076 | The US economy and its impact on global markets

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  • David Page, Senior Economist, AXA Investment Managers

Learning outcomes:

  1. The influence of the US economy in a global context
  2. The main strengths and weaknesses of the US economy
  3. The impact of debt and demographic change on the outlook for the economy


Learning outcomes: 1. The influence of the US economy in a global context 2. The main strengths and weaknesses of the US economy 3. The impact of debt and demographic change on the outlook for the economy PRESENTER: David, looking at the US economy, first of all, how big is it, how do you define it? DAVID PAGE: Well there are obviously a number of ways of measuring it, and I think one of the easiest ones that we look at is from the IMF that looks at it as a proportion of the world but tries to adjust for the movements that one gets in currencies and exchange rates. Using that metric the US economy is now 15% of the world or of the global economy. That’s changed, and it’s changed quite rapidly in recent years. Between 1980 and 2003 the US economy was a pretty constant just over a fifth between say 23% and 20%. But from 2003 onwards we’ve seen that fall back to the current rate of 15% of the world economy. And most of that accounts really for is accounted by the rise in emerging markets, and of course within that the rise of China and to a lesser extent India, which now make up a bigger proportion of the global stock than before. But it’s still a very large economy, and second to China and the EU as a whole, which is obviously a collection of economies. So if one excludes China it’s the second biggest economy in the world. PRESENTER: You said a lot of it comes down to the currency that you use to decide this. Is this on a dollar basis it’s about 15% of the world or? DAVID PAGE: The IMF do a purchasing parity basis, so they try and work out what if you like a stable rate of currency exchange is, rather than the day-to-day fluctuations of the exchange rate to try and look through that. And that’s contentious. I mean if you look at different measures the US is still bigger or sometimes it’s a little bit smaller than the Chinese economy. But as a point of reference we think that’s a good one. PRESENTER: And why does it punch above its weight? If it’s 15% of the global economy why does it have this amazing gravitational pull on the other 85%? DAVID PAGE: Well of that 15% it has a very large population. It also has quite a lot of the world stocks. So if one thinks about it in terms of stock market weighting for example, if we look at the MSCI global stocks index then the US stock market accounts for over half of that, 52% in fact at present. So the capitalisation of the world is very different from the actual GDP component. So if you think about what GDP is made up of it’s the number of people, how employed they are, what they add to the economy. And when we think about China and India we’re looking at economies with over billions of people in those economies, like 1.6 in China, just over one billion in India. For the US, there’s 322 million. It’s a very large economy, but it’s not quite at that scale. So that’s where some of the adjustment comes through in terms of total GDP, but why stock market capitalisation for example gives it a much bigger effect on global financial markets. PRESENTER: I was going to say if you took a snapshot of the US economy today, what exactly would you see? DAVID PAGE: In terms of its composition. So the US is made, as most advanced economies are made up of, mainly of its consumer sector. What its households consume themselves. So the US is one of the most advanced in this context. It has, if we look at 2015 for example consumer spending growth in that period was 68% of GDP. Now if we look at some of the other sections of the economy, the government sector for example is about 17%, business investment, what businesses spend accounts for about 17% of economic activity as well, and then you have exports which of course you have to look at the difference between exports and imports, and that only adds a little bit, only about 2%. But the exports themselves are relatively small in the US because of the large domestic nature of it, so exports in the US are about 12%. So looking at the US the dominant driver of US economic activity is the US consumer, which starts to explain when we think a little bit more about the financial metrics, about why we’re so worried about consumer spending, why we’re worried about labour market development, it’s because of that impact is has. PRESENTER: And how mature is the US economy? DAVID PAGE: Well, mature in the sense that it’s very developed. I mean when we think of the maturity of an economy, the developed nature of an economy, we tend to think of how close it is to the technological frontier if you like. How much technology is diffused across the economy, how advanced that economy is. And we tend to think of economies like the US as at that technological frontier. So in that context as an economy looking at the whole region as a whole it’s probably got the most embedded capital, the most technological use at the time. PRESENTER: But in terms of its ability to grow we hear of these growth rates from China, people say it doesn’t matter if it’s 10 or 8% it’s a big number. The US economy doesn’t typically grow at that speed, why not? DAVID PAGE: Well there’s a number of factors, so one of the factors is of course if one starts at the bottom if you like, the growth of its population. So the US does see some immigration some through, about a million immigrants have been coming into the US over the last five or six years per year. But that’s a relatively small proportion of the US population, it’s about 0.4%. So US population growth compared to some of the Chinese population growth historically is relatively slow. And so that’s one of the reasons. The other factor is the composition of the economy as well. If we think of an economy – China’s still a good example – that has a lot of manufacturing or has seen a lot of industrial and manufacturing growth, one tends to see a lot of productivity associated with that. It’s something that’s very capital intensive and gets the most out of that labour. As an economy matures, and this is true of all developed economies, it tends to move away from those capital intensive manufacturing economies into service sector economies. And it’s harder to get that same level of productivity growth coming through. I mean obviously on top of that we have the product of the financial crisis in 2008 and 2009. And that with its debt legacy is having other impacts on the US economy, which actually means that productivity growth at the moment is flat to negative. So that’s also weighing on the trend level of growth. But you’re right in the sense that if we look at where we would expect trend growth in the US to be, it’s probably around 2%; whereas if we’re looking at China we would expect it to be currently around 6½%, perhaps slowing to 5% by the end of this decade, but still more than double what we’re seeing from the US. PRESENTER: And that 2%, is that roughly what you’d expect from somewhere like the EU as well, again a mature economy, similar kind of stage? DAVID PAGE: It’s similar. The demographic picture is important there, and of course I guess the EU’s immigration backdrop could change quite markedly. Up until very recently we would have thought given the demographics of the European Union slightly faster ageing population, particularly when one thinks of economies like Germany and Italy, slightly less immigration into the region as a whole, at least in recent years, not necessarily so much in the latest couple of years. Then that means the population growth varies a little bit slower. We would also see productivity growth being a little bit slower as well. So broadly speaking that’s right, but I think the European Union’s trend growth is probably closer to 1½% rather than the 2% we would see for the US. PRESENTER: And as you look at the US economy, what would you say were its main areas of strength? DAVID PAGE: Well I think it’s a very developed economy. It’s a very diverse economy which gives it some flexibility to global shocks. Probably its biggest strength is the strength of the domestic economy. That’s what’s allowed its companies and its business to grow with large economies of scale, because they’ve been able to effectively produce goods into this large domestic economy, which shelters it from some of the shocks. Now other areas have more latterly been able to try and mimic this, and obviously globalisation has reduced some of that advantage, but historically that’s what’s seen the US grow over the last 150 years into the large economy it is at the moment, and that in part is one of the things that underpins for example the eurozone project to try and mimic a pseudo large domestic economy. So that’s probably its greatest strength, but obviously you look at the flexibility of the workforce, the high level of education relative to global standards that we see, those are key strengths as well, and the large level of capitalisation that’s been in the economy, not just recently but over a long period of time, which gives it a strong infrastructure network. PRESENTER: Now you were saying earlier that there are obviously other nations on their way up in the world. You mentioned China and India. But the States, certainly somewhere like Silicon Valley seems to be maintaining its primacy. How easy is it to maintain primacy in some of those key industries? DAVID PAGE: Well, it’s very difficult. I mean it’s a process of constant adaptation and evolution. And so it is a testimony to the strength of the US economy that they have areas which are continual global forerunners. And we’ve seen obviously over the last 20 or 30 years we can think of a number of challenger areas, particularly in high tech, some which have had lasting impact and some which haven’t. But the fact that the US is still at that forefront is a testimony to its strength and some of the institutions like its education system. It’s also a warning to some of the other economies. So when we think of the vast developments that for example Russia made from the ‘50s through to the ‘70s, ‘80s, and that we’re seeing China make now, much of that growth is catch-up growth. That growth is easier, you can see what other countries are doing, those that are close to the technological frontier, and then reapply those technologies to yourself, re-engineer your economy, and that gives you that faster growth. But once you get to the technological frontier, once you’ve caught up, then you get on that same treadmill that the US has been on for some time, and it’s much more difficult to maintain that pace. So that’s where things as I say like strong education and capital investment and the more broadly sort of institutions that make a strong economy – law, capital markets – that’s where they become very important. PRESENTER: So this is why for example it’s been fairly, say easy but the Japanese have got very big in say the car market, but no one’s been able to take biotech away from the US as yet. DAVID PAGE: Yes, I mean that’s part of the reason that you have those, and what one tends to find with industries is that one develops clusters. So you don’t tend to get just one biotech firm growing up in isolation, but they tend to come around and feed off each other. You then get areas where you’ve got an educated workforce with that particular specialism. And the advantage of the US is that because it’s so large it can afford several of these clusters; whereas if we think of Europe the clusters still have a degree of nationalism to them. So for example the financial cluster is in the UK, which means that the UK’s financial assets to GDP ratio is very large; whereas the US financial industry is probably not that much smaller or on a comparable size to the European financial industry, but the financial assets to the US GDP are much smaller. So the risks are on that basis a little bit less. PRESENTER: We talked a bit about some of the strengths, but what are some of the weaknesses, or potential weaknesses? DAVID PAGE: Well I think again there’s a relatively long list, and I guess if we think about run-ins to presidential elections many candidates voice those sorts of risks. One of the things that’s a constant refrain from the US is that although it has a vast infrastructure network that infrastructure network is ageing and could do with a replacement, and certainly when one visits certain cities in the US one can recognise that relative to for example certain cities in the Far East. So there’s room for increased public infrastructure spending because of the ageing nature. And this is part of the problem of being an economy that’s been doing so well for so long. A lot of the infrastructure that was put in was cutting edge at the time, but has aged over a period of time; whereas some of the faster or the newer developing economies can leapfrog the technology. And so one of the issues that the US has at the moment is that its power still has a very large proportion of coal-fired power to it; whereas of course in the UK that’s moved out and we’ve had gas-fired technology come in and in more developed or more recently developed economies there are newer technologies coming through as well. So part of this is the lagged investment from previous times and the infrastructure ageing. One of the other issues that the US faces, which is more idiosyncratic and it happens across a number of economies but is inequality. Now that’s got nothing to do necessarily with how long the US has been a developed economy, but some of the policy choices that have been made. But some will argue that, well certainly measures of US inequality are relatively high on a global basis now. And some will argue that that high level of inequality is something that’s starting to crimp aggregate demand growth. So if you’re seeing income growth going to a small subset of the economy that has by its nature a relatively high saving ratio, you don’t tend to see that income being spent in the same way as if it was distributed across a broader range of the economy. So that could be an issue that comes forward as well. PRESENTER: To that point is globalisation a threat, opportunity or a bit of both to the United States? DAVID PAGE: Well it’s a bit of both and it depends on the polices that are used as to how it’s harnessed. I mean globalisation at its purest form should be a growth enhancing opportunity. It should allow the economy as a whole to grow faster for GDP to grow faster, and to allow for more efficient allocation of resources and labour within that economy, which should allow that growth to emerge. The problem emerges if the policies that govern that globalisation are perhaps too loose or not targeted enough, so that only small sections of the economy do well out of it, or the gains to that globalisation are restricted to those small sections. And I think when one thinks of some of the recent problems of inequality in the US, certainly those that would support that would suggest that the gains to globalisation haven’t been spread over the broader US economy. PRESENTER: You mentioned there a lot about consumption, but certainly 30 years ago the US was a big manufacturer. Is that coming back now that there’s all this talk about an energy revolution in the States, factories can be close to the sources of energy, or is that a bit of a myth? DAVID PAGE: I mean it was certainly an issue four or five years ago. And certainly when we came out of the financial crisis one of the key things we saw was a degree of onshoring come back, was if we looked at the high energy industries in the US we saw those picking up sharply. Whereas in Europe arguably going through the same conditions those high energy industries weren’t seeing the same recovery. And that was clearly because of the impact that shale was having on the US energy markets at that stage: the fact that gas was about a third of the price over that period of time. Now what we’ve seen subsequently, certainly over the last what nearly two years now, is a marked fall in oil prices, which also feeds through into other derivatives of oil and gas particularly, so that energy advantage that the US had five or six years ago has faded. So there has been some degree, and of course in terms of distribution of goods the higher energy costs are the more you want to produce locally. So the lower energy costs has reduced that call for onshoring from both of those reasons. But there are still advantages, and when we see some catch up come through in some of the other economies, so for example when we see Chinese wage growth picking up, the advantages of offshoring become less. So that’s something that might help as well. PRESENTER: And we also hear a lot of talk today about the amount of debt that’s in the system. How big a challenge is that to the States when you think about level of government, corporate and household debt? DAVID PAGE: Well certainly from a government perspective it’s going to be a large problem given the intransigence of congress over the last six years. Congress hasn’t yet been able to address the debt issue. It’s spent much of the early part after the financial crisis dealing with the financial crisis, and then trying to damp down on the deficit that they’d built up on the back of that. But as we move to a phase where perhaps we’re starting to close some of the spare capacity, perhaps we’re moving a little bit further away from the financial crisis, another problem is emerging which is effectively the demographic effect and how that’s going to impact the US deficits looking ahead. So we’ve effectively got to a point where the US has managed to reduce its deficits to just over 2% of GDP, which is still a little bit elevated but not too bad. But the CBO now forecasts over the next 10 years that we would see an increase in that deficit from about 2%, just over 2% now, to about 4% as we move into the 2020s. And that’s despite forecasts that we would see continued minor drops in discretionary defence spending, discretionary non-defence spending and other spending come through. So the problem here is that we’re seeing a forecast pickup come through in social security spending from about 10% of GDP now to about 12% of GDP. So that puts a lot of pressure on the US, and that’s not something that the US is going to be necessarily able to deal with easily, because it reflects the ageing of their population and the fact that more elderly people tend to be more costly to the healthcare system as much as other things. So the US has to come up with some plan to address that deficit. And so far they’ve not been able to do that. So the deficit issue is something, and while that deficit is starting to grow the forecasts are that we would see debt to GDP rise, so it was broadly 73% at the end of 2015, and the CBO forecasts that that would rise to about 85% by 2026 if current policies that were imposed today continued over that 10-year horizon. Now that’s starting to get quite elevated. The US has seen periods of time when debt has been higher. In the Second World War it was over 110% briefly. But it’s not seen many periods, and most of the periods where it’s seen a sharp pickup previously have been war related. Now, if we think about European comparisons, then in the UK we saw periods of time when debt to GDP was in excess of 200%. So it is possible for economies to see that level of debt and then to come away from it without becoming basket cases. But it will take concerted policy to do that, and that will mean that whoever the new president is going further forwards, whatever the makeup of congress, there has to be a way of working together and trying to get some fiscal programme together. PRESENTER: When you get these demographics and a larger and larger percentage of the population is in the ageing bracket, does that act as a dampener to GDP growth in the future, not necessarily? DAVID PAGE: Well it should do, because you’re reducing your workforce. So the trend pace of growth that you’re likely to be able to grow at falls a little bit. So we hear a lot at the moment about the neutral rate in the US and the falling neutral rate, and part of that is because the underlying trend growth rate in the US is slowing, and in turn part of that is because the population is increasingly becoming one that isn’t working rather than is working. That’s partially why we’ve seen the participation rate falling over recent years and down to just 63% or just under at present. So typically it does add to the burden of an economy, not just because you see government spending picking up but to some extent because some of the income that governments would normally receive don’t come through as well. Of course the other factor is that one would expect to see those baby boomers that have accumulated a lot of savings over their life start to spend, so that provides some offsetting support. But it’s a transitional problem as well, and I think it’s a problem that we see for example in Japan. And Japan has to some extent been struggling to cope with that issue as well. PRESENTER: Now one thing we always hear a lot about is the US consumer, whoever he or she may be. Why is the US consumer so vital, not just to the US but to the global economy? DAVID PAGE: Well I think again because the US economy is a leading economy, and what it does has quite an impact on other feeder economies. I mean in a world where we no longer see goods produced by digging out of the ground, refining the materials and then putting them together, as was probably the case 100, 150 years ago, the global economy is much more connected now. So a manufacturing job for example takes various different pieces from around the world and then assembles it. And what still drives much of the US economy as we discussed is this 68% contribution that comes from the consumer sector. So if we see a slowdown in the consumer it means a material slowdown in US economic activity. That tends to see a material slowdown for example in business investment within the US. And that can therefore ripple across, whether that be through the actual demand that businesses would have from other areas of the globe, reducing demand for their exports, or whether it comes from a financial market reaction when we see for example stocks worrying about corporate earnings and therefore coming under pressure, and that having an impact on other economies as well. PRESENTER: So even if you were a relatively poor US citizen, in global terms you’re relatively rich, the finished products you’re buying a lot of other people in the chain’s job is dependent on you. DAVID PAGE: Yes very much so. And of course as I say within the US there’s quite a range of incomes. But yes, I mean if you look at the US median income it’s streets ahead of most other economies in the world. PRESENTER: And how is the US consumer bearing up post the financial crisis? DAVID PAGE: Reasonably well. The problem for the US consumer is again this inequality issue that quite a large swathe of the population haven’t seen the real income growth feed through, and that’s meant that the consumer rebound that we have seen since the financial crisis has been less for example than we’ve seen in previous cycles. Over the same period, I mean the consumer has also done quite a lot to undo the balances of the financial crisis. So going into the financial crisis we saw quite a high level of indebtedness from US consumers. And that’s fallen back quite markedly over the last five or six years. Primarily that’s fallen back through a reduction in household borrowing through the house, be that through mortgage debt mainly or home equity loans. But those two features have seen US households much less indebted, so that gives them some capacity for future action. However, offsetting that to some extent has been a build-up in other consumer credit, and other consumer credit in the States is now at a level that’s above the financial crisis. And that’s driven primarily by things like a modest pickup on auto loans but really student loans picking up as much as anything else. So by and large the US consumer has been OK, certainly in the last few years it’s performed very strongly buoyed by the fact that oil prices have been low and therefore real income growth has been quite high, and that’s help to drive reasonably strong growth from US economic activity. But there are still pockets of weakness for the consumer. PRESENTER: I wanted to move on to what the main economic indicators are for the US economy does, so as an economist what do you look at and why are they so important? DAVID PAGE: Well I think from, when we think about the monthly array of data that gets thrown before us, the ones that markets spend a lot of time looking at are the ISM indicators, which are broadly the most timely activity indicators that we get. PRESENTER: Sorry, ISM stands for? DAVID PAGE: The Institute of Supply Management. And that measures both the manufacturing and the non-manufacturing side of the economy. So they’re quite good from that perspective. Retail sales is a strong number. It obviously is a very good indicator of that very consumption that we’re talking about, and then industrial production numbers as well. So those are the sort of output numbers we’ll look at. But of course one of the things that captivates the markets the most is the non-farm payrolls labour report which comes out the first Friday of each month. And markets look at that for changes in employment, changes in unemployment, both to see what that’s likely to mean for activity going further forward, whether the consumer is going to be better off, worse off, but also as a reflection of underlying economic performance. So if other indicators seem OK but one suddenly sees a softening in employment growth, then many will take that as a harbinger of some problems ahead. And that’s one of the reasons why the Federal Reserve for example puts so much weight on that employment report. PRESENTER: How accurate are the numbers, because to compile all the data for the whole of a vast economy like the US for the first Friday of every month must be pretty tough going? DAVID PAGE: Yes and there’s a large error band around it. It’s about an 80,000 error band either side. So the numbers can be heavily revised. It’s also a very erratic series. I mean when one looks at payroll you’re really looking at the difference of two large numbers. How many people are employed versus how many people have become unemployed, and that change can move about quite a lot. So we do see a lot of revisions. I mean in recent times if we look back to just before the summer of 2016, there was a perfect case in point. Many of the other labour market indicators were pretty constant over that period, but the latest vintage of date from the payrolls suggested that in May there was a payroll growth of just 25,000, which was then offset in the two subsequent months by very bumper gains of over 270,000. Now arguably if you smooth that you get a much better idea of what was happening in the labour market at the time. But that gives some indication of the volatility that can come through from that. So as an economist I think one is always very cautious about reading too much into any of month’s data particularly from that series. But I think as a market practitioner one recognises the importance it has for financial markets. PRESENTER: And to what extent does the pricing in the stock market and the bond market tell you what’s happening in the US economy? DAVID PAGE: Well to some extent it should, and certainly if we look back historically stock markets for example have always been very good indicators of slowdowns that have emerged coming through the economy. The bond market always used to be a good indicator of upcoming recession if the yield curve inverted. So the shorter rates in yields were above the lower rates that tended to be a good signal that there were economic problems ahead. One of the problems that I think we face now is that part of the authority’s reaction to the financial crisis to try and stimulate the economy has been a massive injection of reserves into the economy to try and lift through QE. And that of course by design has distorted those market prices. So it’s not obvious that those same signals are going to emerge as cleanly as perhaps they would otherwise have done so. So historically they’ve been used quite a lot, and significant downturns in equities have signalled as well as precipitated for example some slowdown in the economy, but it remains to be seen how useful they’ll be going further ahead. PRESENTER: And what are the other levers that the authorities have got in the States to manipulate the economy? DAVID PAGE: So classically the Federal Reserve would have used just its interest rate policy, for example, with rates even now still very close to zero it has little scope to do that much more. So it’s used its balance sheet instead. And we would expect it to use its balance sheet further by again effectively building up the reserves and buying in assets. So that I think is probably going to be the key measure it has going further forwards. But there are other things it can do. For example it uses forward guidance, it communicates with the market, and that can effect expectations and therefore have an impact going further forwards. Other things for example it can use its targets or adjustments to its targets to change people’s expectations. And regulation is a key feature as well. Going into the financial crisis there was a relatively light touch of regulation, and that seems to have, well that’s led to some of the consequences that we’ve seen come through. Post the financial crisis we’ve seen many more regulations imposed on the US economy, as we have around the globe, and that’s had some desired effects and some spillover effects as well. But regulation is something that also has an impact on the economy. And then thinking a little bit away from the monetary authorities, you also have government and government can vary its level of spending. Now in recent times government has rarely used fiscal policy as an active stimulus policy. It did so in emergency situations immediately after the financial crisis, but has removed it a year or two after that. Then we saw the emphasis more on regaining control of the deficit, so the idea of demand management through fiscal policy went out of the window. There hasn’t been a change in that in the US yet, but we have seen that starting to change in for example Japan where the Japanese government is starting to use fiscal stimulus. And arguably if you get to the point where monetary policy is running out of policy tools, or the policy tools that the authorities have don’t have quite the efficacy they used to have, then perhaps fiscal policy is something that’s going to be used more going further forwards. PRESENTER: Can they afford it? DAVID PAGE: Yes, they can under certain circumstances. Obviously we’ve just talked about how high the deficit is and how high the debt level is, but you can see situations where actually the spending that a government creates gives you more growth in GDP. And what you’re always thinking about in terms of indebtedness for an economy is not just the outright dollar value of the debt, but the debt compared to GDP. So as long as you can see, as long as your GDP number rises by more than your debt number, then you actually get a reduction, counterintuitively you can get a reduction in debt, and there are examples in history both in the US and more broadly where fiscal stimulus has had a fiscal multiplier of more than one. So the more money a government has spent the less the indebtedness of the economy has become. But that does sound counterintuitive I accept. PRESENTER: Well moving on from that, the final couple of minutes here, we’ve talked a lot about the US economy, but how does it, why does it have such a big impact globally? We hear these statements say if Wall Street sneezes the UK economy catches a cold. The markets are constantly looking at what the US economy is doing. Why does it affect us? DAVID PAGE: There’s a number of features. I mean as I say one of the things is the fact that it’s such a large constituent of the global stocks that if you do see large falls coming through on Wall Street that does tend to have an impact on other exchanges. There’s a barometer effect. The US is so tuned in with the rest of the world that if you do see some slowdown come through there that can deliberately knock on to other economies and see a weakening go through there. So you tend to get this ripple effect emerging from the US side of things as well. And there’s a confidence issue. You know, the US is one of the leading, not only one of the leading economies in the world, but it’s at the moment one of the few economies that is expected to be accelerating. So for example we see China gently decelerating over the next few years. So if the US economy starts to soften as well, then there are very few economies that can provide that lift to global growth in quite the same way. So that can affect people’s confidence. PRESENTER: One of the things the US has is the dollar as the world’s reserve currency. Why is that so important both to the States and to the wider world? DAVID PAGE: Well for the wider world it’s effectively a unit of exchange. So it’s convenient for countries that have smaller pools of currency to trade in the dollar. That’s for example why oil is traded in dollars so that lots of different countries can trade with each other without necessarily taking on various different bilateral exchange rate risks. So it’s a convenient medium of exchange for the globe, but it’s an unmitigated boon to the US economy. Because it means that a lot of central banks around the world end up having to own or wanting to own US treasuries as a reserves management tool. So it gives those economies an incentive to effectively buy US government debt to loan money to the US government. And that keeps the price of borrowing for the US government lower than it would for other economies. PRESENTER: And so final question, so you see the primacy of the US economy and currency under threat in the next 10, 20 years? DAVID PAGE: Well in so far as on the IMF measure China has already overtaken the US as the largest economy – it did so in 2014 – so arguably China is the bigger economy now. But I think inevitably there is going to be some shift come through, and the question really is whether or not the US can maintain the performance that we’ve seen over the last 20 or 30 years to maintain its relative spot rather than seeing what other economies do. I mean we’re always a little bit wary of extrapolating the growth rate that we’ve seen from China, from India, and therefore saying well by 2030 that means that this country is going to be bigger or it’s going to be so much bigger still. It’s very hard to extrapolate those growth rates, and this goes back to the idea that once you’ve had the catch-up in growth and then you start to play the same game that other advanced economies are doing that your growth rate slows quite materially. So certainly we would expect to see other countries continue to grow quite large and to continue to catch up, but whether that’s necessarily a threat again I think boils down to policies around that. I mean arguably what the world needs most at the moment is more economies growing quickly adding to aggregate demand. And that boost to aggregate demand, that boost to global economic activity would be an opportunity for the US rather than a threat. But in terms of whether or not the US is always going to be preeminent, then I think again depending on your definition it already isn’t. PRESENTER: We have to leave it there. David Page, thank you. DAVID PAGE: Thank you