Why Global Economic Leaders Are Predicting a Slowdown

0:00Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London with the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break So whether it's geopolitics, energy, tech or markets you're hearing it while it happens It's smart, calm and to the point And it fits into your morning You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris On Apple, Spotify, YouTube or wherever you get your podcasts

1:02Bloomberg Audio Studios. Podcasts. Radio. News. Right now, many of the most prominent and powerful people in economics and finance are in Washington. The World Bank and the International Monetary Fund are holding their annual meetings, and so is the Institute of International Finance. It's a who's who of central bankers and finance ministers, and a chance for them to coordinate how they respond to big issues in the global economy. On the sidelines, Treasury Secretary Scott Besant tried to rally support from U.S. allies and condemned China for proposing new export restrictions on critical minerals.

1:40This should be a clear sign to our allies that we must work together, and work together we will. There will be a series of meetings this week during World Bank IMF week, and we are all one. It's a moment for policymakers to take stock of the global economy and what's driving it. Andrew Bailey, the governor of the Bank of England, is one of them. We've got to look at productivity growth, and I think we have to say, what's the next likely general purpose technology innovation? Well, it's related to AI, it seems to me. Who else has been making the pilgrimage to Washington this week? Bloomberg reporters and editors from all over the world, including Brendan Murray, who heads up our coverage of global trade, along with Joe Weisenthal and Tracy Alloway, hosts of Odd Lots.

2:26And they've been watching the dynamics between President Trump and other world leaders, many of whom are still trying to strike trade deals with the U.S. president. Trump is kind of realizing that if you're important enough in the global financial system and you drive hard enough of a bargain, you can basically get what you want. Tracy and Joe say these meetings are taking place at a time when big multilateral institutions, including the World Bank and the IMF, are under threat. And at a time when the U.S. capital is in disarray, the federal government is shut down. I think there's like this direct link that you can draw between the fact that the government is shut down right now for who knows how long and the fact that all of these sort of institutions, underneath them, there is this erosion.

3:12And that is why there is so much concern about the stability of these entities.

3:42system, and for the IMF, the World Bank, and the IIF themselves.

3:54Bloomberg's Brendan Murray is spending this week in Washington, in D.C.'s foggy bottom neighborhood, which is home to the World Bank and the International Monetary Fund. I asked him what he's been hearing at their annual meetings. So basically all the main topics that are affecting the world economy are on the agenda here. I would describe the mood as sort of cautiously optimistic so far with the caveat that we haven't seen the worst of what people think might happen in the situation that we're in with tariffs being completely unpredictable, rising government debt and all the other financial strains that are coming to bear on some of these economies.

4:36So there's a lot of concern that we're seeing sort of a slow burn happen rather than a sudden shock to the global economy. As we move from the IMF to the IIF, Tracy is cautious optimism ruling the day there at that meeting as well. Well, I was at something called DETCON, which is held every year over at Georgetown. It features a lot of DETCON, D-E-B-T-C-O-N. This was DETCON 8, in case you were wondering. DebtCon 5 must have been fun. Must have been killer. But it features a lot of policymakers, officials, sovereign debt lawyers, those types of people. And there were a couple of people from the IMF there.

5:19And I asked them to give me some sort of on the ground color of what they were hearing in their own meetings. And they said that everyone was kind of surprised by how optimistic Kristalina Georgieva, the director, sounded in her sort of opener, where they upgraded the economic outlook for the world and basically said, you know, things are looking pretty resilient. So far, we've managed to weather all these tariffs quite well. But they were telling me that a few days before there was a curtain raiser by one of the deputy directors, and he struck a very, very different tone more quietly behind closed doors.

5:56And it was a little bit more dire, a little bit more – I don't know if you can be a little bit more dire – but certainly more pessimistic than what we heard in the official economic projection update. So take of that what you will. All right. Let's talk a bit about the economy. Brendan, I'll turn to you first. I've covered these meetings before, and they're kind of this interesting prism through which you can get a sense of how the global economy is doing and what people think about it. So there's the anecdotal side of things. Then you're getting these forecasts, these data from the institutions themselves.

6:26Could you just walk us through what the IMF said, its chief economist said about how it's thinking about the path forward here for the global economy? The IMF chief economist laid out basically four major risk areas that they're looking at. Besides trade tensions, I want to quickly flag four other downside risks. Now, the IMF is kind of like the lifeguard. You know, they sort of blow the whistle when you get a little bit too far out beyond the waves or you get too close to a riptide. They sort of, this is what they do. And they pointed to the AI boom and they said, you know, this looks a lot like the dot-com bubble of 25 years ago.

7:02It was the internet then. It is AI now. They pointed to the erosion of credibility in institutions, which is a way of saying, you know, Donald Trump is chipping away at the Fed's credibility when it tells it to lower interest rates. We are seeing rising pressures on central banks. They also talked about the rise of government debt and how there needs to be more fiscal buffers. In too many countries, insufficient progress has been made to rebuild fiscal space. And just generally, they look at the tone, the breakdown in global integration as a risk overall that could sort of create this permanent or structural headwind to growth potential over the longer term.

7:46So instead of growing, you know, at a healthy three to three and a half to four percent clip, we're looking at three, two and a half to three percent over the medium to longer term. The tariff shock is here and it is further dimming already weak growth prospects. So those are the main sort of themes that the IMF, you know, the lifeguard of the global economy is raising and wants governments to adopt, you know, sort of policies that are aware of those risks. I think there's like this direct link that you can draw between the fact that the government is shut down right now for who knows how long and the fact that all of these sort of institutions, as Brendan described, like the erosion.

8:29Underneath them, there is this erosion. And that is why there is so much concern about the stability of these entities because the political will to support them does not exist. And I don't think it's just a U.S. story either. I think around the world, you would see the same sort of attacks on either independent or multilateral institutions. I think it's happening everywhere. Tracy, let me pick up on that and Joe suggesting it's not just a U.S. story, but we do see the U.S. playing this incredibly outsized role in determining the course of the global economy right now. And I wonder what you make of that.

9:03Is that novel as you see it when it comes to what the U.S. is pioneering in terms of trade policy and its tariffs that's put in place? How much determinism it has about the future of the global economy? I mean, I think it has an enormous amount, right? Trump is kind of realizing that if you're important enough in the global financial system and you drive hard enough of a bargain, you can basically get what you want. But we are seeing more and more countries potentially trying to solve some of their problems or maybe achieve some of their strategic targets by doing it unilaterally, right? And again, the U.S.

9:37is kind of the poster child for this. So take a look at Argentina. Malay was in town to finalize the$20 billion swap slash bailout that he's getting from the U.S. Argentina has gotten many, many bailouts from the IMF previously. I've lost count. I know. I tried to count them up and I stopped when I went past 20. So there we go. Argentina, serial defaulter, serial bailee. But now the US is stepping in and saying like, all right, well, we're going to use the US Treasury to give you this$20 billion, what is essentially a loan. And we're not going to tie any conditions to it because you are a strategic ally of ours.

10:20And in fact, Trump actually said this week, not only are we not tying conditions to it, the only real condition we seem to have with it is that Malay actually wins the midterms, which is highly, highly unusual in the way America sort of exercises its international influence. So I think we're probably going to see more of that. Brennan, what do people at the IMF make of this? Here you have the U.S. effectively going alone after seeing the IMF get burned over and over again. What do these global policymakers make of what the U.S. is doing here? Yeah, I think you see a lot of sort of strained attempts at putting on a brave face with what the U.S.

10:59is doing. And you hear policymakers say things like, well, you know, the U.S. has a huge economy, but it's really only 15 percent of global trade. And the rest of global trade is happening at a fairly robust rate without the U.S. I think what you're seeing is, on one hand, the sort of shock at what's happening and the and the upending of the global order and an effort to hold together the order that has kept it, you know, globalization moving for decades now. Coming up, the markets, AI, and how these international organizations view their future at a time when they face so much hostility.

11:49This week, as meetings got underway at the International Monetary Fund, the World Bank, and the Institute of International Finance, the trade war between the U.S. and China escalated. That spooked investors, who it seemed had gotten pretty used to all the back and forths and skirmishes. I asked Joe and Tracy why this moment had such a profound impact on the markets. There are probably two things that have driven the market higher, which is one is AI we all know about. And that is an industry that is an investment megatrend that does not seem to be particularly sensitive to tariffs. And then I think people had sort of forgotten about tariffs and, you know, the idea that it all gets smoothed out in the end.

12:29It wasn't that big of a deal. It's sort of minor. It doesn't really affect the growth areas. But I think you could argue that, yes, we did have a lot of volatility last week. But in the grand scheme of things, not that much. So I think it was just sort of like under the conditions in which there's so much enthusiasm and so much speculative money, so much hot money flowing into risky assets. The reminder that, yes, trade is a live issue. Many of these things haven't been settled. The U.S. is vulnerable still to the cutoff of various things such as rare earth metals and so forth. I would say it gave people a little time for a breather.

13:04I thought you were going to say it was a healthy correction, Joe. It was a healthy – If we're on TV, that's what I – this is healthy. We needed this correction. This is very healthy. Yeah. Tracey, when you look at the agenda for the IIF meeting, the IMF meeting, World Bank meeting, there are a lot of mentions of AI, of artificial intelligence. And there is kind of this infusion of more skepticism or if not more skepticism, at least a sense that all of this money has been spent, is being spent, and it has to amount to something sooner rather than later. Yeah. Are we talking about it differently?

13:35You need to see actual cash flows at some point. I mean, I think what's really changed is people are starting to get more nervous about some of the very intricate and complex financing arrangements that we're seeing, you know, stuff where like NVIDIA sells chips to so-and-so and then they use that money to make a loan to so-and-so and then they send that money back in. It's very circular, very incestuous, and it's the kind of thing that's going to remind people of previous bubbles. So that's happening. What I would say is there is still so much enthusiasm out there about the future potential of AI.

14:10And the vast majority of investors that you speak to will say something like, oh, yeah, sure. It might be frothy now. Maybe some of these financing arrangements are pumping up values or concealing real cash flow and things like that. But we know this is going to be the next big thing. We know there are going to be winners emerging from the space in the same way that even though we had the dot-com bubble burst, we had winners that emerged from that early era of the internet and went on to make a lot of money. So I think everyone is sort of diving in on the assumption that they can either get out first before everyone else, or they're the ones that are going to be able to identify the real, true winning players in all of this.

14:54We haven't had that moment yet where some big corporate entity or someone says, you know what, we are not getting an ROI from this. No one has ever said in a major way, you know what, this is not productive. If there was like a bubble, if people were getting out over their skis, it would end in theory at that moment that some really big investor says, you know what, this is just a thing that predicts the next word and doesn't really do much. That hasn't happened yet. And so there is that faith and there is the ongoing investment and there's that fear of missing out. And so far, that aspect of it hasn't really changed.

15:32Brendan, there's still some blindness, I guess, that we have about what this is going to mean for the economy. As you kind of dig through what's in the IMF's latest forecast, the kind of commentary around it, are we any closer to maybe not knowing, but having a sense of what this is going to mean for productivity if all that's promised comes to pass? You know, we can theorize that all of this investment that's going into data centers and all the capacity that needs to be built up, you know, will create a productivity boomlet at least. You know, no one really knows. It sounds great on paper. And for the U.S.

16:06to lead that, Donald Trump is very proud to be part of it and invites it. But what he really needs to do is create the blue collar, you know, the sort of romanticized version of factory jobs that he promised his base. And we've yet to see that. Politically, what matters more than anything right now is factory expansions in the U.S. between now and next November. And we'll know the answer to those sooner than we will know the answer to the productivity impact of AI. Trevor Burrus Tracy, I can't resist asking you about something else that's in the backdrop here, and that is the earnings that we've gotten from the big banks this week, and there are more to come from regional smaller banks in the coming days.

16:49But we've seen them beat a lot of analyst expectations. Goldman had a record quarter. Morgan Stanley had a record quarter. It's because of trading, but it's because of dealmaking as well. And I'm curious how you think about that and what it says about the environment we're in, that we're seeing these institutions doing so well here in the third quarter of 2025. Mostly what it says is that in a period of sluggish growth or in a period where you are anticipating further sluggish growth, one way to actually grow your way out of that is acquisitions, right? Buy more companies, get bigger, have more pricing power.

17:24This has been the sort of dominant theme of, I guess, late stage American corporate capitalism for a while now. We saw that for the past few years. Immediately after the pandemic, people were trying their best to get pricing power in the market. Then they raise prices. Maybe they sell fewer items, but they make that up in terms of the pricing. And it seemed to work out well for a lot of them. We had record corporate profits. So I'm not really surprised that we're seeing a continuation of that strategy. What it means for overall inflation, especially when the Trump administration has been telling people that tariffs aren't going to cause your prices to rise, the foreign countries pay them, I think we're going to see.

18:08It does feel like when we had the initial sort of Trump rally right after the election, one of the hopes was like, oh, we're going to see like Wall Street deregulation. Right. This is like one. If you think about like the pillars of the stool or the legs of the stool of why there was this boom, it's like, OK, we're going to get tax cuts and we're going to get deregulation. It feels like the deregulation component is being delivered upon. When you look at all of this deal-making activity, when you look at sort of the enthusiasm with various things related to fintech and crypto in which it doesn't really feel like there's any rules anymore at all.

18:43And if you broke the rules in the past, they're probably not going to do anything about it. This sort of the animal spirits and the deregulation element of this, that part seems to be a real vindication of that thesis. I think of how contemptuous President Trump is about international organizations, how much he's made an effort to undermine them. We had Scott Besson, the Treasury Secretary, come to the IMF a few months ago and say, we're not going to effectively, we're not going to burn this place down, but we want to make some significant changes to it. Brendan, let me put the last question to you.

19:15In light of all of that hostility, if that's the right word, how do you think the IMF and the World Bank and the IIF, these institutions think about their future, yes, in the near term, but the medium term as well? What we've seen in the past six months is the U.S. kind of going at things unilaterally saying, look, we're in this for ourselves. You guys can, you know, whether we're talking about NATO or whether we're talking about trade, you know, you're on your own basically. And we'll take care of ourselves and you're going to have to learn to do the same for yourself. And I think what we're going to see in the months ahead is there are going to be times when the U.S.

19:53is going to need its traditional allies. We're seeing it with China and rare earths right now. Scott Bessent was saying, you know, we need a coordinated response to counter what China is trying to do with controlling rare earths. And so, you know, can you have it both ways? Can you put tariffs on your allies, them not retaliate, and then ask them to cooperate with you when you need them to? And I think we're going to find out, and this applies to whether it's the IMF, the World Bank, or the World Trade Organization, or any of these multilateral institutions. we're going to find out if the U.S.

20:24can really have it both ways because economies like the European Union, they're taking note of all this and they will bake that into their calculus as to, okay, well, you want us to cooperate now. How about giving us a little bit of relief on tariffs? So there's going to be this kind of push and pull between unilateralism and the old vestiges of multilateralism, I think, going forward. Brendan, Joe, Tracy, thank you very much. I'm looking forward to DebtCon 9. Thanks for having us. Thanks so much. Thanks, David.

21:18We'll be back tomorrow.