Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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Speaker: And now onto today's show.
Speaker: This podcast was recorded on the 4th of January 2024 by HSBC Global Research.
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Speaker: Hello, Happy New Year and welcome to the Macrobrief.
Speaker: I'm your host Peter Stegall in London.
Speaker: 2024 is set to be an eventful year for the global economy.
Speaker: Inflation may have slowed by more than expected over the past few months and the aggressive policy tightening employed by the major central banks appears to be over.
Speaker: But keeping inflation on a steady downwards trajectory is not going to get any easier, with geopolitical shifts and countless elections posing further risks to what is an already complicated picture.
Speaker: So to discuss the outlook for the year ahead, I'm joined by our global chief economist, Janet Henry.
Speaker: Janet, welcome.
Speaker: Thank you, Peter.
Speaker: So, Janet, what kind of shape is the world economy in as we head into 2024?
Speaker: Well, it's not actually as bad as many anticipated about a year ago, but it is quite uneven and a quite mixed picture.
Speaker: In fact, some of the recent growth numbers out of the US and China have not been as disappointing as many had anticipated.
Speaker: But as we look at the year ahead, there's lots that are already quite unusual.
Speaker: You know, we have seen inflation fall, as you mentioned in your introduction, but we haven't seen a big rise in unemployment.
Speaker: And usually it's a rise in unemployment that leads a drop in inflation.
Speaker: Also, we know that the past impact of fiscal policy and what that meant for savings may not yet have run its course.
Speaker: We've got a lot of uncertainty regarding the China outlook and further policy stimulus measures that may be coming through there in the course of 2024.
Speaker: And central banks are watching because they know that monetary policy feeds through with a lag.
Speaker: And in many countries, we haven't seen the full impact of the interest rate rises that have already happened over the course of the last year.
Speaker: And there are also some uncertainties regarding the fiscal outlook.
Speaker: It hasn't been restrictive, even as monetary policy has.
Speaker: And let's not forget some enormous transformational shifts that really took a dramatic step forward over the course of the last year or more.
Speaker: So it's a very complex picture.
Speaker: And you called your report Navigating the Global Disorder, a striking title.
Speaker: And why was that?
Speaker: Well, it has become increasingly challenged.
Speaker: Obviously, there are some significant conflicts underway in the world.
Speaker: And as we look at 2024, as has been widely reported, there are over 70 countries in the world that will be undergoing some kind of election.
Speaker: And that will have an impact on policies.
Speaker: And in a world where we were already seeing growing signs of trade protectionism and different priorities by different governments in a whole number of other areas, that adds to the complexities in different influences of those factors on the outlook for growth and inflation.
Speaker: And of course, that uncertainty makes life much trickier for central banks.
Speaker: What are the key factors that policymakers will be looking at as they decide whether to hike or cut, in your view?
Speaker: Well, central banks, their task really is to manage inflation.
Speaker: They need to deliver price stability over the medium term, which in most countries, certainly the advanced economies, is generally defined at around 2%.
Speaker: So their recent message from them has been in the last few months that they will be data dependent.
Speaker: Inflation, while it has surprised on the downside over the last few months, is still above 2%.
Speaker: They need to be sure that it does continue to move down towards their targets and hopefully stay in that broad range.
Speaker: And they'll hope to do that without a big rise in unemployment.
Speaker: So they'll be watching the labour market data and the inflation data in particular to decide when the time is right.
Speaker: And they know that there are risks.
Speaker: If they cut interest rates too soon, then inflation could actually reignite.
Speaker: If they leave it too late to cut interest rates,
Speaker: then actually they could deliver a harder landing.
Speaker: Not that that's a massive problem in itself, if that's what's needed to lower inflation, but if that hard landing resulted in inflation undershooting their targets for a sustained period, then that would be a policy failure too.
Speaker: So risks on both sides, and they're watching the data decide when they should start to move and then by how much.
Speaker: And so taking all of that into account, what's your forecast for the major central banks?
Speaker: What do you see them doing in 2024?
Speaker: Well, certainly for the Fed and the ECB, we have them both starting to cut interest rates in June.
Speaker: So a little bit later than is currently priced into financial markets.
Speaker: And also for both central banks, we expect them to cut by 75 basis points in 2024 and another 75 basis points in 2025.
Speaker: So with all those risks in mind, what's your forecast for inflation?
Speaker: We expect inflation to fall further in the coming two years.
Speaker: It won't necessarily be a smooth path every single month, but we expect inflation to fall gradually towards those central bank targets, certainly not below 2% for any kind of period.
Speaker: So as far as our global inflation forecasts are concerned, we've actually lowered our forecast for 2024 from 3% to 2.8% for the advanced economies.
Speaker: And from 7.9 to 7.8 for the emerging economies.
Speaker: And in 2025, for the advanced economies, we see inflation at 2.5, but for the emerging economies at 4.6%.
Speaker: And what about the outlook for growth?
Speaker: Well, the outlook for growth, our growth forecasts have changed even less.
Speaker: It's still a slowdown in 2024.
Speaker: We look for growth to slow from 2.7% in 2023 to 2.4 in 2024.
Speaker: And that's just 0.1 higher than we had previously.
Speaker: And a lot of that upward revision being driven by a small upgrade to the US.
Speaker: And in 2025, we look for some recovery to 2.6%.
Speaker: So still below those kind of pre-pandemic kind of growth rates.
Speaker: But I would highlight that for some of the emerging economies that are geopolitically well-placed and that have undergone a number of structural reforms and where their growth model suits with the future growth inflation mix globally, we're actually looking for growth to be on a stronger growth path.
Speaker: So in a lot of our work, we've highlighted the likes of India,
Speaker: parts of other parts of Asia like Indonesia and Vietnam, as well as some economies like Brazil, for instance, which is coming off a lower base, but is benefiting from some structural reforms and parts of the Middle East like Saudi Arabia and the UAE.
Speaker: So all in all, 2024 sounds like it's going to be an eventful year.
Speaker: Would you agree?
Speaker: Every year is eventful, but it is looking like this one will be a particularly eventful year simply by that broad array of elections that are underway.
Speaker: So obviously, when we think about election outcomes, we are thinking about what it means for fiscal policy, for tax changes, for spending changes.
Speaker: But actually, remember, a lot of these elections...
Speaker: whether it's those that are happening in the US or quite likely the UK, as well as the likes of Taiwan.
Speaker: A lot of those elections can also influence what happens to immigration policy and trade policy and energy policy, as well as energy transition needs regarding climate change.
Speaker: So, yes, very eventful year ahead, not just for central banks, but for politicians and for electorates.
Speaker: Janet, thank you very much.
Speaker: Thank you, Peter.
Speaker: For more details, please contact askresearch at hsbc.com.
Speaker: Now, we may be only a few days into January, but our team are off to a busy start.
Speaker: Here's a flavour of some of the reports we've published this week.
Speaker: Weixin Chan, head of ESG Research, says 2024 is going to be a waiting game when it comes to climate change, as key elections could shift climate ambition levels.
Speaker: Expect focus this year to be on the implementation of corporate's net-zero goals, climate finance, changes to electricity grids and the disruptive potential in AI and climate technology.
Speaker: Meanwhile, security concerns have intensified in the Red Sea region and Parrish Chain, head of Asia Transport Research, has been looking at the implications for the shipping sector.
Speaker: Container spot rates have soared by over 60% since mid-December and Parish says rerouting ships from the Suez Canal could tighten capacity in shipping markets.
Speaker: And finally, if you're one of our Asian clients, then you can join our team of economists and strategists at the HSBC Asian Outlook 2024.
Speaker: These in-person seminars are taking place from 15-18 January in Beijing, Shanghai, Hong Kong and Singapore.
Speaker: For more details on how to register, please contact your HSBC sales representative.
Speaker: And to find out more about anything we've talked about on today's podcast, please email askresearch at hsbc.com.
Speaker: So that's it for this edition of the Macro Brief.
Speaker: Thanks very much for listening.
Speaker: We'll be back next week.
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Speaker: We hope you enjoyed the discussion.
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