When it comes to analysing complex crises with economic objectivity, she is one of the most sought-after experts. Florence Pisani has been working at the asset manager Candriam for almost 25 years. Candriam is a subsidiary of New York Life Investment, the asset management arm of the US insurance giant New York Life Insurance Company. The Belgian bank Belfius holds a minority stake in Candriam.

Pisani has been Candriam’s chief economist since 2016. She has written several non-fiction books on topics such as sovereign debt, debt and economic crises, and the interplay between the real economy and the financial system. Her best-known work is likely to be «Global Imbalances and the Collapse of Globalised Finance», published in 2010, in which she and her predecessor, Anton Brender, sought to analyse the global financial crisis. finews met her in Zurich at Candriam Switzerland’s offices and was more interested in current events than in the events of 2008.

Ms Pisani, the war in Ukraine has lasted longer than the First World War, a fragile ceasefire prevails in the Middle East, energy prices remain quite high, and until recently the Strait of Hormuz was closed. Yet the global economy and the stock markets have remained largely unfazed by these numerous headwinds.

Yes, the global economy has proved to be quite resilient. It adapts smoothly to new developments as they arise. However, this resilience has come at a cost: many countries have tapped into their strategic oil reserves to alleviate supply bottlenecks. Demand has also fallen in response to the higher price. Furthermore, the higher oil price has fuelled inflation across the entire economy. Rebuilding production capacity and transport infrastructure in the Gulf region will take time, and oil inventories depleted during the disruption will also need to be replenished.

«Iran has been accustomed to sanctions for decades; special arrangements with China, India and Russia help to mitigate their impact.»

Why, in fact, is Iran so resilient? The country’s economy is in deep crisis, not only because of the sanctions, but also because it has now survived a war against two overwhelmingly powerful adversaries.

Iran has been accustomed to sanctions for decades; special arrangements with China, India and Russia help to mitigate their impact. Iran is a large country with long borders and has consistently found buyers for its oil. During the conflict, it was able to use the Strait of Hormuz as a lever. Donald Trump probably also underestimated the likelihood of Iran extending the war to the entire region. With this agreement, he is now seeking to limit the damage. Had the Strait of Hormuz remained blocked for any longer, this could have had serious economic consequences. And the Iranian government has a high «pain tolerance»; it is prepared to accept heavy casualties among its armed forces and its own population.

Following the agreement, yields on long-term government bonds have fallen slightly, but remain comparatively high. Is the rise in yields driven by a global trend, or is it more to do with country-specific factors?

Both. A good 20 years ago, Fed Chair Ben Bernanke – who took over from the recently deceased Alan Greenspan – coined the term «global savings glut», referring to the worldwide surplus of savings relative to limited investment opportunities. Today, the need for investment in artificial intelligence (AI) is once again much greater. Added to this are the vast sums with which countries intend to ‘boost’ their defence capabilities. Furthermore, countries such as the US are continuing to run up debt unabated. Investors have begun to wonder how long such high levels of debt are sustainable. Even in Japan, where there is a great deal of domestic savings, this is slowly becoming an issue. 

Isn’t it also healthy that, after the long period of low interest rates, we are seeing slightly higher returns again?

Yes, in the US we can partly view this as a normalisation of interest rates, because economic growth is relatively strong. Unfortunately, however, this does not apply to countries such as France.

«The primary focus is on a geopolitical race with China and, consequently, on strategic interests. Who will be the world’s number one in future?»

One theory is that, under Trump, the US is strongly promoting AI because it hopes this will deliver a boost to productivity and growth, which would also improve debt sustainability.

That is likely to be more of a welcome side effect. The primary focus is on a geopolitical race with China and, consequently, on strategic interests. Who will be the world’s number one in future? At the same time, the hyperscalers are battling it out amongst themselves for top spot in the new world of AI.

Hyperscalers invest massive. (Graphic: Candriam)

Given the enormous sums flowing into data centres and the associated infrastructure, isn’t there a risk of misallocation of capital?

Yes, excesses and misallocations of capital are a hallmark of such booms. Who knows how the technology will develop, and whether these data centers will even be needed in five years’ time? But it is probably still too early to ask such questions; we are only at the beginning of the cycle, and today the data centers are operating at full capacity.

«We are a little less concerned about the Fed's independence, but we're not yet completely at ease.»

At the US Federal Reserve, the new Chairman, Kevin Warsh, has made his first interest rate decision; the key interest rate has remained unchanged, and Warsh appears to attach importance to the Fed’s independence from the government. Does that reassure you?

We are somewhat less concerned than we were a few months ago, when Governor Lisa Cook came under fire from Trump, but we are not yet completely at ease. The decision to abandon forward guidance and the scaled-back communication are likely to increase volatility. We do not think this is a good idea, because forward guidance can be very useful in certain situations and the bond market has grown significantly.

Before taking office, Warsh argued that AI would have a deflationary effect, which would allow for interest rate cuts.

That may well be the case in the long term. But at the moment, it is fuelling an investment boom that is driving up prices. It could take some time yet before the hoped-for productivity gains actually materialise. Until then, the economy could overheat.

The European Central Bank (ECB) recently raised its key interest rates. Was this the right move?

They did not want to repeat the mistake of 2022, when the ECB was accused of reacting too slowly to the surge in inflation. In our view, however, the increase was unnecessary because the current situation differs greatly from that of 2022. The ECB could have looked past the inflation. However, it has now opted to send a signal to the public: «We take our price stability mandate very seriously.»

«For the market, a far-left government would be worse than one led by the Rassemblement National.»

In some major European countries, far-right parties could soon come to power. Are the markets underestimating this risk, particularly in France?

In France, this is still too far off for the markets. Yet the risk exists. That said, the likelihood that the new president will not have a majority in parliament is relatively high. This limits the scope for extreme policies. For the market, a far-left government would be worse than one led by the Rassemblement National. But both sides are relying on populist economic policies. I expect the markets to analyse developments more critically by the new year at the latest.