Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
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Speaker: Thank you for listening.
Speaker: Hello and welcome to the Macro Viewpoint by HSBC Global Research, our weekly podcast featuring the views of leading HSBC analysts on the outlook for the global economy and markets.
Speaker: I'm Piers Butler and I'm joined by Chris Brown-Hunes.
Speaker: Hi Piers, coming up in this week's programme, the ECB has just held its latest meeting.
Speaker: We get the key takeaways from Fabio Balboni, senior European economist.
Speaker: We look at how China is aiming to improve its scientific research capabilities and
Speaker: with Erin Chin, Greater China Economist.
Speaker: And Steve McGarry, Global Head of Healthcare Research, looks at some worrying new data about how antibody protection can wane with certain COVID-19 vaccines over time.
Speaker: This podcast was recorded on Thursday, the 22nd of July, 2021.
Speaker: Our full disclosures and disclaimers can be found in the link attached to this podcast.
Speaker: We begin this week in Europe, where the ECB has just held its latest policy meeting.
Speaker: Fabio Balberni, senior European economist, is here to give us the details.
Speaker: So, Fabio, the ECB recently announced a new inflation target, and hence today it changed its forward guidance in the light of that.
Speaker: What did we learn?
Speaker: Yes, Chris, indeed.
Speaker: So the forward guidance was changed today.
Speaker: And there's three main elements of it.
Speaker: So the ECB is now saying they will not increase rates, so they will keep rates at current or lower level until when inflation has hit the new 2% target.
Speaker: So of course, the inflation target was revised up from below, but close to 2% to 2%.
Speaker: So that was factored in the new forward guidance.
Speaker: And that inflation target has to be met well ahead into the forecast horizon.
Speaker: And Christine Lagarde said during the meeting that that well ahead means by the midpoint of the inflation horizon.
Speaker: So for example, currently the inflation horizon goes until the end of 2023.
Speaker: So that will be at some point next year, in the second half of next year.
Speaker: And that inflation has to be sustainably at those level after that.
Speaker: And then in any case, there will have to be a judgment by the governing council that sufficient progress has been made towards achieving that target.
Speaker: So quite a strengthening of forward guidance related to what we had before, which was only a commitment to keep rates at current or lower level until when inflation adds sustainably.
Speaker: met the target.
Speaker: So does this tell us any more about the time when the ECB might start raising rates?
Speaker: Well, look, our expectation has been that it would have taken a long time for the ECB to increase rates.
Speaker: We said we didn't expect any increase of rates until 2023.
Speaker: And the market was instead pricing in the first rate hike by 2023, already 10 basis points.
Speaker: So we think that should definitely push
Speaker: market expectation for the first rate increase towards our view.
Speaker: And as I said before, the midpoint of the inflation forecast at the moment is around the second half of 2022.
Speaker: But by the time we get to December, then the ECB will introduce 2024.
Speaker: And that will move the midpoint of the inflation forecast around mid-2023.
Speaker: And for example, at the moment, the ECB is only forecasting inflation at
Speaker: 1.4% then.
Speaker: So you can see that we're still significantly far off the 2% that ECB is aiming to achieve and in a sustainable manner.
Speaker: And what about the asset purchases aspect?
Speaker: Because at the moment we're currently expecting an announcement on tapering to come as early as this September.
Speaker: Yes, indeed.
Speaker: Today, asset purchases were not discussed.
Speaker: Christine Lagarde made that point clearly.
Speaker: We weren't expecting an explicit discussion.
Speaker: The ECB had said they would reassess asset purchases under the Pandemic Emergency Purchase Program, or PEP, every three months.
Speaker: So they did that in June.
Speaker: And Christine Lagarde said that there would be a reassessment in September.
Speaker: Our expectation is that they would taper asset purchases in September, but there is a big uncertainty.
Speaker: It is possible that the ECB, if they want to show a bigger commitment towards achieving the new inflation target, they might decide not to taper purchases.
Speaker: They could also decide to extend the program, particularly if you are in a new wave of the pandemic.
Speaker: But in general, Christine Lagarde has made the point and reinforced it today that the ECB response will be forceful
Speaker: and persistent.
Speaker: So that remains in line with our view that no matter what happens to PEP, we will see asset purchases continue for a long period of time.
Speaker: And we should see also the asset purchases under the normal QE programs be stepped up in the future.
Speaker: That's great, Fabio.
Speaker: Thank you very much for joining us today.
Speaker: Thank you very much.
Speaker: This week, our Asia economics team kicked off a series of reports on China's innovation through to 2025.
Speaker: The first report looks at how the country is improving its scientific research capabilities.
Speaker: Erin Shin is our Greater China Economist, and she joins us now.
Speaker: So Erin, China's obviously made a lot of progress in terms of scientific research in recent years.
Speaker: What are the areas where you feel it's doing particularly well?
Speaker: So China's made a lot of progress in terms of its R&D.
Speaker: And in terms of its investment, it's actually the second largest globally.
Speaker: It accounts for over 20% of the global spending in R&D currently.
Speaker: And also combined with its strong talent development, we've seen that China's been able to top the rankings in terms of innovation.
Speaker: So in the global innovation index, China is now the only emerging market among the top 20.
Speaker: And since 2019, China has also topped world rankings for the patent applications.
Speaker: Now, we also did a deep dive into where China has some strengths.
Speaker: And we found that looking at the academic rankings among the top 100 universities, China has made a lot of progress in the engineering fields.
Speaker: So China actually has the leading global share
Speaker: among over half of the engineering fields that we looked at.
Speaker: So this is 12 out of 22 of them.
Speaker: So you say it's doing well on the engineering field side, but there are other areas that you've identified where it's not doing quite so well.
Speaker: Yeah, that's correct.
Speaker: So also looking at the academic rankings, we see that among the other sciences, such as natural sciences, life sciences and medical sciences, China's still falling pretty far behind.
Speaker: So it only accounts for about 10% or less generally in these fields.
Speaker: And this is pretty far behind Europe and the US, which can account for anywhere from 30% to 50% in each field, depending on the field.
Speaker: And if China's to make further progress, what do you feel the next steps are?
Speaker: So we think that China is going to take a two-pronged approach.
Speaker: The first one is domestically, we do think that they want to double down on basic research and
Speaker: In the 14th five-year plan, they've set a target to increase the share from the current level of 6% to over 8% of total R&D spending into basic research.
Speaker: So we think that they're going to increase the funding for building national laboratories, as well as talent development programs, as well as giving some more tax incentives to increase basic research funding.
Speaker: Now, the other approach that we see is they're going to increase international collaboration.
Speaker: because it makes more sense that China can close the knowledge gap by learning from others as opposed to reinventing the wheel.
Speaker: So we see China deepening its international collaboration by closing trade and investment deals, as well as implementing more opening and reform to help level the playing field, increasing intellectual property rights enforcement to increase investment and R&D spending in China.
Speaker: Now we also see China looking to become more attractive,
Speaker: for foreign talent.
Speaker: And this can be done by providing personal tax exemptions to be more competitive globally, as well as providing more social services for foreign talent, such as housing subsidies, competitive wages, education for their children as well.
Speaker: Erin, thank you very much indeed for that summary.
Speaker: Thank you, Chris.
Speaker: Now we finish off with a look at some new data that's been published regarding the antibody protection levels of some of the COVID-19 vaccines.
Speaker: Stephen McGarry, Global Head of Healthcare Research, is here to explain.
Speaker: Steve, welcome to the podcast.
Speaker: Thank you.
Speaker: So you've just published a report highlighting that there is a new paper in the medical journal, The Lancet, which has some important data on COVID-19 antibodies
Speaker: were getting from vaccination.
Speaker: Can you tell us a bit more about that?
Speaker: And also just remind the listeners as to the significance of a paper appearing in The Lancet.
Speaker: Sure thing.
Speaker: The Lancet is one of the most prestigious medical journals in the world.
Speaker: Papers only appear there if they've been rigorously peer-reviewed.
Speaker: So when papers come out there, basically the medical and scientific community take notice.
Speaker: The data, the new data, was looked at protective antibodies that have been generated by COVID-19 vaccines over time.
Speaker: And what it shows is that after the second dose, which get of each of either the Pfizer vaccine or the AstraZeneca vaccine, and it's the second dose that gives you the full protection, antibody levels actually decline quite a lot up to about day 70 after the second protective dose.
Speaker: And we're just highlighting that this has now been published and it's something that we need to take note of in terms of how long vaccine efficacy might last.
Speaker: And it looks like, from what you say, that it does matter which vaccine you receive.
Speaker: It does indeed.
Speaker: I think the first thing to say is that it doesn't really matter which of the approved vaccines you get.
Speaker: They're all very effective and likely to remain fairly effective or very effective for some time to come.
Speaker: But we do know that the Pfizer and Moderna vaccines give you about 95% protection.
Speaker: The AstraZeneca vaccine, which has been predominantly used in the UK, gives you about 62% protection after the second dose.
Speaker: However, what this paper points out is that the protective antibody levels are much higher with the Pfizer vaccine than the Astra vaccine.
Speaker: And therefore, when you get significant declines in protective antibodies, you're likely to get, by the looks of it, better protection longer term if you've got the Pfizer vaccine relative to the AstraZeneca vaccine.
Speaker: And obviously, if you get less protection with the Astra vaccine to begin with, the question then becomes at what level or at what point or could this happen?
Speaker: that you reach a level where those antibodies no longer protect you as well against COVID-19 and especially new variants of COVID-19 like the Delta variant.
Speaker: Yes, you mentioned the Delta variant and indeed these conclusions have some significant implications, particularly as the UK has moved to lift most COVID-19 restrictions.
Speaker: Potentially it will do.
Speaker: I mean, if you look at what causes COVID-19 to be transmitted, it's
Speaker: it's closer contact, the lifting of restrictions will mean there is more contact between people in a broad range of settings.
Speaker: Some of those settings would cause increased transmissions, for example, if you go to the beach or you're outside settings, but in crowded indoor settings, lifting of restrictions raises the risk that you do get more transmission.
Speaker: The more transmission you get and the greater exposure to the virus, even if you've been vaccinated, means that you can either pass it on to unvaccinated or clinically vulnerable people
Speaker: Or there's also the risk that even despite vaccination, you could become infected with something like the Delta variant that could still cause illness.
Speaker: And there's always a lag effect.
Speaker: So how long before we know the impact on hospitalisation and mortality?
Speaker: It's a really difficult one to call for the time being.
Speaker: What we saw in the winter, the third peak in winter, there was about a three-week lag between COVID.
Speaker: the peak of the number of infections and the peak of hospitalizations and deaths.
Speaker: Hopefully, and the initial data looks as if this is encouraging, with vaccines having been deployed in a large part of the population in the UK, that gap will become wider.
Speaker: And what's more, the number of hospitalizations and deaths will be significantly more than we saw during the pre-vaccination period.
Speaker: But we'll need to monitor this on a day-to-day basis over the coming months.
Speaker: as the data rolls in every single day.
Speaker: Steve, thank you very much indeed.
Speaker: Thank you.
Speaker: That brings us to the end of today's Macro Viewpoint.
Speaker: Thank you to our guests, Fabio Balboni, Aaron Shin and Steve McGarry.
Speaker: From Piers and me, thanks very much for listening.
Speaker: We'll be back again next week.
Speaker: Thank you for listening today.
Speaker: This has been HSBC Global Viewpoint Banking and Markets.
Speaker: For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.
