, people are keenly awaiting developments to see how this will further reshape the Chinese economy and stock market. Despite challenges and uncertainties, how will China's economy perform this year? At the mid-year, Chief economists and chief investors from financial institutions will share their insights to SFC Markets and Finance's "Chief's View on China".

In the first half of 2024, the US Federal Reserve's monetary policy continuously attracted market attention. The European Central Bank initiated its first rate cut since 2019. Meanwhile, in China, macroeconomic policies consistently supporting the economy. Looking ahead to the second half of the year, what will the global economic landscape be like? What factors will bring new growth momentum to the global economy? What role will China play? We have invited Adrian Cooper, CEO and Chief Economist of Oxford Economics, to discuss these topics with us.

SFC Markets and Finance: Midway into 2024, do you think the world economy is stronger than we expected at the beginning of the year, or vice versa? Why?

Adrian Cooper: The world economy has slowed over the course of the last 12 months. That's not a surprise given the increases in interest rates that central banks around the world have introduced. But I think that slowdown has been a little bit less marked than many commentators anticipated. 

There are some people who feared the world economy might go into recession because of tighter monetary policy. That was never our view at Oxford Economics, but I think it's probably fair to say the world economy has been even a little bit stronger than we anticipated. I think that is a reflection, in particular, of the support that both the US economy and the Chinese economy have got from looser fiscal policy.

SFC Markets and Finance: Major central banks around the world, such as the ECB, are now leaning toward lowering interest rates. What changes will this bring to the global economy for the remainder of the year?

Adrian Cooper: Headline inflation is down sharply. We've seen central banks like the ECB start to cut interest rates. I think, more generally, central banks are going to be somewhat cautious about bringing interest rates down. They want to make sure that core underlying inflation is also coming down to target, and that's proving a little bit stickier given continuing significant increases in wages in many countries. 

But I think if we see interest rates fall through the second half of this year that’s going to be good news for supporting consumer and business confidence. That will help to strengthen the prospects of recovery in 2025. Although, I would stress that I think the pace of that recovery next year is likely to be relatively cautious, even with lower interest rates.

SFC Markets and Finance: Meanwhile, the Fed keeps the rate high and U.S. inflation appears to be more persistent than expected. What is your outlook for inflation? Do you think the Fed is acting late or being extremely cautious?

Adrian Cooper: We've seen, again, in the US, headline inflation coming down sharply and core inflation is down, but it's still above the 2% that the Fed would really like to see. I think that's a reflection of the fact that wage growth is still relatively strong, particularly compared to productivity. So, unit labor costs are increasing, especially in the service sector. The Fed is also looking at the strength of the labor market in the United States, and so it doesn't feel in a hurry to bring interest rates down to offset a potential significant slowdown in the economy. 

They are going to be very data-driven and cautious when they move. They want to make sure they've got inflation late. But I do think it's likely that we will see one or two cuts in interest rates through the second half of this year and then more cuts through 2025.

SFC Markets and Finance: Why is the ECB acting ahead of the Fed?

Adrian Cooper: The situation for the European economy is somewhat different from that of the United States. In particular, the European economy is significantly weaker in terms of its growth performance. 

It's held back by factors like high energy costs, which may have come down from their peaks but are still high by international standards. That's undermining the competitiveness of important aspects of European manufacturing. Tightening fiscal policy to meet fiscal rules is also likely to be a factor that holds back growth in Europe. 

Therefore, the ECB is responding to a weaker underlying economy than the Fed is facing. That means they not only move sooner but are also likely to cut interest rates more quickly than the Fed over the next year.

SFC Markets and Finance: Is it possible that we will see no Fed cuts in 2024? If so, what impact will it bring?

Adrian Cooper: I think it's more likely than not that we'll see at least one cut in interest rates in the US this year. However, it depends on what we see happening in terms of underlying inflation and the continuing pace of growth in America. If there is a rake-up, it would hold back the improvements in consumer and business confidence in the States, likely meaning the recovery next year is less robust than expected.

SFC Markets and Finance: What can we expect from the U.S. economy in the months ahead?

Adrian Cooper: A lot of people have been worrying that the US economy is heading into a recession. Certainly, there have been some survey indicators that have been less robust. However, overall, the US economy is in pretty good shape, particularly in the labor market, where employment growth remains healthy. Households are seeing significant improvements in their real take-home pay as wages rise ahead of inflation. Business investment is supported by measures like the Inflation Reduction Act, which encourages companies to invest in the US. 

Overall, we expect the US economy to grow around its trend rate through the rest of this year and into 2025. I don't see big changes in momentum in the American economy.

SFC Markets and Finance: So, the US economy can achieve a soft landing.

Adrian Cooper: Yes, I think it's very much a soft landing that we're seeing within the forecast. Rates will stay around the trend of 2% while inflation through the course of 2025 comes back to the Fed’s targets on an underlying basis. The underlying strength of the US economy, innovation, household and corporate balance sheets' strength, and the rising household incomes in real terms will keep the economy rolling despite the high level of interest rates.

SFC Markets and Finance: With what you just said, should we be worried that the U.S. election might cause more uncertainties to the U.S. and the world?

Adrian Cooper: The US election implications are an important risk to the global outlook, particularly if President Trump is given a second term in the White House and implements some of the trade protectionist measures he's been talking about. Some of these measures, like 60% tariffs on imports from China and 10% tariffs on imports from other countries, could trigger a global trade war, damaging both the US and the world economy. 

However, in the short term, growth may be boosted under his presidency by looser fiscal policies. It's also worth noting that President Biden has introduced some protectionist measures. Regardless of who is president, more restrictions on trade are likely after the presidential elections and in the next few years.

SFC Markets and Finance: Speaking of uncertainties, we saw right-wing parties gain ground in the 2024 European Parliament elections. How might these election results influence EU economic policy?

Adrian Cooper: I don't think we should exaggerate too much the implications of the European elections. The far right did relatively well, but the centrist parties still control the European Parliament. However, the success of the far right will lead to a greater focus on security, industrial policy, and trade policy. For example, the European Union recently imposed tariffs on certain imports from China. 

The situation in France is potentially more worrying; the outcome of the second round of elections and whether the RN has a majority in parliament could lead to policy paralysis, delaying measures necessary to move French fiscal policy towards the European Commission's targets.

SFC Markets and Finance: How do you assess the recovery of the European economy?

Adrian Cooper: Political uncertainty building in Europe is not helpful for consumer and business confidence and may drag on growth. However, more fundamental challenges, such as competitiveness and demographics, are at play. The fall in headline inflation and the rise in workers' wages faster than prices will be more important for the European economy's momentum over the next 12 months, leading to some growth improvement, especially with the ECB continuing to lower interest rates.

SFC Markets and Finance: What are your expectations for China's economic performance for the rest of the year?

Adrian Cooper: China has set a target for growth of around 5%. And I think they'll get close to that. But that's very dependent on stimulus that the government has put in place and anticipate that we'll see some more stimulus measures to make sure that the growth target is achieved. 

The challenge for the Chinese economy is that stimulus measures may not be as focused on property, on real estate and construction as historically and more focused on some of the new industries like electric vehicles and renewable energy. But they're still very focused on investment rather than trying to grow the consumer side of the economy faster. 

I think that getting growth around 5% this year is perfectly achievable. But looking longer term, the growth model does need to change given the demographics.

SFC Markets and Finance: Overall, what do you think are the biggest challenges facing the global economy?

Adrian Cooper: Well, I think that first of all, we need to complete the disinflation process. We have been through this massive period of very high inflation, and it's important that central banks are seen as being successful in bringing inflation back to target and rebuilding their credibility.  

Secondly, we have the whole challenge around geopolitics. And from an economic point of view, particularly challenges around increased protectionism that are not helpful in terms of the world economy retaining momentum. 

On the other side of the equation, it's really important to remember that there are things that could mean the world economy does better. In particularly, right now, some of the technological innovations that we're seeing, associated for instance with things like artificial intelligence, could lead over the course of the next few years to important improvements in productivity, which help to bring the world economy back onto a faster growth path.

SFC Markets and Finance: Many people believe that AI will become a new growth driver. What is your take on that?

Adrian Cooper: Well, it's important that the world economy does find a new growth driver because the demographics—the aging of populations—mean that we're not going to get much support to economic growth from increased labor supply over the next couple of decades. So growth is going to be even more dependent on productivity than it has been in the past. 

We've done a lot of work at Oxford Economics about the potential impacts of artificial intelligence, looking particularly at the US and how AI could affect the different tasks that make up people's jobs. 

We've sort of asked to what extent could artificial intelligence help people in certain tasks? To what extent could it actually replace the need for a person to do those tasks? Or what are occupations where AI won't be very relevant at all? And we've then asked to what extent will companies adopt AI over the coming decade? And we've looked back at experience, for instance, in the take up of enterprise software in the US in the 80s and 90s. And then we've asked about what will happen to those people who lose their jobs as a result of AI. 

And when we take all these different factors together, our central estimate is that generative AI could perhaps add as much as 3% in our central case to US GDP over the next 10 years. If it does, that would be quite a significant change in the underlying trend rate of growth for the US. I think we'd see a similar pattern across lots of other economies as well. 

Probably not going to have a big impact in the next couple of years. It's more looking five years and further that we'll see those impacts really coming through. But I think AI does offer quite a lot of promise as a new growth engine.

SFC Markets and Finance: What role will China play in the AI sector?

Adrian Cooper: We're seeing the Chinese authorities and Chinese companies being very active in investment in AI. I think that really trying to be at the forefront of those developments and investing as well very heavily in things like the development of semiconductors are going to be critical to those technologies. 

So clearly there are challenges, particularly given the restrictions on the availability of frontier semiconductors from the West to Chinese companies. But I would anticipate that China will ultimately be one of the leaders in the AI race.

SFC Markets and Finance: Given the current market conditions and geopolitical landscape, what advice do you have for global investors?

Adrian Cooper: I think the forecast for the world economy is one where we do think we're going to see growth picking up gradually over the course of the next year. It won't be a rapid recovery. But the world economy has proven to be pretty resilient.  

I think a lot of economics still overweight risk. We tend to favor, for instance, equities and particularly emerging market equities where valuations have been relatively low. We're also favoring things like high-yield credit and possibly as well smaller cap companies compared to large companies as the global cycle improves. But clearly there are significant risks, particularly around protectionism, that investors need to be very mindful of.

（市场有风险，投资需谨慎。本节目嘉宾意见仅代表本人观点。）

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