Episode summary
Economic Roundtable: Structural Fallouts From the Iran Conflict
Thoughts on the Market (Morgan Stanley)
· · Hosts: Seth Carpenter · Guests: Michael Gapen, Jens Eisenschmidt, Chetan Ahya
Summary
The discussion looks past the immediate inflation hit from the Iran conflict and asks whether the energy shock could leave more durable marks on the global economy. The host frames the key issue as whether oil, supply chains, labor markets and productivity trends are being reshaped, or whether this is mainly a temporary drag that fades as prices normalize.
Michael Gapen argues the shock has not broken the US economy’s structural positives. He says AI-related capex appears largely untouched, the labor market is still holding up, and the main near-term effect is a squeeze on consumer spending, especially for lower- and middle-income households. He also says AI’s effect on the labor market is real but still small, showing up only in certain occupations and amounting to about a tenth of a percentage point on unemployment.
For Asia, the guest says tech supply chains are not yet facing a hard constraint because firms in Korea and Taiwan can still pay up for inputs like helium and sulfur. For Europe, Jens Eisenschmidt says the region is more exposed, with high energy prices reinforcing an already weak industrial model and a softer growth outlook. He adds that a move toward $150 oil could push the US toward recession risk, while a quick retreat in oil prices would leave much of Europe’s damage already baked in for this year.
Key takeaways
- Michael Gapen said US AI capex and productivity trends remain intact so far, even as higher gasoline prices weigh on consumption.
- Gapen said AI-linked occupations show a higher unemployment rate than expected after controlling for cyclical effects, but the impact is only about a tenth of a point.
- The Asia guest said helium and sulfur costs are rising, but Korea and Taiwan can still bid up inputs and keep production lines running for now.
- Jens Eisenschmidt said Europe faces a structural energy problem, not just a cyclical hit, because high electricity prices continue to expose industrial weakness.
- Gapen warned that oil at $150 a barrel or more could trigger significant demand destruction and recession risk in the US.
- Eisenschmidt said if oil quickly falls back to around $80, much of this year’s European damage would still be locked in.
Notable quotes
“I think what we're seeing in the data right now is evidence that oil is not disrupting the positive structural trends in the US”
“It's maybe about a tenth on the unemployment rate. So I don't want to be too polyianish and and say, oh, there's there's no evidence here that AI is disrupting the labor market”
“we don't see a supply constraint as of now for their production but there will be an implication for them if you do see damage on US growth which is quite meaningful”
“Europe just has the shock right so in some sense that could be one summary”
“at $150 a barrel or more, I would be afraid about recession risk in the US”
How the episode opens
Welcome to Thoughts in the Market. I'm Seth Carpenter, Morgan Stanley's global chief economist and head of macro research. And once again, I am joined by Morgan Stanley's chief regional economists.
Michael Gapen, chief US economist, Chaitananya, the chief Asia economist, and Yenzisen Schmidt, our chief Europe economist. Yesterday, we focused on the immediate impact of the Iran conflict, how the energy shock is feeding through into inflation, and as a result, shaping central bank decisions across the US, Europe, and Asia. Today, we're going to go a level deeper and talk about some structural issues in the global economy.
It's Wednesday, April 15th at 10:00 a.m. in New York
And 3 p.m. in London
And 10 p.m. in Hong Kong. So even as we're waiting to see whether or not oil prices stabilize following a temporary ceasefire or not, the broader effects are still working their way through the global economy, labor markets, supply chains, and then of course back to the more longer term structural themes like AIdriven growth.
So the question I think has to be what does this shock mean if anything for the next phase of global growth and does it reshape it? Does it change it? or do we just wait for things to go through?
Mike, let me come to you first. One risk that we've been focusing on is whether this kind of shock really changes some of the structural positives in the US economy. The US has been, I would say, outperforming in lots of ways.
We've had this AIdriven capex cycle. We've had rising productivity. We've had strong consumer spending.
What are you seeing in the data about those more structural trends? I think what we're seeing in the data right now is evidence that oil is not disrupting the positive structural trends in the US.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- iran conflict
- energy shock
- middle east tensions
- second order effects
- macroeconomic fallouts
Watch the episode
Watch “Economic Roundtable: Structural Fallouts From the Iran Conflict” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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