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First Move with Julia Chatterley
Drop in Q2 U.S. GDP Intensifies Recession Debate; Biden, Xi have call Amid Tensions over Taiwan, Ukraine; Fed Chair: More Large Interest Rate Hikes Possible; Mitsotakis: We Need Measures that the Market finds Credible; Diageo Posts Strong Q2 Earnings; U.S. Stocks Volatile after Surprisingly Weak GDP Number. Aired 9-10a ET
Aired July 28, 2022 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:00]
(COMMERCIAL BREAK)
JULIA CHATTERLEY, CNN HOST, FIRST MOVE: A warm welcome to "First Move", great to be with you this Thursday, a consequential day for the United
States and indeed, the global economy, fresh economic data, showing the United States arguably falling into what would have in the past been called
a technical recession.
In the second quarter just released numbers show U.S. GDP contracting at nine tenths of a percent that's on an annual rate for the second quarter
that's on top of the more than one and a half percent decline in the previous quarter.
And it's only a preliminary look, though, at the second quarter performance, these numbers and we have to remember this could be revised
lower, they could also be revised higher. And we have to stress two quarters of negative growth does not an official recession make but this
doesn't have present a challenge to Janet Yellen.
And President Biden, who's going to be speaking about the economic outlook later on today, not to mention Fed Chair Jay Powell, who effectively said
on Wednesday, don't even mention the O word.
(BEGIN VIDEO CLIP)
JEROME POWELL, FEDERAL RESERVE CHAIRMAN: So I do not think the U.S. is currently in a recession. And the reason is there's just too many areas of
the economy that are that are performing. You know, too well. And of course, I would point to the labor market in particular.
(END VIDEO CLIP)
CHATTERLEY: And as we've been saying repeatedly on this program, that the strongest argument against a recession, is that the jobs market remains
robust, even as the Federal Reserve attempts to slow growth by raising rates. Policies, another three quarters of a percent hike equal to what
they did on Wednesday is not out of the question at the Feds next meeting in September, although he also didn't rule out a smaller move. If the
economy slows further, and it's big end inflation moderates this tantalizing hope.
However, helping spark a sizable, some might call it a whopping U.S. stock rally on Wednesday; the biggest jump for the NASDAQ in well over two years
us futures. And I can give you a look at what we're seeing at this moment unchanged to tilting to the downside, just processing. The latest data I
think at this stage choppy trading, however, in Europe, as new numbers show EU economic sentiment falling for a fifth straight month and German
inflation well, that came in well above expectations.
As for European earnings, no shell shock at Shell the oil giant reporting record profits of more than $11 billion in the second quarter amid the
energy price spike that of course triggering much of the inflation that is continued to weigh on global growth. And, of course, that in full evidence
in the United States today.
Rahel Solomon joins us now. Rahel, take us through the economic data. Because as I said, at the top of the show in the past, arguably, this would
have been defined as at least a technical recession. But of course, there are caveats this time around.
RAHEL SOLOMON, CNN CORRESPONDENT: There are caveats in the fact that, you know, it hasn't officially been called a recession, because the committee
at the National Bureau of Economic Research is going to look at a more holistic list of data points, right.
But let's talk about what we're seeing here. I mean, look, there's no other way to slice and Julia, the consumer is clearly slowing down. We're seeing
consumer spend, it was still positive for the second quarter, but it is slowing when you compare it to last quarter, in terms of what we're seeing
directionally welcome tumors are still spending less on goods, also a continuation of what we saw last quarter, still spending however, on
services, probably part of the reason why consumer spending overall was still positive for this quarter.
Look, I think you can't miss the fact that business spending and business investment has really taken a turn negative. I mean, that was much lower.
So that's probably going to get a lot of attention today, Julia, as we, whether we're debating whether we're in a recession or not, the signals
here and the data points here clearly show a slowing in business investment and business spending, and a slowing and personal consumption expenditures
or consumer spending although that was still positive.
We also saw some declines in terms of government spending. So it's clear that the economy is clearly transitioning to a different phase and porn to
mention, however, that we are coming off the reopening last year, right, which mattered, and which meant really great growth. And so compared to
that, we're certainly transitioning to a different stage.
One thing that's interesting, Julia, is that there has been lots of conflicting data. Certainly in terms of the consumer, we saw retail sales
data earlier this month that showed that consumers were still spending but when adjusted for inflation, not so much. But then all of the bank CEOs
came out and said, the consumer is doing great, they're still spending, and they're not slowing their activities. And so this puts a bit more of a
nuance to that in terms of how the consumer is doing we know that the consumer is two thirds of U.S. GDP, It's a huge factor.
[09:05:00]
SOLOMON: So it's only a sign that we're transitioning that we have transitioned to a different phase.
CHATTERLEY: The challenge is we're not there yet. And so it is a recession obsession, simply because people want to get clarity on something that at
the moment is, once again, a very inexplicable economy with lots of different things going on, and lots of levers, be energy beat supply chains
to try and to try and help us understand what's going on. It was also what Jay Powell at the Fed, suggested yesterday as well in that they're going to
be in militant data watching mode now. And while they may hike the same amount next, at the next meeting, they may also do less if the economy is
slowing. They could also do more if it's not. And of course, to what degree that slowing of the economy then pulls inflation down too. We're just
uncertain; Rahel and we're tough to find us answers.
SOLOMON: And it's not just us, right, Julia? It's not just us consumers. It's central bankers, too. I mean, right, Powell himself. I wish I had the
quote with me; I was looking at it earlier. But Powell himself said something to the effect yesterday that these are very uncertain times,
there is an extraordinary amount of uncertainty out there, in terms of deciding what the economy is going to be doing three months from now, six
months from now, certainly seven weeks from now, when the Federal Reserve meets again, we're going to get more jobs reports.
And so the Chairman puts sort of pulling back guidance saying that they're, they may find it appropriate to do another extraordinarily large rate hike
of 75 basis points or perhaps even more, or they may not so pulling back guidance, because uncertainty is so great right now. Interesting, it's not
just us, Julia everyone sort of dealing with these different sort of data points and wondering how we're going to get out of this on the other side.
CHATTERLEY: We don't have a recession obsession on this show, simply because we don't want self-fulfilling prophecies, but we will continue to
track it and talk about it and try and make sense of it Rahel, thank you for that Rahel Solomon.
OK into an astonishing U turn in Washington with huge implications for President Biden stalled climate agenda, and more Democratic Senator Joe
Manchin announcing his support for a bill that promises huge sums for health and climate change mitigation, a major change of position that could
see the Democratic bill become law in just a few weeks.
Melanie Zanona joins us now we've got whiplash on this one, it would be a huge boost for the Democrats, and it would face huge resistance and already
is from the Republicans. Why the stunning turnaround? Do we think and what are some of the consequences of this if they can get it done?
MELANIE ZANONA, CNN CAPITOL HILL REPORTER: Yet, this is a big deal and a big breakthrough after almost a year really of whiplash negotiations.
Democrats had to really scale back their ambitions. These talks had broken down multiple times. And most recently, Joe Manchin had looked like taking
some of these key climate and tax provisions off the table. And so it was a big shock yesterday when this deal was announced, but also not surprising.
Democrats are feeling the heat; they want to get a victory before the midterms. And the deal that they agree to is pretty significant. Let me
read you some of the provisions $370 billion for Energy and Climate provisions, which supporters of the bill say will reduce carbon emissions
by 40 percent by 2030.
Imposing a corporate minimum tax of 15 percent that's a big deal, lowering prescription drug prices to allow Medicare to negotiate and extending
Obamacare subsidies which were set to expire this fall and so this deal does have the blessing from the White House, Democrats are hoping to use a
special party line process to pass it.
But that means they need the support of every single Democrat in the Senate and nearly every Democrat in the House. And they are also grappling with
Coronavirus, which is sideline some of their members including we just learned addict urban a member of Democratic leadership will now be out with
COVID.
And so there is little room for error. They are also facing a time crunch. The Senate is hoping to pass this next week before they leave town for
their August recess. And then the house would have to come back and clear it and sometime in August. So there's a lot of work to be done. Senate
Democrats are meeting right now in the Capitol as we speak, to sort through all of this. But the bottom line here is that this looks like this could
actually become law if Democrats can get it done.
CHATTERLEY: Yes, and it looks more than paid for with the tax rises as well some of the collateral damage, though that's now being feared as the chips
Act, which we talk about a lot on this show as well. So we'll be watching it closely. Melanie, great to have you with us, thank you, Melanie Zanona,
there!
Now to CNN exclusive about the case of basketball star Brittney Griner. The Biden Administration is offering to exchange convicted Russian arms dealer
Victor bout who served the U.S. prison sentence as part of a potential deal for the release of Griner and another American being held by Russia.
Clare Sebastian has the details on this. There's lots that's quite fascinating about this one that the American government decided to go
public with this decision. And also now that we've heard, I believe from the Russians and saying at least so far, no deal yet.
CLARE SEBASTIAN, CNN CORRESPONDENT: Yes Julia, those are the two most striking elements of this. I think it is and I have to emphasize this not
normal for these kinds of things to happen in the public.
[09:10:00]
SEBASTIAN: I take the case of Trevor Reed, the last American who was detained in Russia to be released. He was released in a prisoner swap in
April. I think the news broke on the Wednesday and he landed in Texas early the Thursday morning.
So he was probably in the air by the time we found out about it. This is now public while the negotiations appear to be ongoing, and I think very
striking as well, that Russia has not jumped at this because Victor Bout is a huge prize for Russia.
He was seen by America as one of the world's most prolific arm dealers and enabler to some of the world's most violent conflicts and terrorist regimes
seen as a major threat to American life when they did that sting operation in 2008, sort of blew him out of Russia, and eventually arrested him and
jailed him so seen as a big concession thing.
The question is why are they waiting? It's very unclear at this point. The one thing that concrete thing that we can point to is that the Russian side
has been very clear that in the case of Brittney Griner, the WNBA star who is currently on trial for drug charges in Russia.
They have said that no discussion can start on whether she can go home until after that trial is complete and certainly Julia, in my experience of
covering Russia. When they set a condition like that they very, very often do stick to it.
CHATTERLEY: They adhere to it. Clare, great to have you with us thank you for the context, Clare Sebastian. OK, straight ahead, a unified push
against Putin, the Prime Minister of Greece joins us to talk about his strategy to tackle Russia's energy threat. Plus no inflation hangover
soaring sales at the world's largest spirits maker Diageo that's all coming up stay with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to "First Move" these are the stories making headlines around the world the Presidents of the United States and China
speaking on the phone as we speak. That's according to a White House official. The conversation comes at a time when relations are at a historic
low ahead of Nancy Pelosi's potential trip to Taiwan a visit that Beijing strongly opposes Selina Wang joins us now from the Chinese capital.
Selina, as you and I were discussing yesterday, stringent strong pushback in terms of that potential visit to Taiwan not the only thing they're going
to be discussing but certainly the elephant in the room.
SELINA WANG, CNN CORRESPONDENT: Exactly Julia, I mean, this call was supposed to be a point to manage the relationship to really simmer and
lower the temperature. But now hanging over this overshadowing all of this is this potential visit by Pelosi to Taiwan. And Beijing has made it
extremely clear that they do not want Pelosi to take this trip.
[09:15:00]
WANG: They've urged the U.S. to cancel the trip threatening powerful and resolute measures if Pelosi does in fact go.
Now, of course, the President does not actually have the power to stop Pelosi from going. But assuming on this call that she is all but expected
to make it clear what this point is. But this call timing is so critical right now, because it needs to be had in order to ensure that we're
minimizing the risk of a miscalculation that could actually lead to a real conflict when you have more military posturing in that region in such a
delicate moment. That is a fear among officials in the United States.
Now, the question is what are the chances that Beijing would actually take a forceful reaction? I think there are two very different viewpoints on
this. And one is that she, there's a risk, he would take very strong action on this because he does not want this trip to look humiliating to him.
This is coming at a time where we're just months away from a key political meeting, when Xi Jinping is supposed to seek an unprecedented third term,
he cannot afford to look weak at this moment.
Now, on the flip side, I've spoken to many experts, including here in Beijing who say, look, all of this language from Beijing, they're vague
pronouncements, and that is by design, because they want to deter this visit, they do not actually want to risk any military escalation, nor are
they ready to risk that Military escalation.
And that if and when Beijing does decide to make their move, they want to make that move on their own timing, and especially considering all of the
economic challenges in China with the COVID pandemic continuing to devastate the economy here. They say that what Xi Jinping needs leading up
to this key party congress is stability, not more instability that could be caused by an escalation that Xi Jinping cannot control.
So really, the critical question here is, how can Xi Jinping make a move that would look forceful to an international audience and to the audience
at home, while also avoiding this from escalating out of control? Julia.
CHATTERLEY: Yes, it's a fascinatingly posed question and crucial. How does everyone always come out of these kinds of negotiations looking strong and
like they've won something?
I wonder whether, and we can talk about this too, because we have been talking about the potential for weeks now of perhaps to help with the
economic backdrop and the inflationary pressure a removal of the tariffs on Chinese goods coming into the United States. How if anyway, does that play
into perhaps these concerning talks and negotiations?
WANG: Yes, Julia, because Taiwan is just one of a long laundry list of disagreements between the U.S. and China right now. We're also expecting
them to discuss Russia's relationship with China as well as what the U.S. sees as China's increasing aggression in the Indo Pacific.
Now on the tariffs point, important to note that this call was scheduled weeks before this news about the potential Pelosi visit actually came out.
However, the latest we've heard from the White House officials is that Biden has not yet made a decision on this. And we don't expect tariffs to
factor significantly into this conversation. But of course, Beijing would welcome any move to remove some of those tariffs it and also could be a
political win from the U.S. side in order to help ease those inflationary pressures although we've discussed before how much of an impact that
actually makes it's up for debate.
CHATTERLEY: But when a tit for tat situation is taking place, one should always look at potential leverage points. Selina Wang, thank you so much
for that we'll see.
OK, let's move on Ukraine is warning Russian troops in and around Kherson in the south of the country to "retreat or be annihilated". British
Military analysts say a counter offensive by Kyiv is virtually cut off Kherson from other Russian held areas, leaving 1000s of Russian troops
vulnerable. It comes as Russia launches missile strikes on the Kyiv region for the first time in weeks.
The districts in Wuhan, China the original epicenter of the COVID 19 pandemic is again on lockdown. Officials adhering to China's zero COVID
policy of shutting down bars, cinemas, internet cafes and the light for three days after detecting four asymptomatic COVID cases. It impacts nearly
1 million people in central China's transport and industrial hub.
And North Korean leader Kim Jong-Un is warning that the North is fully prepared to mobilize its "nuclear deterrence". According to state media,
Kim said this on Wednesday during an event celebrating the 69th anniversary of the end of the Korean War. He criticized the recent joint Military
exercise conducted by the United States and South Korea which he called duplicitous and gangster like.
We've been talking about President Biden of course and President Xi on the phone. President Biden also set to speak later today on the surprisingly
weak U.S. economic numbers released at less than an hour ago. Today's data shows the U.S. economy contracting at nine tenths of a percent annual rate
in the second quarter. It's the second straight quarter of negative growth. And the strongest signal yet that the United States is moving closer to
recession or perhaps is already in one GDP weaker
[09:20:00]
CHATTERLEY: Do in part to slowing spending on the part of businesses, governments and most importantly the U.S. consumer. And take a look at the
stock market reaction. U.S. stocks remain on track for a modestly lower open this morning but could hold on too much at the strong gains. We saw
yesterday, perhaps on the perception that today's weak numbers will force the Fed to pull back the size of its rate hikes.
Randall Kroszner has joins us now he's the former Federal Reserve Governor, sir, fantastic to have you on the show. What do you make of this most
recent data, a second data point in quarterly succession that comes in negative? Are we or are we not in a recession?
RANDALL KROSZNER, FORMER FEDERAL RESERVE GOVERNOR: So formerly, there's a committee at the National Bureau of Economic Research that will make that
determination in a few months. The job market is still reasonably robust. But obviously, we've now had two consecutive quarters of GDP contraction. A
lot of this is due to some supply chain disruptions. People want to buy cars and can't buy cars.
But we're also seeing in general, consumers being much more wary of consuming. It's still consumption growth is still positive, but very weak.
We also saw firms have an inventory mismatch; they built up a lot of inventories earlier in the year. And that's not the stuff people wanted to
buy. And so that's also contributing to this contraction in GDP growth.
CHATTERLEY: Yes, and that was a huge part of the first quarter contraction as well, that people were pointing to and saying, we just have to take a
step back here and understand what the basic data point is telling us?
It sort of all feeds into the level of uncertainty we have at this moment. And what we heard from Jay Powell yesterday, too, and that they are even
more sensitive to individual data points and the progression of the economy and those data points. In order to make decisions, it's tough to guide.
KROSZNER: For sure, one of the key pieces of information that was in this report and get another piece related to it tomorrow is about the price
index, the Fed looks at is not the consumer price index, but the personal consumption expenditure index that comes out with this GDP report. And so
the headline number was still quite high, the core number that is stripping out food and energy prices was a little bit lower, and we'll get a the most
recent number for the most recent month, tomorrow.
That's going to probably be the most important thing affecting how the Fed is going to move forward. But I think it's still very likely that they're
going to raise probably by 50 basis points a half percentage point at the next meeting in September.
CHATTERLEY: I think one of the big questions for me for Jay Powell is, look, how much inflation are they comfortable with? Are we going? Are we
going to be forced to go back to the 2 percent level that we always talked about in the past? And are they going to try and get interest rates or what
we call that the Fed funds rate above the rate of inflation?
KROSZNER: So I think they do want to get to 2 percent? The key question is over what time horizon? Now, I don't think it's going to happen anytime
soon. Inflation is still quite high right now. And maybe it'll come down a fair amount, by the end of the year.
I think the most recent, most recent data are the next readings on inflation, will probably show a little bit of a reduced amount of
inflation, because food prices have come down and the prices have come down. Inflation rates are going to be high, but it won't be quite as high
as it as it was. But it's going to take a while to get there.
And so the Fed still will have to continue to raise rates, what they're hoping is that inflation will continue to come down. So they can stop
raising rates around 4 percent or so because inflation by the time they get to the end of the year or the beginning of next year, will be close to 4
percent than the eight or 9 percent that we're seeing.
CHATTERLEY: And that's part of the key of this as well. It's that even when the Feds acknowledging that some of the data is softening and that you
logically slow the path of rate hikes as the economy softens. You're forgetting they say and connect a slowing economy to inflation coming down
at the same time.
And that sort of disconnect or lack of understanding at this point is complicating that the picture as well. The strongest argument, I think is
the strength of the jobs market. How much give back on jobs do you think they're willing to see as in loss of jobs as an economy slows before they
say, OK, enough is enough, irrespective of what the inflation rate is?
KROSZNER: So I think there, I think if you if you read the Chairman's comments, the way I read them, they're really focused on bringing the
inflation rate down. And Fed means that the unemployment rate is going to go up significantly, they'll tolerate that. He was asked exactly the same
question that you just asked me and he danced around it. He didn't give a particular number. But he did emphasize that.
And what he said, which I very much agree with is he said, if we don't bring inflation down, we don't have a foundation for economic growth and
job growth going forward. And I think that's right. We saw that in the late 1970s, early 1980s, when inflation was very high that was very destructive
of economic activity.
[09:25:00]
KROSZNER: The Fed had raised rates to double digit levels. I know it's hard to believe that but it really did occur less time to inflation was this
high? I don't think the Fed is going to have to go to that, because I think they're moving more quickly. And inflation expectations haven't become
fully entrenched. But that can happen. It did happen once. I hope it's not going to happen now. Back then the unemployment rate went up to 10 percent.
I don't see it going anywhere close to that.
CHATTERLEY: Thank you for not dancing around my question, perhaps in the same way that Jay Powell did. Randy, very quickly, a U turn, in terms of
the Democrats trying to present some kind of broader bill to help with the energy and health care costs as well more than pay for it seems that they
can get this through in the way that it looks at the moment with tax rises, that one of the big sticking points was that they didn't want to add or at
least certain members, didn't want to add more spending to an economy that was we've already discussed is suffering from significantly too high prices
and price pressures, your view on this if they can get it through?
KROSZNER: And so I think that it, unfortunately, the devil will be in the details of exactly how the spending comes out. But it does, we have to be
very wary of adding further fiscal fuel to the fire. And so if there are good investments that make a lot of sense, they're going to be productive
and pay off for economic growth. That's perfectly reasonable.
If it's just spending that is probably going to lead to just increased price pressures. That doesn't make a lot of sense. And I can understand why
there's been a lot of weariness by Senator Manchin as well as others of supporting something that could just add fuel to the fire.
CHATTERLEY: Yes, no more fuel on the fiscal fire, please. So we'll watch the detail. Randy, great to chat to you thank you so much for your wisdom.
Randall Kroszner, Former Governor at the U.S. Federal Reserve.
OK, coming up here on "First Move", thinking out of the box, we're joined by the Prime Minister of Greece on his plan to tackle Europe's energy
crisis collectively, that's next.
(COMMERCIAL BREAK)
[09:30:00]
CHATTERLEY: Welcome back to "First Move", EU nations agreed this week to voluntarily cut their gas consumption by 15 percent through next winter,
there was plenty of caveats including mandatory cuts kicking in in emergency situations, like a severe disruption in gas flow from Russia a
difficult decision. I think in a deal forced upon them in many ways by the latest supply cuts through the Nord Stream pipeline.
Greece relies on Russia for 40 percent of its gas has been proposing a number of measures to help ensure security while aiming to reduce prices
across the European Union utilizing a carrot rather than stick approach.
Let me explain the government proposed a six point plan back in March, aimed at ensuring European solidarity by compensating industries for
cutting a gas use this winter.
Then, in a letter to European Commission presenters on delay in their Prime Minister press further, stating by offering financial incentives, rather
than relying on the penalty of interruptions during an emergency, the proposal is more likely to unlock a firm and sizeable response from
industry.
This week, he's also discussed with Saudi Crown Prince Mohammed bin Salman opportunities for the future the possibility of things like linking power
grids to supply in Europe with cheaper green energy. It all comes as Greece, like other nations tackle a cost of living crisis tied to higher
food and energy prices.
While dealing with a continent wide heatwave resulting in wildfires. Johnny is now the Prime Minister of Greece. Kyriakos Mitsotakis, Prime Minister,
fantastic to have you with us. Wow, I know you're constantly busy. Let's start by talking about the EU energy deal. I think the reaction in the gas
price market set everything there's a credibility gap, there's real fear of the power that Russia continues to wield. Something more surely needs to be
done.
KYRIAKOS MITSOTAKIS, GREEK PRIME MINISTER: I think you're right Julia, we have agreed, in principle to reduce our demand for gas by 15 percent. And
we've also agreed to sort of a mandatory framework to make sure that this does happen in case there is a real emergency. But obviously, we need to
send much clearer signals to the market, that our approach is credible.
And that is why I've sent a letter to also have underlined and proposing what I consider to be a reasonable middle path between completely mandatory
measures and voluntary measures, essentially, as you described it.
It is a demand response mechanism for industry that will have a much longer duration than the usual demand response mechanisms that we use. When we
want to take into account peak demand for electricity, essentially, we'll be paying industry not to produce and not to use gas in a much more
organized manner, with a much longer time horizon.
We think this is a credible proposal; it has been relatively well received. And I would hope that we can get some serious traction on these issues
before September. Because right now, there is obviously significant uncertainty in the gas market, gas prices have increased tenfold.
And this is something we all know is not sustainable. Greece relies on gas for its electricity production, 70 percent of the gas that will import goes
into electricity production. We are taking our own measures to reduce our dependence on gas; we're forced to switch back to lignite, for the next
couple of years.
And we also use various other measures to make sure that we reduce our dependence on gas. But this needs to be done in a much more organized
manner at the European level, and also in a manner that is credible for the International gas markets.
CHATTERLEY: Yes, and it's about changing the economics incentivizing less use rather than potential punishment, and also mitigating the risk premium
that's in prices. Now, that doesn't tie to the supply and demand even as it stands today. Because at some point prices get so high that industry can't
afford it anyway. And you're exacerbating the potential for economic slowdown across nations, too. So what's the response been? I know it's what
it's been four days.
MITSOTAKIS: --early to tell. And as you as you know, Brussels is not at its most active during the heat of the summer. But what I can tell you
regarding prices is that we've been making the case that there's something fundamentally wrong in the gas market since last February. I mean, if you
look at the volatility that ETF there's no reason why the prices should be so volatile.
[09:35:00]
MITSOTAKIS: If you compare it for example, with ETF index to the to the oil market, you will notice the significantly larger volatility, I think, you
know a lot of people are making a lot of money at the expense of European governments and at the end of the day at the expense of European customers.
This in my mind is an unacceptable sort of situation that needs to be addressed much more drastically; we need to reconsider the link between gas
prices and electricity prices. Whenever in place, or Montreal pricing mechanism for the European electricity market, it made a lot of sense; it
was a time when renewables were still the most expensive form of electricity production.
But now with gas shooting through the roof, this mechanism makes no sense whatsoever.
So I would really hope that as Europeans would get our act together before winter, comes and send a clear signal not just of solidarity, but also
effectiveness in addressing a problem that essentially is affecting all of us.
CHATTERLEY: I mean, up to now, you spent a lot of money subsidizing dramatically subsidizing for both small businesses, for consumers the price
increases that they've seen, and I'm sure for Greek people watching this, they want to know and understand for how long you can continue to do this,
because there are political consequences to them.
And we've seen political instability in Italy, the UK Government. Yes, they have idiosyncratic reasons for instability. But even in the United States,
here, we see dramatic consequences for this government support too. Stability of governments at this moment in a cost of living crisis is
vital, particularly given what we've been through over the last two years.
MITSOTAKIS: You're right, let me address your first question, we will continue to support Greek households and Greek businesses for as long as
necessary. I mean, we are recycling were diverting windfall profits into a scheme that is subsidizing electricity bills. So we tried to keep the
increases, reasonable. Just to give you an example, for households, we will be absorbing up to 90 percent. That is 90 percent of the increase in the
electricity prices from the baseline price where electricity prices were, let's say two years ago.
And of course, the public budget also has to contribute to this effort. And we're able to do that because if we can economy has been essentially over
performing. We're doing much better than Eurozone and the Eurozone average. And this is allowing some fiscal space.
But as we discussed in the previous segment of your show, there's only that much that public budgets can do. And that is why a European response is
absolutely necessary. You're right to point out that political stability is paramount. These days, we have a very stable government in Greece, and I've
committed public committed that the Greek government will see outage term and that we will have our elections in 2023.
When our term comes to an end, and I think in this week, we're sort of resisting the temptations of calling an early election, although we're way
ahead in the polls. But it is important Julia, in these times to send a signal of Putin political stability, and of political predictability. And I
do hope that when our term is up, we will again convince the Greek people that we deserve a second term, but this will happen only at the end of our
term in 2023.
CHATTERLEY: Yes, I mean, I've has you know, I've spent many months in Greece over the past few years, reporting on elections. And to your point,
I do think it's important that you can be strategic about the timing of calling an election when you are ahead in the polls, but the loss of time
in leadership terms and in government decisions would be would be tragic. So your point that you make there is well heard, let's talk about some of
the good news as well, tourism. We and I keep receiving, please.
MITSOTAKIS: Sorry, just one point on the question of political stability, Italy is plunged into a political crisis. Greece is a stable government.
Right now, Greek government bonds are trading at a 30 basis point discount; I repeat that discount to the Italian bonds.
Although we have a higher debt, it has very peculiar characteristics. One of the reasons why this is happening is because Greece is politically
stable, and Italy currently is politically unstable. So there is no way Julia, I would ever compromise political stability to achieve a short term
political gain. That is not the proper way of running a country. And I think that's one of the reasons why the markets are also rewarding Greece
is because we are institutionally responsible.
CHATTERLEY: And your FDI flows, the foreign direct investment flows, I think, argue that too. Prime Minister, let's talk about tourism. I keep
getting photos from people that are spending time in Greek Islands - ones that come from America because obviously the strength of the dollar versus
the euro is helping them too.
[09:40:00]
CHATTERLEY: And you've had a few high profile visitors, too. Talk to me about one of the most important contributors to your economy and the
recovery that we're seeing more than recovery in fact.
MITSOTAKIS: I think that the recovery has been very, very impressive Greece is doing particularly well, this summer. I think once we do the math, at
the end of the season, I do hope we will be pleasantly surprised we have lots of people coming to Greece.
But the most important thing for me, Julia, is that people are happy, and they are having a fantastic time in Greece, whether they visit the islands
or whether they visit the mainland, we have done, we've put a lot of effort in upgrading our tourism product in making sure that all new investments in
tourism are sustainable.
And people can come to Greece and have an exceptional experience. And the good thing is that they no longer just come during the summer. We saw this
year, the tourism season start very early. And I do expect it to end very late.
We have 9 or 10, I think nonstop flights from the U.S. on a daily basis, and we're expected just to give you an indication a million visitors the
first week to arrive, in essence, the first week of August. So we're particularly happy about this influx of tourists, but also about the fact
that people who come to Greece seem to spend more than in the past.
But again, our focus is on making sure that we manage our destinations properly, that people have a great time that they share their experiences
on social media, that they can convince people like you to come and visit us and that they can come back next year, and bring even more French
degrees.
CHATTERLEY: I noted you also have to say offered to provide a warm retreat for Germans potentially this winter, if they if they wanted to come to I
noticed that in the past couple of months any takers on that is a sort of circle back to our energy conversation.
MITSOTAKIS: Now Greece is not just about tourism, Greece is a great place to spend all year Greece is a great became a great destination during COVID
to work from. So we want to take to turn Greece into this nation that people can visit for holidays a place where they can work from, we have
thousands and say tens of thousands of digital nomads who work out of Greece, we have retirees who choose to spend other gloomy sort of North
European winters in Greece, which is great for us because it helps us spread our season.
So this is not just about, you know, people appreciating the beauty of our beaches in the summer. It's about much more than that.
CHATTERLEY: I want to ask you finally about Turkey and the current state of escalated tensions. I think there are a lot of people that are watching
this situation are very worried, not just for the region. But given the backdrop of what else is happening in Europe at this moment. What can you
say about that to perhaps alleviate some of the serious concerns?
MITSOTAKIS: Well, I'd say Julia, is that we're facing sort of a once in a sort of in a generation, a geopolitical crisis after the invasion of Russia
into Ukraine. The last thing that NATO the last thing that Europe needs is another source of instability in Southeastern Europe and we have an
obligation to sort out our differences with Turkey. And there is only one playbook, which we can use and that is the playbook of international law.
Greece has always behaved very, very responsibly towards Turkey were destined by geography to live together. Yes, we've seen serious
provocations by Turkey over the past months, but I really believe that President Erdogan would serve his people much better if he focused on
reviving the ailing economy, the ailing Turkish economy, rather than reviving sort of Neo Ottoman revisionist fantasies.
So we need to sit down we need to talk as responsible adults, we don't we should not use foreign policy to fuel sort of national sentiments that is
an irresponsive approach. Greece will always behave responsibly, but it will always do whatever it can, whatever it has to do to defend its
sovereignty and its sovereign rights that is simply non-negotiable for us.
CHATTERLEY: Sir, great to chat to you today. Please let us know when you hear from the European Commission, and we look forward to speaking to you
again soon. Thank you Prime Minister, great to chat!
OK, still to come here on "First Move". Chair is around at Diageo as its iconic brands bringing another strong quarter despite many challenges, I
speak with the CEO next.
(COMMERCIAL BREAK)
[09:45:00]
CHATTERLEY: Welcome back to "First Move". Iconic brands and strong cocktails making it a great quarter for Diageo, the global leader in
alcohol saw second quarter sales rise 21 percent. Thanks to resilient consumer demand. Despite rising costs Diageo, whose brands include Johnnie
Walker, Crown Royal, Casamigos, Don Julio and Guinness saw particularly strong growth in its Scotch Tequila and Beer categories with its premium
brands driving 71 percent of net sales growth.
Diageo, also raising a glass in India where one in two bottles of all whiskey produced in the world is consumed and they clearly see it as a
growth opportunity. Joining us now to discuss all of this the Diageo CEO Ivan Menezes Ivan, fantastic to have you with us! One analyst I saw
described these results and as exceptional. It's a challenging time out there. But certainly drink has not seemingly showing any signs of slowing
down even as prices rise.
IVAN MENEZES, CEO, DIAGEO: Well, good to see you Julia. I have to say I'm really pleased with the quality of our results in the past year. The top
line grew 21 percent but there was 10 percent volume growth, which means more consumers enjoying our brands, and 11 points of price and mix, which
is people drinking better.
And Diageo was very fortunate with our portfolio and our geographic footprint. We had double digit growth in every region of the world. All our
categories are enrolled, the three main ones you pointed out, scotch whiskey up 29 percent and Johnnie Walker was up 34 percent Beer was up 25
percent Tequila business continues to motor up 55 percent.
We have two of the hottest brands there Done Julio and Casamigos. The high end of our portfolio is growing the fastest. And this supports the trend of
people drinking better and preferring spirits and cocktails, to beer and wine. We're seeing that in many parts of the world.
But we've been investing and that's what I want to just highlight. We've upgraded our marketing investment. And we - capital spending now on the
businesses at a record high over a billion pounds as we're building capacity and converting our facilities to be carbon neutral over the next
decade. And so it's a business that's doing well, but we're investing back into it very strongly.
CHATTERLEY: You've introduced customers to these more premium brands. And to your point, I think what you're saying is even as prices rise, and there
are obviously cheaper alternatives on the market. They're choosing to stick with you.
And I know you said on the call as well. This is a challenging environment, but that you've reiterated guidance for the next three years is there's a
message here really that whatever the rise in input costs and however much you have to pass that on you've got a customer now that's dedicated to the
products that you're providing?
[09:50:00]
MENEZES: Yes. And I think it is from the quality of brand building innovation, the digitization of the company. We are gaining a lot of market
share in 85 percent of the world, were holding or gaining share. And that's helping.
But I just take a brand like Johnnie Walker, if you look at Johnnie Walker Red Label, it grew 20 percent. Johnnie Walker Black Label grew about 40
percent and Johnnie Walker Blue Label grew about 60 percent.
So you're seeing that trade up in whiskey right from China, to Kenya, to the United States to Brazil. And it's how we keep our brands highly
aspirational and relevant. And these are great quality products, and they're affordable. The average American household spends about $1 a day on
spirits $330 a year. And they buy the product infrequently so the brand stands for a lot.
CHATTERLEY: Wow! I'm going to use that statistic. You know also part of this and saw it was an acquisition that you made in the second quarter
Vivanda (ph) which is an owner of a flavor print, artificial intelligence technology that is behind projects that allow you to match people, their
tastes with the products that you provide.
Talk to me about this because I'm always fascinated, where we start to see sort of big data and artificial intelligence used particularly in this kind
of sphere, sort of food or drink products. Talk to me about this purchase and what it's going to mean going forward.
MENEZES: You know, it's - we're delighted to have it. This is an AI, amplified technology. It's proprietary, and we bought this company because
what it does is in very simple terms, you know, people can find, say whiskey intimidating. What kind of whiskey do I like? Which single malt?
What part of Scotland? What flavor of whiskey American Scot Japanese?
And what this does is it can decode for you based on your flavor preferences. So do you like banana or toffee, I mean, it has a series of
questions that takes you through and then can tailor and recommend the right whiskey to suit your taste profile.
And it's more importantly it does it in a very fun and engaging way. And then we get data which helps us develop new products and the profiles and
not just in whiskey, we can do this across categories.
So we're delighted that we've been able to acquire this team. They're very smart bunch who have developed this proprietary technology and it's going
to feed our innovation and our brand building and marketing efforts.
CHATTERLEY: It's like an alcoholic dating app. That's it - you are providing. You can use that. I've mean, I've so many more questions and I
wanted to talk to you about India too. But I've run out of time so you have to promise to come back on before your next earnings now. It's always a
pleasure to chat to you.
MENEZES: Absolutely.
CHATTERLEY: There you go you promised now you have to come back. Thank you the CEO of Diageo. We're back after this.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to "First Move". U.S. stocks are up and running this Thursday in a volatile session so far stocks currently as you can see
now for the NASDAQ down up some one percent as investors process today's weaker than expected read on the U.S. economy.
U.S. GDP contracting at an almost 1 percent annual rate in the second quarter. This is the second straight quarter in fact, have negative U.S.
economic growth the definition of a technical recession for some though of course not yet official as we've discussed many times on the show today.
[09:55:00]
CHATTERLEY: Meanwhile, slow growth firmly in focus at Meta, the parent company of Facebook falling in early trade after missing on its top and
bottom lines and warning on the third quarter too. The U.S. government also throwing a roadblock in the way of Meta's Metaverse plans moving to block
its purchase of a virtual reality firm that would help in Mark Zuckerberg's corporate transition. And exactly today too from Apple and Amazon so we'll
be talking about those tomorrow.
And finally, diamonds are of course, a girl's best friend and this one would make anyone shine like Marilyn Monroe and more. 170 carat diamond
named the Lulu Rose has been discovered in a mine in Angola and it may be the largest pink gemstone found in 300 years.
Australian Diamond Company says it's only one in 10,000 diamonds found a colored and finding one this size is extremely rare. The diamond is
expected to be auctioned by the Angolan State Diamond Marketing Company Sodium, no word on just how much it could be worth a lot. That's it for the
show. "Connect the world" with Becky Anderson is up next. I'll see you tomorrow.
(COMMERCIAL BREAK)
END
