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The Macro Brief – Our global outlook at the tail end of '24
39 Plays6 months ago
Piers Butler is joined by Global Chief Economist Janet Henry for a catch-up on the world's top macro talking points as we enter the final quarter of the year. Disclaimer: https://www.research.hsbc.com/R/101/lScnbwd. Stay connected and access free to view reports and videos from HSBC Global Research follow us on LinkedIn https://www.linkedin.com/feed/hashtag/hsbcresearch/ or click here: https://www.gbm.hsbc.com/insights/global-research.
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Transcript
Introduction to HSBC Global Viewpoint Podcast
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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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Make sure you're subscribed to stay up to date with new episodes.
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Thanks for listening.
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And now onto today's show.
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The following podcast was recorded for publication on the 26th of September by HSBC Global Research.
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All the disclosures and disclaimers associated with it must be viewed on the link attached to your media player.
Global Economic Outlook Q4 2024
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Hello, I'm P.S.
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Butler and welcome to this edition of the Macrobrief.
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Our focus today is on the outlook for the global economy as we head into the final quarter of 2024.
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And to do that, I'm joined by our global chief economist, Janet Henry.
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The wait, of course, is over.
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The Fed is now firmly on the path of lower interest rates after its 50 basis point cut on the 18th of September.
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And this week, China unveiled a raft of measures to boost its growth and stabilize its property sector.
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Also, we're now under 40 days from the US presidential election, and two major conflicts are still underway in the world.
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And yet, when we look at HHBC's latest growth forecasts in this week's quarterly outlook, Janet, they're broadly unchanged.
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Talk us through that.
Interest Rates and Inflation Trends
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Well, yes, Piers, we are absolutely still in a highly uncertain world.
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But let's not forget, inflation has come down a lot.
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The Fed has had rates on hold for more than a year now.
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And actually, yes, there is an enormous amount of uncertainty.
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But the prospect of interest rate cuts coming through, the fact that inflation has come down, we have seen the global economy continue to expand.
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It's quite a familiar story.
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We've got used to it over the last year or more.
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where typically China certainly recently has continued to disappoint.
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Europe continues to underperform, even though Europe's looking slightly better than it was in the second half of last year.
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But it's the familiar outperformers.
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Once again, it's India and it's the US that are still surprising on the upside.
Global GDP Forecast for 2025
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So just in broad terms, the big numbers in terms of GDP growth forecasts?
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Well, our global GDP forecast for 2025 haven't changed.
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Globally, we're at 2.6%.
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We measure global growth in nominal GDP weights, so it might differ from some of the others' numbers that you hear reported by the IMF and others.
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But actually, for next year, that means it's pretty much in line with our estimate for this year, which is 2.7%.
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And within that, we don't have many economies that are in outright recession.
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But certainly within Europe, Germany is the one.
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Germany continues to underperform.
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And for the US, we've actually revised up by about 0.3% for the coming year.
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So let's turn to China.
China's Economic Stimulus Measures
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It's always very dangerous in markets to say this time it's different.
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But the scale and extent of the stimulus measures that have been announced this week are pretty significant.
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Yes, the recent data in China has been disappointing and it hasn't just been in property related sectors and consumption, even some disappointment in industry and on the investment side.
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But there does seem to be a new urgency about the measures.
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You know, what we've heard in the last week is a whole range of monetary measures, interest rates cut across the board, perhaps a little bit easier now.
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that the Fed's cutting as well, also measures related to the market and to the property sector.
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And there is the promise of fiscal measures that might support consumer demand a little bit as well.
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So I think, you know, certainly there is an urgency to try to meet the government target of around 5% for this year.
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So we'll have to wait to see that these fiscal measures, which the details are still coming through, if that really does feed through into a more significant consumer recovery.
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So incrementally, we're seeing this positive news out of China, whereas in the US, the labor market data is kind of rekindling fears that perhaps the Fed has waited for too long and maybe there's more of a risk of recession.
US Economic Performance
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What do you think of that?
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Well, the Fed has made it clear that it does not believe it is behind the curve.
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But they do think that the risks on inflation have diminished and the risks on the labour market have increased.
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I mean, it's interesting in terms of the real economy, it looks like third quarter GDP in the US will still be close to 3%.
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So it is still growing.
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But we have seen a clear softening in the labour market.
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But one of the things we've done in the report is create a kind of heat map.
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of all of the US labour market indicators and seeing how they are performing relative to the last 10 years.
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And payrolls have certainly been weaker.
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But when we look at that heat map, there are not many alarm bells ringing.
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We think it's a softening from that massive post-pandemic bounce back in employment and a lot of the fiscal stimulus.
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And it's now returning to something a little bit more normal.
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So and the other thing we looked at is what's happening on the profits picture.
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The corporate profit share in GDP is still very close to its highest level for several decades.
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So, yes, risks of hard landing have increased, but it's still not our view.
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We've never been forecasting a US recession post pandemic.
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We think growth will slow.
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We think consumer spending will slow, but it will probably still be growing more quickly than in Europe.
Europe's Growth Challenges
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What about Europe?
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It doesn't seem to grab the headlines as much as the US or indeed China, but should we be paying more attention to Europe?
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Well, when Europe does grab the headlines, it's typically recently in regards to its weakness of growth.
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And a lot of that really does stem from the German story.
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You know, what Germany is suffering from at the moment is clearly a product mix that the world is not demanding.
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at the moment.
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You know, we are seeing some improvement in world trade growth over the course of 2024, but it's very tech focused.
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It's very much driven by US demand as well.
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And Europe is really underperforming on the export side.
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And so it's a cyclical economy.
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So growth will be weaker.
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But the other area where Europe's been a bit disappointing is on the consumer side.
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And in this sense, it's not unlike China.
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One of the challenges is that savings rates are stuck at stubbornly high levels.
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So real income has been improving.
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Inflation's come down.
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Wage growth has come down by a lot less.
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You've seen an improvement in wage growth.
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But consumers are not spending it.
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Consumption is very,
Impact of Lower Oil Prices on Europe
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very weak.
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We have to hope that this fall in oil prices provides something of a tailwind.
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Well, I was going to ask you about that because in your report you talk about this possible tailwind, at least for some, but with negative consequences for others.
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Can we sort of detail that out a bit?
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Yes, of course.
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And what we saw, particularly after the Russian-Ukraine conflict began, was something of a redistribution of income away from oil-consuming countries towards those oil producers.
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So certainly the Middle Eastern economies have been very, very buoyant on growth, helped by these oil revenues, as well as some non-oil growth.
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in recent years.
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So now that oil prices have come down and we can't be certain that this will continue, but global oil demand has been weakening, then that is a tailwind for Europe.
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The energy contribution to Eurozone inflation will be probably 0.3 or 0.4% lower in the coming year.
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as a consequence of this oil price move that we've seen.
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Because also remember the euro is strengthened over that period.
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So yeah, that helps consumers.
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If they're spending less on energy related products, they've got more to spend should they be willing not to raise their savings rates to ensure that they get more of a consumption recovery.
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And is inflation finally under control, broadly speaking, or are there still risks out there that it might sort of surprise?
Inflation and Monetary Policies
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The news on inflation has been good in the last few months.
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We have seen a raft of some downside surprises.
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It has primarily been energy related.
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So it's been kind of headline inflation, particularly in the eurozone.
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You're still hearing these comments from the ECB about the problems with stickiness of service sector inflation.
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And interestingly enough, in the US, core goods inflation is actually a lot lower than
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than it is in Europe, because in the US, you know, you are seeing outright declines in goods prices.
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So I would say, yes, inflation is heading in the right direction.
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I don't think it'll be a steady path down from here, but the oil prices helped.
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And really, you know, a lot depends on what, you know, what happens regarding, I guess, trade frictions and other commodity prices and what happens to wage growth in the coming year, but generally heading in the right direction, if still not yet at central bank.
00:09:07
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So it would be fair to say that we are much more in a global easing cycle.
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And I guess the question here is, when do we get to this so-called neutral rate, i.e.
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when central banks feel they've done enough of the easing?
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And where are we relative to consensus on that?
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Yeah, that is a good question.
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Suddenly everyone's talking about the neutral rate.
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And if only we could say in real time exactly when we are at the neutral rate, where we're no longer adding stimulus to the economy or indeed restraining growth by keeping it too tight.
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So estimates of the neutral rate are constantly being revised.
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You don't know until you've hit it.
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So in terms of our forecast for the major central banks, we expect both the Fed and the ECB
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to cut interest rates at all of the consecutive meetings now until the second quarter.
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So we see the Fed stopping in June with interest rates at 3.25 to 3.5%.
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That's roughly in line with where we estimate the neutral rate, the current neutral rate probably is.
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And for the ECB, we expect them to cut every meeting now until April, taking rates down to 2.25%.
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We think it is lower there.
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But where we differ, certainly from market pricing, is that we stop there and then we have rates on hold.
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We think that both economies will respond to that easing, that policy does not need to go increasingly accommodative.
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The market's priced in rate cuts for the second half of 2025 and indeed even into 2026.
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Janet, thank you very much for joining us today.
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Thank you, Piers.
Emerging Markets and Investor Sentiment
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The Global Economics Quarterly from Janet's team was one of a number of key reports this week.
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The HSBC Emerging Markets Sentiment Survey also landed.
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The survey shows investors still feel bullish despite parking more of their cash on the sidelines.
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We'll be talking more about emerging markets in our edition next week with Murat Organ, our Global Head of Emerging Markets Research.
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But for this week, that's all the time we have.
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From all of us here at HSBC Global Research, thanks very much for listening.
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Thank you for joining us at HSBC Global Viewpoint.
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We hope you enjoyed the discussion.
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Make sure you're subscribed to stay up to date with new episodes.