Transcription
It's actually been going great. I am enjoying very much being back at Harvard and it also helps to be able to be able to speak a little more freely than one does when when you're when you're at the IMF. So I I'm enjoying this moment a lot. And also, I love working with the students and getting back into research and something I did miss.
Well, that's where I wanted to go for the research of, say, Rudi Dani Burger. Back ages and ages are Ken Rogoff and others. Is there is a cycle to financial upset afoot, a cycle to financial contagion with the private credit percolation and again, a war is tangible. Are we at another inflection point where we see crisis in finance? The struggles in with private credit were actually there even without the of the right kind of war in Iran, we were seeing signs of distress in terms of loan defaults. I mean, this has always been an incredibly opaque sector. And when we worried about where we could see another crisis coming around the corner, it was about this huge growth in non-bank financial institutions that now own over 50% of the world's assets, and especially in the credit private equity hedge funds, which are highly leveraged and valuations that are stretched. So it is a combination that really can get you know, things can get pretty tenuous if we have major shocks of the kind we're looking at right now. And as I said, we've just had the biggest oil shock in history. And, you know, thankfully our economies are not as dependent on oil as it was in the 1970s. And therefore, we could weather more of it now than we did back then. But this is a huge major event to the global economy.
I want to bounce off what you were just saying about the war and its effect on the global economy, because even a long war, would that have a limited consequence for global GDP or will there be longer term damage done? A lot depends upon how long oil prices stay high. Why did it come down to around 85 yesterday and then it shot back up to 100 and now hovering around 96. So, you know, coming into 2026, the assumption was that 2026 would be a year when oil prices would average $65 a barrel. Right. I think in the best case scenario, we're looking at it averaging now $75 a barrel, which just from the oil channel shaves off about 0.1, 2.2 percentage point of global growth. But if this continues and I don't think this requires we're not talking necessarily that everything gets sorted out in a week, but if this continues well past a few weeks and we're looking at now average for the year hitting 85, but that's beginning to show off like 0.3 percentage point global growth, 0.4 percentage point. And global inflation starts going up by 50 basis points, 60 basis points. So this needs a solution relatively soon. Otherwise, we're all looking at countries around the world dealing with many countries, dealing with stagflation or shocks.
What about emerging economies? They would be vulnerable here to persistent high energy prices. Right? Emerging markets have, especially the ones, of course, that are importers. I mean, other countries who are exporters benefit from the higher oil prices, but the ones that are importers and these include, you know, India, many of these Asian economies. Of course, China also is a big importer of energy, though they have big strategic reserves, so they kind of a little more insulated. But yes, so they tend to be tend to be importers. They also are much more energy dependent. Their normal output is much more energy dependent than the rich nations of the world are. And we've also seen the dollar appreciate. So it's a combination of oil prices going up and the dollar appreciating. And that's leading to really scarcity. I mean, we're seeing rationing in many emerging countries and around the world. It's not just you can simply pass through very high point prices.
An exceptional day for Bloomberg Surveillance Edward Morse was with us earlier, Charles Kanter of Neuberger Berman as well in an hour. And it was getting open house where this the former International Monetary Fund deputy managing director holding court at Harvard economics after her sojourn of public service. Get a look at where we are in. My answer is currency is the litmus paper of the system. Are the traditional dynamics of foreign exchange in play now, or is there a new regime we have to get used to? I think this episode has told us that the traditional regime sustains. There have been a lot of questions about the dollar's dominance and whether we've seen some sort of financial decision making shift sufficiently in the world that things are going to behave differently. But what we saw right at the onset of the war when there was a huge spike in uncertainty was that the dollar strengthened relative to pretty much all other currencies in the world. Capital flows to emerging markets didn't. You didn't see a wholesale reversal, but you saw less flows going into emerging markets and their currencies depreciated. The US stock market held up better than other countries also because I mean, frankly, us being a bigger net energy exporter makes it less of a likely story for the US than from any other countries in the world.
It's actually group announced, I think of my great mentor at LSC, Meghan Dhesi, who we lost recently, the work of Raga Rajan in Chicago and your work as well and in India is a balance and fulcrum point between all these global tensions. Is there a new India now or is it a traditional relationship of India with China, with Russia and with America? I mean, I think the world is complicated, is really complicated at this point in time. Well, the good news is that India's economy is growing strongly from internal demand and from internal sources. That's pushing growth. You know, the build out in infrastructure, the digital payment system, there is good growth momentum coming from within India. What they've had to do, which I think is actually positive over the last year, is to go out and make more trade deals with other countries. They just did that with the European Union, but they're also they did that previously with the U.K.. I think that's a good thing. I think it helps for the for India to bring its tariff rate down and they're going to have to keep this up. It's a complicated world. It's people are unsure about who their friends are and for how long.
Right now, a second headline coming out of Iran, this is from some form of Iran TV is published on the Bloomberg. It's not speculation. Quote, Iran says it began a new wave of missile launches and Israel buttressed up against a headline about 20 years ago. Brent crude $98.32. Alexis Christophers with Katie Gopinath of Harvard. So, you know, what about the beneficiaries or the winners? And I guess I hate to use the word winners in war because I don't think there are any winners in war. But when you're talking about large net energy exporters outside the Gulf, are they going to be benefiting? And I'm thinking Norway, you know, Russia, of course, Canada. Yes, certainly these absolutely these countries benefit from oil being at $100 a barrel. That's a huge windfall that, you know, it's very helpful. And I would say for Russia right now, this is great because they could really use the money that they're getting from their oil sales. When oil was at $65 a barrel, it was getting really hard for their economy. And you could see the strings, $100 a barrel helps them. Now, that said, if this now morphs into a more broader financial crisis because of growth dropping everywhere, inflation going up, we're already it's kind of clear we're moving into a much more tighter monetary policy stance everywhere in the world relative to what it would have been in the absence of this massive oil price shock. You know, that combination is never good for for it for the world as a whole, for pretty much all countries.
Can I do an audible? Please do. I'm going to do a terrible Tom Keene audible with Geeta Gopinath. So we're on stage in Marrakesh and there's, like, planes flying over. It's a tent. There's like 800,000 people in there. And, you know, Guide is there, I think I can't remember the details. I think substituting for the managing director because she had to go see the King of Morocco or whatever, and Christina guards there and a bunch of other worthies, and I never got this question indicated. GOPINATH Oh, we'll do it now. So we're going to do it right now. Geeta Gopinath, you came out of Princeton holding court at Harvard. Ken Rogoff and Bernanke did part of your Ph.D. I want you to explain the impact of the Nobel laureate, Claudia Goldin, an economics you and I never got to talk about this. We're going to do it this morning. Tell me what Professor Goldin did in labor economics, in our behavior, in our society that was so important. Claudia, who won the Nobel Prize for her work recently and was long overdue, basically told brothers, I'm sorry, but as gender economics, which is to basically point out that there are salient differences between how women and men participate in the labor force, what they get paid, why they get paid differently, the importance of family and child rearing, which is has an impact on women. And it's hugely important because for multiple reasons besides the fact that we all want to live in a society where you get rewarded for your skills and talents at a fair level. We're in a situation where worldwide fertility rates have come down and you cannot fix that problem without recognizing. Right. That it is tied to how women engage with the labor force and what it takes. And if by having a child you are restricted and that impedes you because you get very little support from your partner to be able to engage in the in in work, you know, the incentives to do that get damp. And so, you know, it's the her contributions have been tremendous. And Tom, I think we have to keep in mind that for a long time it was not cool to be working on, you know, gender issues. But I see a lot of times when when Claudia was much younger at that time, as an economist, you wanted to be working on monetary policy, macro policy. Those were the big topics to focus on. So for Claudia to go against wind and say, No, I'm actually going to work about gender and women in the workplace, right? That was a huge, you know, stepping out of line. And kudos to her for that.
One quick question, getting over that. We got to go with the rain in the news. But I have to ask, are you letting your students use AI? Is I a constructive tool in the classroom? Yes. Right now I'm teaching a class to Ph.D. students, and I think they should absolutely use A.I. in a particular way. But at the same time, I want to make sure that they're also developing their own cognitive skills. I think the risk is that we're going to outsource everything to a smarter, smarter friend and in the end not learn anything. So we have to strike the balance, right?