Deep Dive
Shownotes Transcript
This BBC podcast is supported by ads outside the UK.
Toyota is the best resale value brand for 2025, according to kellybluebookskbb.com. And with a wide range of dependable vehicles for any lifestyle, you can get everything you need in a vehicle today while investing in tomorrow. So choose Toyota and choose value. Shop by at toyota.com for great deals and more. Vehicles projected resale value is specific to the 2025 model year. For more information, visit kellybluebookskbb.com. Kelly Blue Book is a registered trademark of Kelly Blue Book Co. Inc.
Toyota, let's go places.
Visit Safeway.com for more details.
Hello and welcome to World Business Report from the BBC World Service. I'm Leanna Byrne and on this edition we get the latest on oil prices. We also go to Denmark where military drones are big business at Europe's biggest flying tech show. Namibia is also rolling out the red carpet for investment. But first let's start with how do you solve a problem like problem?
Well, that's the question a lot of central banks around the world are grappling with. And we've seen a flurry of decisions this week on interest rates. Switzerland and Norway both cut their interest rates today. The Bank of England and the United Kingdom held steady. And the U.S. Federal Reserve said it's still planning cuts this year, but don't get too attached to the forecast. Here's the U.S. Federal Reserve Chair Jay Powell setting out the risks he sees for the world's largest economy.
Changes to trade, immigration, fiscal, and regulatory policies continue to evolve, and their effects on the economy remain uncertain. The effects of tariffs will depend, among other things, on their ultimate level. Expectations of that level, and thus of the related economic effects, reached a peak in April and have since declined. Even so, increases in tariffs this year...
are likely to push up prices and weigh on economic activity. Now, this is such a common theme, uncertainty facing the economy. That led to the Bank of England holding rates at 4.25%. Deputy Governor-Chair Claire Lombardi has told the BBC just now. And just in case I've already lost you, now, interest rates are basically the cost of borrowing money...
or the rate of saving. So, for example, if you take out a loan, the interest rate is the percentage you pay extra for borrowing that money. And central banks, they use interest rates to try to control consumer demand and economy and therefore controlling the prices. Now, somebody who knows a lot more about interest rates is Susanna Streeter, Head of Money and Markets at Hargreaves Lansdowne. Hello.
Hello there. Thanks for joining us. Now, obviously, as I said, we've had a few decisions on interest rates, not just today, but also yesterday from the Fed and Sweden and then earlier this month and last month. So were there any surprises for you, Susanna?
Certainly wasn't really a surprise that the Bank of England and the Fed kept interest rates on hold. They're in a bit of a stalemate, growth seizing up in the UK, but inflation staying stubbornly sticky. Also, the US trade deals have cleared some economic clouds, but then conflict in the Middle East threatens further turmoil. That's why you saw policymakers sit on their hands, decide to do nothing, certainly as far as the Fed and the Bank of England are concerned.
The decision by Norway's central bank did come as more of a surprise. They opted to reduce interest rates. And that was even though there's pretty strong economic growth. But
But they're looking further down the line and they think that there are more deflationary pressures coming into the economy. Now, that was also flagged by the Bank of England governor today. But the problem is right now, they're just uncertain. Wage growth still in the United Kingdom remains pretty stubbornly high. And there is all of this clouded picture when it comes to energy prices, because we've seen the price of oil shoot up dramatically.
because of conflict in the Middle East. It's really interesting, isn't it, how you've got so many different central banks coming to different decisions. So either, you know, they're putting up rates, they're holding, or they're actually lowering them, which again, you know, Switzerland and Norway did that and completely surprised markets with those rate cuts. How do they, you know, why is there that divide? Well, it comes also down to not just the
swirling around the global economy, but individual factors within countries. So, for example, in the United Kingdom, wage growth still remains high. In Switzerland, for example, where there was that rate cut, that's because actually deflation has taken hold. So prices are falling. So it's a very different situation. And that's why they're deploying different strategies to try to
to bring inflation to that sweet spot of around 2% to help keep economies purring on. And certainly by reducing, as Switzerland's banks done, interest rates to zero, the aim is to encourage people
people not to keep their money in the bank, companies, consumers, but to spend more and then stimulate the economy and lead to that sweet spot of inflation. So essentially, all these central banks are all saying, listen, we're facing uncertainty and that uncertainty is being driven by global trade tensions, especially with the tariffs being reintroduced or expanded. I mean, that story is always changing, isn't it, Susanna? But...
But at the end of the day, those central banks, they're dealing with it quite differently just depending on their domestic picture. Yeah, they have to take the domestic pressures seriously.
in mind, as well as what's happening in terms of the global outlook. And we know as far as the global outlook is concerned, that growth is expected to slow marketly because of this trading situation and the tariffs being imposed by the United States. And so, because of that, the direction for rates in many countries is still downwards. It's just different
central banks are at different speeds when it comes to their policy. Now, Susanna, when we spoke about interest rates maybe a couple of years ago, we always spoke about it in terms of inflation. But it seems like inflation isn't the villain, well, the main villain maybe in the story anymore. Or is it kind of just hiding under the surface and just kind of popping up in different ways? Right.
There is still this concern about stagflation taking hold in economies where you do have stubborn inflation and stagnating economic growth. Now, we're not there yet, for example, in the United States, but growth is expected to slow quite markedly this year. And meanwhile, inflation, even though it came in at the last reading a little bit softer than expected, still relatively sticky, stickier in the United Kingdom. So, at the same time, you're seeing sluggish growth. And this –
poses problems because usually the whole idea is that if you reduce interest rates, that should kickstart economic growth. That is the hope. But of course, at the same time, it could mean that those price pressures remain in the economy and that's not helping as far as inflation is concerned and getting it to that sweet spot. So that's why you are having this attitude by the Fed and the Bank of England to look
to do nothing right now, to press pause and assess the economic situation both at home and abroad before making a further decision to cut rates. And of course, when the Fed is being cautious, that really has ripple effects globally, doesn't it? Because the US, of course, is the biggest economy in the world.
Yes, it has repercussions globally, not least when it comes to government bond yields, because what happens when the Fed decides to keep interest rates at that higher level? Well, that has an impact on the Treasury yields and then lots of other yields of other government debt around the world that often moves in tandem. So despite what may be happening in individual economies, it can still be influenced by
by what's happening in the United States. And so if US borrowing costs remain high, that can also make other countries' borrowing costs high. It doesn't always happen, but that is a bit of a pattern to be aware of. So the Fed does have a lot of influence over the wider global economy. Now, Susanna, here's my last question for you before I let you take a little break. But do you think we're nearing the end of that global rate-cutting cycle? Or could this week just mark the start of a new round of easing?
I do think that we do have more easing to come. The Bank of England, for example, expected to cut rates twice before the end of the year, even though it pressed pause today. The Fed's also expected to start cutting rates again towards the autumn. So, certainly, we've got some way to go because remember rates, you know, they were ramped up during that pent-up demand after the pandemic and the price increases which were sparked by
And we're still at that higher level for some economies, even though others, as we've heard today, of course, Switzerland really have brought rates down quite dramatically. OK, Susanna Streeter, don't go anywhere. We will come back to you. But, you know, if unpredictable interest rates weren't enough for global businesses to navigate, throw in some tariffs, some trade spats and choked up supply chains, you've got a
pretty turbulent landscape. And that's the backdrop where business leaders, ministers and entrepreneurs from across the Commonwealth are gathering in Namibia and Southern Africa for the first ever Commonwealth Business Summit on African soil. So let's speak to someone at
the heart of Namibia's financial system, Tian Bazun, CEO of the Namibia Securities Exchange, which just rebranded earlier this year. I believe it's perfect timing considering the oil and gas narrative that is only starting now. There's a lot of interest in Namibia at this stage.
And this type of event brings together a lot of thought leaders and people that can take that narrative back home. I think the level of investments will rise significantly in the next couple of years. So it's perfect timing. These meetings, of course, they're happening against...
a backdrop of rising global tariffs, especially following President Trump's latest threats on Chinese and EU imports. So what kind of ripple effects do you see for Namibia and African trade more broadly in that context?
I think it highlights the need for Africans to trade more with each other because a tariff being levied in America actually creates an opportunity for the rest of the world to pick up what might be left on the table when those products are no longer going to go to America because they become unaffordable. Hmm.
So I think there's generally an opportunity for the rest to work well together while the Americans seem to be isolating themselves. Now, there is this kind of two trillion intra Commonwealth trade target that's set for 2030. Do you think that's realistic?
The number is difficult to determine. I certainly think there's an opportunity for it. If I look at the opportunities that arise in Namibia, I think these types of events can really harmonize the processes and make it easier for investment. And if we can break down some of those barriers, instead of putting up tariffs, taking them away, I think we can create a wider market for the Commonwealth countries in working together and doing more. What about the current health of Namibia's economy?
So what are the bright spots and what is worrying you, particularly in the context of global tariffs, just struggling economies around the world as well? So like I said, the Namibian side, there's a light at the end of the tunnel in terms of what might be coming to fruition through the oil and gas discoveries that we have. So I think it's important from a regulatory perspective that we make Namibia as investment friendly as possible.
while then obviously working with our existing partners, such as the Commonwealth, to open up the opportunity and get the necessary investment. I know you wanted to be investment friendly. However, Namibia's stock exchange has been slightly volatile lately, hasn't it?
Well, stock exchanges are always volatile. It's Namibia Securities Exchange. We just rebranded. We've also opened up our bond trading system to allow for on-market trading. We've seen a large pickup in bond international appetite. So that's probably a very positive lookout on the broader investment cycle as well. We need more local Namibian companies to come to market to give depth to the market and give more opportunity
to actually trade between those companies. But we've also fast-tracked our dual listing or secondary listing process to make it easier for international companies to make their shares available to the Namibian market. Yeah, it's interesting because actually dual-listed South African firms, they make up most of the NSX and there's only a handful of Namibian businesses on the exchange. So why is that and what needs to change to get more locally homegrown companies to list there? Yeah.
So realistically, coming out of our colonial past and having been administered by South Africa for so long, the South African market is very dominant in our economy. So obviously, a lot of those companies that are listed in Johannesburg are active here and they've made their shares available through the dual listing, as well as then in the mining sector. We have a lot of companies from Australia and from Toronto that also dual list in the same way. So truly Namibian owned companies.
The larger corporates are few and far between. We'd like to see more of them come to market, obviously. But yes, the deepening and diversification, you want both legs to actually be active. So we don't shy away from the dual listings. And we have them from all over the world, which actually shows that the system works quite well. That was Tian Pazun, CEO of the Namibia Securities Exchange. And you're with World Business Report from the BBC World Series.
Toyota is the best resale value brand for 2025, according to kellybluebookskbb.com. And with a wide range of dependable vehicles for any lifestyle, you can get everything you need in a vehicle today while investing in tomorrow. So choose Toyota and choose value. Shop via toyota.com for great deals and more. Vehicles projected resale value is specific to the 2025 model year. For more information, visit kellybluebookskbb.com. Kelly Blue Book is a registered trademark of Kelly Blue Book Co. Inc.
Toyota, let's go places. We get it. There are too many car insurance companies trying to convince you that they have the best car insurance rates. We don't think we need to convince you. We're rude, and we do car insurance differently. We don't think it makes sense to only base your car insurance rate on things that have nothing to do with your driving, like your occupation or education.
When you take the test drive using the Route app, we price your car insurance rate primarily on how you drive. It's that easy. Just download the Route app, drive around like you normally would for a couple of weeks, and get a quote based primarily on how you actually drive.
Good drivers could save up to $900 a year when they switch to Root. We're taking an old industry and making it fair. Root Insurance, because better drivers deserve better rates. Download the app today and see how much you could save. Terms and conditions apply, subject to underwriting review. See Root.com for details.
Now, Chanel Dior. For years, luxury brands like these seemed untouchable. But shares in luxury giant LVMH, the owner of brands like Moet Champagne and Louis Vuitton, have slumped by more than a third over the past year. That's wiped out hundreds of billions of dollars from its valuation. And also Swiss watches. Exports fell by almost 10%.
percent in May, led by a fall in the luxury goods to American buyers. So what is going on in the luxury world? With me is Yelena Sokolova, Senior Equity Analyst at Morningstar, who specialises in tracking this sector. Yelena, thanks for joining us. Thank you. So what do you think? Is this just a blip or is it something bigger?
Yeah, so to put things in kind of historical perspective, luxury is quite a long-term growing sector, but it's also a cyclical sector. So we have seen cyclical downturns before in, say, 2015, 2009, of course, and early COVID. So what we're seeing now is that there has been a pullback in 24, and now the weakness is continuing, but I still see it more of a cyclical downturn.
than a structural issue. And something to bear in mind that the comparison base is extremely difficult with a very strong growth post-pandemic that has been driven by all sorts of not really recurring tailwinds, like, for instance, excess savings because people couldn't travel and they just splurged on goods, especially in North America and Europe.
So now that demand is actually being scaled back with especially the cost of living crisis to much more normalized levels. Then the demand in China never really picked up to post-pandemic levels. And here those consumers also had savings from COVID. They still have them. But the sentiment is not good because the real estate prices are weak and they are weighing on the sentiment here. And
And finally, part of the problem of the sector is also self-inflicted because luxury players have been very aggressive with price increases in the post-pandemic years. So that makes some of these goods unaffordable, especially for aspirational consumers now. Yeah, there's a lot going on. And we talk a lot about the trade war between the U.S. and China and the U.S. and, you know, a lot of the tariffs that are coming down the line. I presume this is going to, that's affecting the sector as well.
Yeah, I think there is kind of the indirect effect of tariffs could be much bigger than the direct effect. So direct effect, I mean, these companies have pretty strong historical pricing power and very high profitability on the gross margin side.
And also the luxury consumer is a super global consumer. So Americans could easily go to Europe and spend more in Europe if the tariffs get passed on. However, the side effect of tariffs could be lower economic growth.
and lower stock market performance that could weigh negatively on new wealth creation and also on luxury consumer sentiment. The really interesting thing that I've come across is that secondhand luxury seems to really be thriving. Is that because people don't trust the quality of luxury items that are made today? I see a lot of that on social media, that discussion happening.
Yeah, so secondhand has been quite a booming market for some categories. It's more kind of booming than for others. So for watches, notably secondhand has been a very strongly growing category in the past. I think one thing, of course, is also the price differential because the companies have increased the prices so much. That means that
that consumers who are selling luxury, they could have made money on their initial purchase and now they're selling it still below the retail price, which makes it attractive proposition. I think that is a driving part of the appeal of this market. Well, Jelena, if I had a Birkin bag, I wouldn't be sitting here today. So I'd be doing something else. I could sell that on. Susanna, you're still there. You don't have a Birkin bag, do you?
I'm sure you probably wouldn't be sitting here either. I'm quite a fan of the secondhand vintage market, certainly, rather than the brand new. And I think that is part of the issue as well, facing some of these luxury brands. We've got the growing might of the resale market. And of course, certainly these brands have been battling counterfeits as well over many years, the likes of Burberry really having to deal with that and certainly has managed to
turn a corner. I think the problems have been wealth perceptions in China sparked by the property crisis because, of course, China has been the powerhouse for global brands. If you look at Burberry, its share price has recovered after the turmoil wreaked in April amid the worst of the tariff fears. But it's still quite a struggle. But I do think that as China begins to, and is already doing that, forge new trading partnerships with other countries around the world,
And there's this big stimulus going on, which appears to be reaping some rewards. I think there's a bit more light at the end of the tunnel. Interesting stuff, definitely. Well, listen, maybe one of us will get a Birkin bag one day. Who knows? Who knows? Yelena Solokova, Senior Equity Analyst at Morningstar. Thank you so much. Susanna, I'm going to stick with you because...
I mean, we have been speaking a lot about oil this week. It's been up, it's been down. Well, it hasn't actually been down, but it's kind of been, you know, doing a bit of a whirlwind and it's up more than 12% since last Friday. So how is the oil prices? How's it looking today? Yeah.
Yeah, well, Brent crude oil futures, they're up more than 2% again to over $78 a barrel. That's the highest in five months. And of course, we've got these worsening tensions in the Middle East with Israel and Iran continuing to exchange oil.
missiles and this mounting speculation that the United States may join in the military action against Iran. And there is speculation that Tel Aviv has already hit Iran's nuclear capacity more heavily. Of course,
The real concern is that Iran could shut the Strait of Hormuz, through which around a fifth of global oil supplies flow. And that's why there's a lot of attention on the oil price. That hasn't happened yet. If it does, I think prices are likely to move higher. So there's a close watch.
on what's happening with oil prices because of course they feed through into overall energy prices, high prices at the pumps, feeding through to inflation. Okay, Susanna Streeter, Head of Marketing at Harbour's Lansdowne. At Markets rather, at Harbour's Lansdowne. Thank you so much for joining us. Now, from surveillance to combat, we think about drones. A lot of us no longer think about
toys or tools they're very big business and as global conflicts flare military budgets rise there's growing demand for high-tech defence drones. The International Drone Show is wrapping up today in Denmark where dozens of exhibitors have been showing off the latest tech and the BBC's Adrian Murray has been taking a look at what's on display. A few feet long very large fixed
wing drones that will fly long distances. And then there's also these sort of quadrocopters style ones that have mini propellers, sometimes four propellers, six propellers, eight, and they can take off and land vertically. So there's quite a few different systems. There's also companies here with radars and camera tech that would be on board these drone systems. And of course, the radars that are there to support
to counter these sorts of drone technologies. What are the big trends you're seeing? Is defence tech taking a centre stage, Shirley? You can see very clearly around 70% of all the exhibitors here now have technology that's geared towards defence and security purposes. And I've been looking into some of the forecasts and the global market for military drones itself is
worth about $24 billion this year. That's an estimate. And it's thought that that could double by 2032. Now, I'm told that a lot of companies are actually shifting their focus and they're positioning themselves from what were perhaps other purposes before to being able to also operate for the defence industry. And much of this is to do with where the money is being invested and a lot of it is going into defence.
Here's Keir Wachwitz, he's the CEO of Drone Industry Insights, which has carried out some recent analysis of the industry. Especially the commercial market is now struggling its fourth year in a row with declining venture capital. And on the other side, we see a huge demand on the military end of things, which means a lot of companies are refocusing from the commercial space to the military space.
So, Adrienne, the NATO summit, that's next week, isn't it? And with rising defence budgets across Europe, is that directly fuelling this drone boom? Yeah, that's what I'm told. I think it's really quite clear. Across Europe, we have been seeing countries committing to stepping up their defence spending, particularly from some of the
pressure from Donald Trump for NATO members to boost their contributions and play a bigger part. Now, here in Scandinavia, that's certainly been happening. Countries are also preparing themselves for worst-case scenarios. And at the same time, of course, sadly, the conflict in Ukraine has escalated.
completely rewritten modern warfare. And we're seeing drones being used on a daily basis in the battlefield. And, you know, they're less expensive than traditional high-tech hardware. And increasingly, they're being used across all sorts of jobs, whether that's surveillance, intelligence gathering, and also for combat. I mean, we've been talking about launching drones, but what about stopping them? Is there a counter drone industry growing as well? Yeah, that is growing as well, hand in hand. Perhaps it's playing a little bit of
catch it, but it is moving into this space. For example, I've seen a couple of companies here with radar systems which are designed to detect drones and it can actually distinguish whether it's a bird in the sky or whether it's a small drone or a large drone. And it's not just for military. There's also a demand for this for civilian purposes too, particularly for
critical infrastructure like airports, oil rigs and power stations. And even here in Scandinavia, over the last couple of years, we have seen instances of sabotage, of course, of gas pipelines and cables in the Baltic, but also
Cases of unidentified drones spying on harbours and energy infrastructure in this region. And just this week, danger authorities have also taken up forced sail drones. So these are drones, but waterborne vessels, and they'll be used to help monitor the
Baltic, both above the surface and below water amid these sort of growing concerns. Adrian Murray there. Now we have one more to go. South Korea's new cabinet has approved a plan by the president to hand out vouchers to all Koreans in an attempt to boost spending. My colleague David Kan has been following this in the last few months of political turmoil in the country here on World Business Report and he's here now. David, tell us about these vouchers.
So most of the Koreans will receive around $150 worth of cash equivalent vouchers. I say cash equivalent because it's not actually going to be cash. They want to make sure that the people actually spend it. So you can't put it in your bank. It's going to be in a voucher form, which can be loaded into your credit card that they have to use for the regional businesses.
The hope is that people will spend the money and the businesses will create the income and then they'll spend the money and hopefully come with a virtual cycle, as you might say. And the state of the economy, that was in the end why many people voted for the new president, wasn't it? Yes, of course. There's always the left wing and the right wing discussion. But the one that actually, the Li Jianming that actually won the election, he's of the liberal side. Usually they always, you know, they always emphasise the economic
stability of some description but they usually focus on the welfare but this time they really focus on the growth and that is largely because South Korea is looking to only have 0.8% growth this year which is the lowest ever so it's
So they're really trying to emphasize people to spend money and to grow it. But obviously there's a lot of criticism saying this is a populist movement. And, you know, are they just doing it? I mean, what stops them from actually going to do anything more than a temporary solution? And also when it's going to happen is also an issue because they're saying it could happen by July. Right.
But then Korea has Chuseok, which is in October, which is like an equivalent to Thanksgiving that has to happen later and so on. All right, David Kan, thank you so much. And that's all we have time for on World Business Report. I'm Liana Byrne. Thanks so much for tuning in.
We're celebrating 20 years of business and U.S. Bank have been there every step of the way from our minivans and now our 10,000 square foot location. I'm Michelle Marino. I'm Denise Cotter. We're co-owners of Houndstooth House. Houndstooth House is located in Sioux Falls, South Dakota.
We were told early on, surround yourself by people that you work well with. And U.S. Bank was a great partner. U.S. Bank is small enough to care and big enough to make a difference.