The Intelligence Squared Economic Outlook with Martin Wolf (Part 1)
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Welcome to Intelligence Squared, where great minds meet. I'm head of programming, Conor Boyle. Today's episode is part one of our recent live event in London's Smith Square Hall with Martin Wolfe.

It was the first event of 2025 for our Intelligence Squared Economic Outlook series in partnership with Guinness Global Investors. Wolf was joined in conversation by journalist and broadcaster Johnny Diamond to discuss issues ranging from Trump's tariffs, DeepSeek versus ChatGPT, and the UK's prospects for economic growth in the coming year.

If you're an Intelligence Squared member, you can get access to the full conversation right now. Just go to intelligencesquared.com slash membership to subscribe. Now let's go to the episode.

Thank you. Thank you very much and good evening and welcome to this Intelligence Squared Economic Outlook in partnership with Guinness Global Investors. I'm Jonny Diamond and I'm delighted to introduce our guest tonight. It is of course Martin Wolf. If you were expecting someone else, you've come to the wrong venue. But Martin is of course the Chief Economics Commentator at the Financial Times.

In 2000, he was awarded the CBE for services to financial journalism. In 2019, he won the Lifetime Achievement Award at the Gerald Loeb Awards. And his books include The Shifts and the Shocks, Why Globalization Works, and most recently, The Crisis of Democratic Capitalism. And I can recommend the latter in particular, not just for

the sort of pungency of the ideas, but for the beautiful writing within as well. Thank you again for joining us. It's a real pleasure to be doing this first Economic Outlook of the year. Let us start with the global economy, such as anything can be described as one economy in 2025. How do you feel feels a little vague, but let's start with that, Martin. Well,

This is roughly where we are. The world economy, if you look at latest forecasts, it's implausible, is going to grow somewhat north of 3%. I'll come to that. As you'd expect, and has been true really for most of the last 30 years, the fastest growth will be in Asia, but considerably slower than it used to be.

That's one of the reasons growth has slowed it now expected to be a little north of 3% And when it was really going was about 3.7 3.8 and a lot of that was because Asia was growing about 5 6 percent a year and it's now probably closer in all to about 4 the biggest reason for that of course by far slowdown in China which is sort of the great big fact about global growth is

though it's still growing faster than the developed world. In the developed world, unless something very big happens, we can expect, I think, US growth at 2% or a little bit more, and Europe as a whole around half of that and probably, possibly a little bit less.

There are profound demographic and other forces explaining some of these differences and catch up opportunities. Now, that is what happens if, as it were, nothing tremendously shocking happens. And in the last five, six years, and certainly more the last 15 years, we've had a pretty regular dose of big shocks. And the biggest of these, of course, being financial crisis, the pandemic and energy shocks.

A very big question is whether Donald Trump's arrival on the scene for the second time and the trade wars he's clearly sort of starting will be big enough to be a significant global macroeconomic shock, something that you can really notice.

And the point I would make there is it has to be pretty big. It has to be rather more, considerably more than he's done so far, including his announcements of steel and aluminum tariffs today, his 10% tariffs on China, a long way from the 60% we were expecting, but we may still get there. At the moment, this looks to me more irritant than

major factor

But of course if we move into an environment and to the last point in which Uncertainty associated with what the hell is he going to do next? So that's really affecting business decision making and particularly investment then we are in a different world But that's definitely not in my view where we are Now but this is a point you have made before isn't it that the threat of tariffs?

affects predictability and therefore investment decisions? These are, I think, more important in the medium to long run. To the business processes, information like this, unless it's a sort of a huge disaster, quite slowly, there are a lot of investment projects which are going underway. A lot, most of the, actually most of the investment done by significant business this year has already been decided.

It will affect next year and the year after and the year after. It's a long-run effect if there's wildly increasing uncertainty. It depends a lot on how policymakers respond, what the reactions are. And of course, it is possible that some of these events can trigger

Other related shocks, financial sector shocks, stocks are very expensive in the United States by historic standards. That's become the overwhelming dominant market. If people start getting really nervous about the valuations, that could affect things. That could affect financial conditions.

In total, if you take the whole world, we have the highest ratios of debt to global GDP probably in history, public and private. These are fragilities. And of course, if we get further significant wars, which affect the energy sector particularly, since Helen's going to talk to you here, that's very much her field. Well, we know that big energy shocks can have rather big consequences.

So, these are all... So, if you look at the latest IMF, which I've been looking at, because I'm preparing myself, the IMF economic update, its view is the basic view I gave. But, of course, it then says in a typically IMF way that the risk...

are weighted to the downside. And my comment on that, which I don't know whether I used this year, last year, but it's one of my favorite comments, "Economies don't crash upwards." So if we're going to get unpleasant surprises, they're going to be downwards. And this is a fragile world in which politics are unstable. There are significant wars

still around and there's the potential for a really major head-on clash between China and the US if it gets out of hand. So we have to be aware that there are lots of risks and businesses have to look at that and if they all decide together, we can't really cope with this, we really better shut up shop, then the economy shuts up shop. Can we talk about the impact of tariffs on individual economies? There was an estimate that

had the full set of Canadian tariffs, which was 25% on all Canadian exports into the US, had they been gone into place, it could have taken 4% off Canada's GDP, off its national output. What about the impact on the UK? It is said to be slightly less exposed because of its trading conditions with the US. It would be much less exposed.

For Canada, the US is overwhelmingly its dominant trading partner and it has quite a high trade ratio because it's a medium-sized economy. So the impact on for us on

We don't have no trading partner as big as Canada is to the as the US is to Canada Our biggest trading part of by quite a long way still is Europe So if we get into to a trade war with your really trade war in Europe, that would be quite disruptive the you if export I actually looked at detailed figures, but I think even if we lost all of US trade exports

which I think is very, very unlikely. I'd be very surprised it would exceed 1% of GDP as an impact effect. This is what they're looking at.

Of course, the effect on confidence could be much more profound because, I mean, this is where it gets into the domestic economy. A lot of what the UK does and is, both in terms of its sense of security and domestic activity like the financial sector,

You know, the US is absolutely inside our financial sector. The dominant players in London are American businesses. And so if we're in a situation in which the US goes for prohibitive tariffs on UK exports, suddenly we find that actually our closest ally and the country on which we've been essentially dependent since 1941.

the Second World War, is now seriously an enemy of ours, because that's what it would indicate, then I would expect that the more general effect, and this is a guess, on British confidence in the future and British confidence on activities of this kind, would come into question. If Trump is prepared to do this, he's going to start imposing sanctions on British financial businesses, on American financial businesses operating in Britain.

If the US really starts throwing its weight around in that way, let me stress I'm not forecasting that even with him, it would be very, very difficult for Britain, unquestionably so, and it would have geopolitical consequences of the first order for us, and we'd have to start reconsidering the whole position we have in the world.

I'm just telling you, the direct effects will be manageable, unpleasant but manageable. All the indirect effects, if it becomes part of a real breakdown of relations between America and Britain, that becomes something else altogether and really difficult to predict. What of the other changes that might occur to the US economy as a result of President Trump's administration? And here I'm thinking, I suppose, of deregulation.

and also this sort of emphasis that there is on cryptocurrencies and possible further deregulation of cryptocurrencies as well. Do you see an impact there? Well, I think let's put this in the slightly broader context than Jusso's thing. This is a profoundly radical administration.

which is transforming the governance of the US and I think we will discover over time that it is changing the constitutional mechanisms of the United States in quite profound way including the way the rule of law works and possibly electoral processes. So this is I think quite profound but if we look at

That could have ramifications well into the future if we look at the economic Aspects that are interesting. I think they fall into the following obviously the trade policies and the international economic policies more broadly for the u.s. You know the u.s. Is a fortress it's self-sufficient in most things that matter and energy for example

its trade ratio is relatively low. So if there's going to be trade wars, it will come out of it better than in any other country in the West. And I think would say better than any other country. So it's not these things that matter so much relatively. If it's going to destroy itself, it'll be doing more damage to the rest of the world, as it were, or in lots of ways. But what I think many people are worried about is

They're going to re-confirm and probably increase the Trump tax cuts of his first term, which are coming up for renewal. It looks as though, I think it's as certain as anything could be, in the end they won't cut spending enough to stabilize the fiscal position.

If that happens, the budget deficit, which is the federal budget deficit, which is already round about a little bit over 6% of GDP could go over the medium term to 7 or 8. This is an economy with full employment.

On that sort of trajectory, according to the Congressional Budget Office, the debt, public debt ratio, the federal debt ratio to GDP can go move up to 130, 140, 150 percent. It's astonishing in peacetime. So there will be an enormously powerful fiscal trajectory.

If Trump, in addition, does manage to remove millions and millions of workers in an economy which is close to full employment, the combination of these demand pressures with supply contraction because of this would be inflationary.

And many people have written a lot about this, many American economists. So what would they do if inflation started to rise? Which would affect the Fed will then start thinking about raising rates. It's clear that Donald Trump will get very, very upset about this. So he's going to try very hard to stop them.

But assuming he doesn't and indeed even if he doesn't bond yields will start rising quite considerably Because and that will affect the stock market which he cares about What does Donald Trump do then? Nobody knows I think Scott Besant who's clearly one of the few relatively Orthodox people in the administration will try to avoid that sort of crisis emerging but at the moment it's not clear how and

So we could imagine, I think I touched on the opening statement, a situation, not necessarily this year, could be next year, could be even later, in which macroeconomic instability, macro stability becomes seriously questioned in markets in relationship to the US and

The combination of events that I've just described, I was sort of what happened in the US in the early 70s and it's what led up to the decade of inflation and the Volcker crisis in the early 80s. There are a few of us, a few economists who think that sort of thing might return.

because Donald Trump will be operating under constraints that he by in temperament won't want to recognize. At the same time, he hates weak stock markets and it's the world I've just described with rising interest rates possibly tied to Fed policy in the context of this huge fiscal deficits.

is going to create real mayhem in markets in all likelihood. Those are relatively plausible risks in the near term, by which I mean not this year necessarily, but the next two or three. And markets are always looking ahead. So if they think this is not going to be controlled, they might suddenly start

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Let's talk about a little bit of market mayhem that we had, what, a couple of weeks ago. And this was after the Chinese AI chatbot or assistant DeepSeek was revealed to have cost significantly less, a minuscule amount compared to the AI investments made in America. It suggested that China had made an enormous leap ahead in artificial intelligence. What did you make of it?

And do you buy the idea that China has managed to catch up with the US? Well, I'm very, very careful, or at least as careful as a journalist can be, not to claim knowledge I don't have. Fair enough. And anything I think about AI is derivative knowledge.

Derivative, derivative. I mean, I have the advantage of having, and I wrote about this recently, having talked to some quite knowledgeable people, but it's entirely derivative. I have to admit, I'm somebody who's in favor of competition.

I was very pleased to see some Chinese competition. If it's true that they found a way, and experts seem to think it's plausible, that to do the same sort of thing as the large language models which were so expensive and far more cheaply, it seems to be a good thing.

And maybe the Americans will work out how they did it and imitate it. It doesn't seem to me at all implausible, but it has told us that the processes which this particular set of technological revolutions, we're at a very early stage, and there's a lot more, I think, excitement to come. And that's crucial. Now, in terms of the market effect, well, the stock market response is

in times of driving up the so-called Magnificent Seven in the US was a classic euphoric boom and

was based on the assumption that you can basically project things forward exponentially and these companies particularly Nvidia will be sort of infinitely valuable. Well what this shows you is extrapolation of that kind is often very dangerous. It's happened before think of the dot-com bubble in the late 90s. So it was different in many ways and this may have happened again and we'll get over it. But it might mean that some of the

euphoria about the tech sector in the US was exaggerated, but it may also mean it all end up much cheaper and much less energy intensive than we thought and that seems to be unambiguously a good thing. Let's come closer to home if we could with the UK economy.

When we spoke last year, you said of the political parties and their financial plans, they should just tear them up because they were a fantasy. You were, of course, completely right. They were effectively torn up with the tax rises that the Labour government brought in. Do you think that a larger state, higher spending, higher taxes will work? Well, I

I think it will probably work better than trying to have the same high spending and far lower taxes. I don't think the UK, I've been having debates with somebody online recently, I don't think the UK is in a position to run American scale fiscal deficits close to full employment. We can discuss how close it is. If the UK had a

fiscal deficit of 6% of GDP, it would terrify me and it would certainly terrify the Treasury. And I think they will be right. Monetizing it from the Bank of England, by the Bank of England, we'll be mad and the interest rates will be unspeakable, I think. So, I mean, we don't can discuss that. So I think if we're going to spend at this level,

we're going to have to tax at this level. So there are two questions that that raises. Can we cut spending significantly and how? Well, this government is not going to. It was never likely and the previous government, interestingly, never did either. And it would certainly be very, very difficult. I'm not saying that there aren't things we could... And there are some areas where we clearly have to spend more above all investment. They were right about that. I mean, public investment has been ludicrously low since the crisis.

So if we are going to invest and spend more, we can perhaps borrow a little more, somewhat more, if it's plausible that our investment is really growth creating, which they clearly haven't persuaded anybody of and they haven't persuaded me. And then the only alternative, if we're not going to be able to cut spending radically and we still want to do the investment,

would have been to raise different taxes. And there's no doubt in my mind that, and I've written this in the last year so often it bores me witless, which is that by meticulously ruling out, because of the nature of the political debate in our country, all the sensible ways of raising revenue... Income tax, corporation tax... Income tax, corporation tax is already quite high, but income tax...

council tax, property taxes, which are fantastically low on relatively valuable properties. Anything that... Sales tax, therefore the exemptions. Taxing employers' contributions, which is a straight employment tax, was bound to create the effects it has, which it will be bad for employment, and it will be

very bad for corporate confidence because it will bash them directly whatever the ultimate incidence is and it was foreseeable that that would happen and it has I think pretty clearly depressed confidence not that it was very strong anyway and they would have been far better in my view to have said when they came in "Oops! We didn't realize how bad things were!"

It's all the fault of the previous government and since that's the case we have considered we must look at all tax options and consider which are the least costly and the beautiful advantage of income tax it also taxes retired people and who cares what happens to them because they're not contributing to the economy. Are you more or less confident

about the British economy now than you were a year ago? I think my position on the British economy has not changed. I think it's been reasonably clear since, well it took a few years to realise, so since the late teens, that we have a very big structural growth problem.

and which is showing up in appalling productivity growth over a very long period. And therefore, since we're also an aging society, very low growth in GDP per head. So I just looked at these figures recently. If you take the trend growth of GDP per head in the UK between 2008 and 2023, it's 0.7%.

and that's certainly the lowest for 100 years. And I can't see anything obvious that will change that radically. We continue to have the lowest rate of net investment

So after depreciation in our economy of any significant economy, it's actually very mildly negative. We have very low savings rates. So if we invest much more, we're clearly going to have to end up with an increased current account deficit, increased draft on foreign savings. That means also a lot of the income that was generated will go abroad. So I'm afraid I try to be realistic. That's my job. That this seems to me

to become pretty obvious and structural. It wasn't just about austerity, though that I think worsened the trends.

We're not unique in this regard. There are other economies, particularly in Europe, which aren't so different. Italy has been considerably worse, at least until recently. But I don't see anything obvious to my mind that is going on in our country in terms of the economy or policy which would break those trends. And a crucial point here, and I've made this in a very recent column,

It is pretty obvious. I think any business person here will agree if you've had very low growth for a long time and You're a business that wants to survive and your main orientation It's to the British economy and most British businesses though many of trading do orient themselves Then they have to say to themselves. Well, how fast is our market going to grow here? And

Well, if our market is going to grow, I mean the aggregate, every business is different, but the aggregate market is going to grow at 1% a year or so, then they should invest sensibly enough to serve a market that's growing at that rate. So that means slow growth becomes a self-fulfilling prophecy. And business is behaving as if it thought that, and that means that if you want

People to invest on the assumption that that's not true You must either make it clear to them there are opportunities in the world that are huge that they can go and exploit now Not immediately obviously what they would do going back into the EU I'd argue might make a bit of a difference The trade wars are clearly not going to encourage you so that doesn't sound like something that's very plausible

Or you've got to convince them that suddenly we've got some magic cure which is going to generate 2 or 3% growth in the economy. That would change it. The British government has absolutely no idea how to generate a shift in confidence at that scale. And it was pretty clear from the predecessor that they didn't either. And it's not really obvious what it would be. So I think we are in a growth trap.

because it's just gone on for so long and nobody knows how to change it. As I said, this is not different really from France, from Germany. Germany is more complicated because it's got the separate structural problems. There has to be a really big confidence jolt and it's not clear to me where that would come from.

How concerned are you about what you might call the democratic contract, which is that the pie grows year by year, people feel better off and therefore they are tolerably happy with the state they're in? Well, I'm usually, that's a core part of my book. So in trying to explain why democracy took off in liberal economies,

I argue, none of this is original, it's pretty obvious, but one of the things that happened is in the course of the 19th century here and later elsewhere, we moved into what you might call positive sum economies. That is to say, real GDP per head was growing fast enough that it became noticeable over a generation and it gave the possibility

partly within the economy and partly in political decisions, for everybody to have a plausible expectation that they would get better off. And that made, obviously, politics much easier because you could promise more to some people without actually making very large groups absolutely worse off. Now once you move into an economy where the growth rate

is as slow as this and the labor force is actually growing slower than the population too, the productivity growth is slow and the labor force is growing more slowly than the population. I won't go into what we can do about postponing retirement and all the rest, they're all very important questions. Then politics starts becoming pretty zero sum.

And in our country, it's pretty obvious for reasons to do with the way housing markets, things like that, that a lot of the victims who are not enjoying what they thought their parents did, for example, are younger people. So we've got an awful lot of disillusioned people

in their 20s and 30s. I think that shows up in many different ways, family formation and so forth, fertility and so forth. And, well, if you start depressing young people, younger people, they're all young relative to me, they start getting completely disillusioned with politics. And we've seen this in America too. Basically, a lot of polls, I've been looking at them, show that quite a large part of the younger generation, broadly defined,

don't think democracy works and would quite like to have a strong man who'll sort it all out. Or what you or I would call a dictator. Now, I think in Britain it's not

gone as far as America, thank heavens, but that's why Donald Trump is there. He's not going to do anything to solve any of this, by the way. That comes back to your deregulation and the risks. I discussed a bit the financial risks. But I think the political ramifications of prolonged economic stagnation are very profound. And this is, it's not complete stagnation, but relatively growth that is imperceptible.

And that makes distribution difficult. And so much of the redistribution has occurred essentially through our property market because asset prices for a whole host of reasons have gone through the roof.

And that's partly inevitable and partly a result of policy planning restrictions. The government is right on this. And the result is clearly we have a very large proportion of the population who feel very, very profoundly disillusioned for that reason. And then there's one other element which I've discussed, which is much longer term and has been important here in the US, which is deindustrialization.

So these are profound shifts in our economy which have had large effects on

specific, relatively specific groups, people trying to get on the housing ladder, trying to cope with the housing market, people who used to hope that they would have really good stable jobs even though they didn't have university education or whatever it might be. University graduates are getting jobs far worse than they might reasonably have hoped for 20 or 30 years. We've got a lot of disappointed people all over the West.

in the US they've I think this is a big chunk of what driven Trump I think it's a big part of what drove our brexit and things like that and I don't feel looking at the polls at the moment that we're seeing the slightest sign of people calming down and though my wife tells me I'm a hysteric I tend to think the next prime minister this country will be Nigel Farage on that note I

Let's get your questions if we can. I've got some lovely questions coming in. This is not a recommendation. Just hang on one second. Hang on one second. We've got some great questions coming in online. Thank you very much for those. I'm going to take some questions from the audience first. There's a very keen gentleman here. And then afterwards, I can see a hand up on this side as well. Thank you very much. Yes.

Martin, my question is, I'm very disappointed that the government are destroying the farming industry, that the tractors for the second time have had to drive their tractors into London to try to prevent the government from taxing them and making them sell their farms and destroying the farms. Do you think, the question is, do you think the government are right to destroy the farms to get additional tax? Okay, thank you. And then... Hi.

Hi. Martin, if there was one economic lever that you could pull that would possibly stimulate economic growth, which one would it be? Thank you. Right. Let's take the farmers first and then the economic lever. I'm going to... I feel that I should make myself really, really unpopular. So it seems to me... I will ask a question. We can discuss it later.

I think it's perfectly clear that taxing the working asset of a farm in inheritance tax will trigger the disposal of this land, or is likely to trigger the disposal of this land. It will therefore make the farming family considerably poorer and the children will find it very difficult to continue as farmers.

That seems to me correct. And if that's really important, then we shouldn't do it. But I don't really understand why that's the end of farming.

because the land will still be there the land will be sold and somebody can buy it and farm it so you have to convince me that the continuity of farming families generation after generation after generation is enormously much more productive than the alternative of land being sold and bought and i'm not

I'm just not convinced that that's necessarily the case. There is a question, a broader question of whether you want inheritance tax to force family businesses to be wound up. I don't think that's just a farming question. It's a broader question because it will apply to small family businesses of all kinds.

I think it would be perfectly reasonable for us to make the decision that we don't want family businesses to be destroyed by inheritance tax and therefore they should in some way be exempt. And since the tax raised by this is pretty trivial, I would have no huge problems by making farming exempt. But I'm not persuaded that this is the end of farming per se. So that's basically my answer to that one.

Thanks for listening to Intelligence Squared. This episode was produced by myself, Conor Boyle, with production and editing by Mark Roberts.