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: Thanks for listening.
Speaker: And now onto today's show.
Speaker: You're listening to the HSBC Global Research Macro Viewpoint, our weekly review of the key reports from our economists and strategists across the globe.
Speaker: Coming up this week, we look at whether the latest economic data could drive a dovish turn by central banks.
Speaker: We find out how power cuts and transport disruptions are hurting South Africa's growth outlook.
Speaker: And we consider whether oil prices are poised to hit triple digits.
Speaker: This podcast was recorded on Thursday the 10th of November 2022.
Speaker: Our full disclosures and disclaimers can be found in the link attached to this podcast.
Speaker: Hello, I'm Aline Van Dyne in New York.
Speaker: And I'm Piers Butler in London.
Speaker: Financial markets are waiting to see when central banks will slow the pace of interest rate hikes or stop hiking altogether.
Speaker: But do the latest economic data suggest that pivot is on the cards?
Speaker: James Pomeroy, global economist, is here to give us the details.
Speaker: James, welcome to the podcast.
Speaker: Thanks for having me.
Speaker: So James, are there signs of the data becoming more dovish?
Speaker: There's a few things happening at the moment.
Speaker: So firstly, you've had a little bit of a turn in some of the inflation data.
Speaker: Now, not necessarily those headline or core CPI prints that we all look at every single month, but some of the underlying inflation with pressures.
Speaker: So things like the PMI input price data,
Speaker: some of the shipping data, some of the commodity price data, these things continue to move a little bit lower and suggest maybe some of those inflationary pressures could be dissipating as we go forwards.
Speaker: There's also been a little bit of softness in some of the labour market data or at least things not looking quite so tight.
Speaker: And some of the activity data looks like it could move lower, particularly if some of these very weak services, PMIs in particular, do feed through into weaker consumer spending.
Speaker: And how are consumers and businesses faring?
Speaker: Well, for now, things are looking OK, even though people, both consumers and businesses, are telling us they're not.
Speaker: So there's a huge discrepancy at the moment between consumer confidence and surveys, which are pointing down or pointing to record lows or the lowest numbers we've seen in some time.
Speaker: But the actual hard data, GDP data is holding up pretty well generally because of household spending.
Speaker: Businesses are seeing output continue to pick up, industrial production data look pretty solid, and consumers do continue to spend on the monthly data as well, which are seeing a little bit of a rotation from good spending into services.
Speaker: But by and large, the hard data are holding up, even if there is a lot of pessimism out there from both consumers and from businesses.
Speaker: So you mentioned the latest PMI data or the Purchasing Managers Index.
Speaker: What's the story there?
Speaker: So I touched on some of the prices data, and that's really important because what we are seeing in the PMI data is a much better outlook in terms of some of the supply chain challenges and some of the pricing issues that businesses have faced, particularly in 2022.
Speaker: Those numbers have started to look a lot better.
Speaker: So the supply delivery times data looks much better.
Speaker: It's actually back to sort of pre-pandemic norms.
Speaker: in most large economies and the input price data dropping too as a result.
Speaker: But whilst that may be good news, it's largely happening because of bad news.
Speaker: It's happening because demand is softer, because output is weaker.
Speaker: And you can see this in the services data, particularly in the US that look a little softer.
Speaker: And the manufacturing data that do look
Speaker: quite vulnerable in most of the world.
Speaker: So in Europe, those numbers do look particularly bad.
Speaker: It is worth flagging, though, it's not necessarily universal.
Speaker: There are some parts of the world where the data look better.
Speaker: So in Brazil, in India, and some of the manufacturing data in other parts of Asia do look better.
Speaker: It's Europe where they're weakest, and the US data where they look a little softer as well.
Speaker: How would central banks react to all this?
Speaker: So if you're a central bank at the moment, you're sort of torn between these very high inflation prints we're seeing at the moment and some of these risks that are building, both at a downside in terms of inflation, but also some of the downside growth risks from those higher rates from these downbeat surveys.
Speaker: And that's the challenge and what we've seen in recent weeks is some central banks pivot away from aggressive tightening so seen this in Australia and Canada in Norway and to an extent we've seen.
Speaker: almost promise of this to be the case in the UK and in the eurozone so maybe we are moving towards a world where central banks are tightening less quickly.
Speaker: but we're still some way from the peak in terms of rates.
Speaker: We're still gonna see rates continue to rise in most parts of the world.
Speaker: It may well be there's a little bit more caution at play here with interest rate increases being a lot slower in the months to come.
Speaker: James, thanks very much.
Speaker: Thank you.
Speaker: We head to South Africa now, where the country's economic prospects have deteriorated, owing to a range of challenges.
Speaker: Let's hear from David Faulkner, Chief Economist for South Africa, who joins us from Cape Town.
Speaker: So David, a few serious headwinds to growth around power and transport issues.
Speaker: Tell us a bit more about what's going on and how it's affecting the outlook.
Speaker: Well, what we've seen in the recent figures and numbers is that energy shortages, which have been a fixture of the South African economy in recent years, have certainly worsened in 2022.
Speaker: At times, we've had as much of it as a sixth of the grid of demand being taken off
Speaker: by the state-owned energy company Escom because of a significant surge in unplanned outages that led to these shortages.
Speaker: At the same time, we've also had, as a result of strikes, Labour strikes, negative impacts on the transport network.
Speaker: So you've had the state-owned transport company Transnet having disruptions on its rail network, on
Speaker: It's port networks that have impacted the ability to move goods around the country, but also impacted imports and exports.
Speaker: So we think this is going to be a big headwind for the fourth quarter and have actually taken our growth numbers down as a result.
Speaker: We're now looking for a contraction in Q4 and for growth to be just 1.6 percent in 2022.
Speaker: We unfortunately think that there's going to be a further deceleration.
Speaker: next year in 2023, partly because of these ongoing impediments, but also in terms of a slower global economy and also a number of headwinds facing the South African consumer, including higher inflation and rising interest rates.
Speaker: So on that point of higher inflation, are there any signs that this is coming down or is it proving to be fairly sticky and persistent?
Speaker: At the moment, there are signs that there's a degree of stickiness on the inflation profile.
Speaker: Inflation was 7.5% in September.
Speaker: We think there's going to be a little bit of an acceleration in the near term and stay above 7% until the first quarter, at the end of the first quarter of 2023.
Speaker: This is some way above the South African Reserve Bank's inflation target range, which is between 3% and 6%.
Speaker: And I think that lends itself alongside the pace of tightening from the US Federal Reserve, alongside the pressure that we're seeing on the round exchange rate to keep the Reserve Bank in a fairly active position in terms of its hiking cycle and hiking schedule.
Speaker: We have the next monetary policy decision
Speaker: in two weeks time for November.
Speaker: There we expect the South African Reserve Bank to raise interest rates by 75 basis points.
Speaker: We have another 50 basis point rate hike in for January 2023.
Speaker: And we see that as taking us to a terminal rate of around seven and a half percent that continues through 2023 and 2024 in a position that starts to guide inflation and expectations back towards the midpoint of that target range, four and a half percent.
Speaker: So plenty of headwinds.
Speaker: What are the areas of strength in the economy at the moment?
Speaker: Well, while inflation is elevated, I think you're getting an appropriate policy response from the Reserve Bank.
Speaker: I think generally you're seeing an institutional strength across macro policy, so including the South African Reserve Bank and then the National Treasury.
Speaker: The National Treasury are guiding fiscal policy improvements,
Speaker: Through the course of this year, we had the medium term budget policy statement.
Speaker: So the kind of mid year budget from the government a couple of weeks ago that laid out much better fiscal forecasts for the current fiscal year.
Speaker: It brought down the deficit by more than one percentage point.
Speaker: of GDP as a big increase in government revenues and some ongoing constraint on spending mean that you've got better budget outcomes.
Speaker: I think that's also a positive.
Speaker: It's enabled the government to boost its cash buffers, to reduce debt issuance through the rest
Speaker: of this fiscal year.
Speaker: And I think those are positives.
Speaker: And it's also the case that the commodity price picture through the course of this year has been supported for the external position.
Speaker: So we continue to see trade surpluses on a monthly basis.
Speaker: We expect that the current account will be more or less in balance on average through the course of 2022 and 2023.
Speaker: And so that isn't a big source of vulnerability from an external perspective.
Speaker: So that too is a positive.
Speaker: So while you have these growth and inflation headwinds, I think you have some offset from institutional strengths and also better macro balances.
Speaker: David, thank you so much for that update.
Speaker: Thank you very much.
Speaker: I'm Harold van der Linde.
Speaker: And I'm Fred Neumann.
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Speaker: We finish up this week in the oil markets, where our team has been assessing the outlook for prices as we head into 2023.
Speaker: AJ Palmer, oil and gas analyst, is here to give us the details.
Speaker: AJ, welcome to the podcast.
Speaker: Thank you, Piers.
Speaker: Pleasure to be here.
Speaker: So AJ, you've updated your outlook for the oil market.
Speaker: Let's take it firstly from the supply side of the equation.
Speaker: What's the outlook there?
Speaker: So generally, I'd say in the very near term, pretty well supplied.
Speaker: We have the US SPR releases.
Speaker: So the US has announced that they will continue inventory releases into December.
Speaker: But as the next few weeks and months progress,
Speaker: supply will tighten and we think will tighten considerably.
Speaker: We have, of course, the OPEC Plus production cut, which is due for implementation in November.
Speaker: That's a headline cut of two million barrels per day, but also the EU embargo on Russian crude oil imports, seaborne imports specifically there, will be implemented in early December.
Speaker: We expect that that will push Russian oil production down considerably.
Speaker: And so as we as we reach into early 2023,
Speaker: we think supply is going to be reduced quite significantly compared to the levels that we're seeing right now.
Speaker: And what about on the demand side?
Speaker: Clearly, we are seeing lots of headlines about potential recessions in Europe, the UK, the US.
Speaker: How is that affecting the supply and demand situation?
Speaker: Yeah, absolutely.
Speaker: We are not looking at significant levels of oil demand growth in 2023.
Speaker: And that is primarily because of the global economic backdrop, as you just mentioned there.
Speaker: If you look at those OECD countries or OECD regions in general, we are not looking at particularly strong growth there at all.
Speaker: And that will reflect on overall oil demand growth.
Speaker: There are some areas where we will see some
Speaker: Oil demand growth, primarily China, India, those countries.
Speaker: We are generally expecting strong economic growth next year in 2023.
Speaker: And we see that reflecting in the oil demand picture for those countries as well.
Speaker: But overall, fairly tepid demand growth next year.
Speaker: So putting it together, it feels like a fairly balanced outlook in terms of the direction of travel?
Speaker: I think that's definitely fair to say.
Speaker: I would say that early next year, we're expecting some support to come in the crude market off the back of those supply cuts that I just outlined earlier on.
Speaker: And we expect that that will support crude prices in that first quarter and lift up prices from where we are right now.
Speaker: But that overall poorer global economic picture in the rest of 2023, we expect will help to pull crude prices downwards again.
Speaker: AJ, thank you very much for joining us.
Speaker: Thanks, Biz.
Speaker: So that's all from us this week.
Speaker: Thanks to our guests, James Pomeroy, David Faulkner and AJ Palmer.
Speaker: From all of us here on the team, thanks for listening.
Speaker: We'll be back again next week.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
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