Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
Speaker: Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
Speaker: Thank you for listening.
Speaker: You're listening to the HSBC Global Research Macro Viewpoint, where we speak to the economists and strategists behind some of our key reports.
Speaker: In this week's program, we look at how supply chain disruptions might evolve as we head towards peak container shipping season.
Speaker: We assess how economic activity in China is recovering as the authorities battle COVID-19 disruption.
Speaker: And as the UK prepares to celebrate Queen Elizabeth's Platinum Jubilee, we'll look at how the UK economy and markets have changed over the past 70 years.
Speaker: This podcast was recorded on Thursday, the 26th of May, 2022.
Speaker: Our full disclosures and disclaimers can be found in the link attached to this podcast.
Speaker: Hello, I'm Aline Van Dyne.
Speaker: And I'm Piers Butler.
Speaker: We begin this week with a look at global trade.
Speaker: And with Shanghai coming out of lockdown, peak container shipping season approaching, and inflationary pressures continuing to bite, how might supply chain disruption evolve over the coming months?
Speaker: Shanela Rajanagam, trade economist, can tell us more.
Speaker: Shanela, welcome to the podcast.
Speaker: Thank you.
Speaker: So Shanela, can you bring us up to date on where we are in terms of disruption to the global supply chains?
Speaker: Yeah, sure.
Speaker: So there is still a lot of disruption in the system, and that has been recently exacerbated by the Shanghai lockdowns, but also by the war in Ukraine.
Speaker: However, in the recent weeks, there have been some bright spots.
Speaker: Shanghai is now coming out of lockdown, and it is on track for some sort of normalisation in June.
Speaker: However, new cases are popping up in other parts of mainland China.
Speaker: And just to put some numbers around it, as at the 13th of May, nearly half of Shanghai's 9,000 biggest industrial companies had resumed production.
Speaker: However, many of these businesses are not yet operating at full capacity, and there are still some issues with logistics.
Speaker: And so port delays, particularly on the import side, still persist coming into Shanghai.
Speaker: And so there really is a long way to go before operations fully normalize.
Speaker: You mentioned the war in Ukraine.
Speaker: What's the impact been from that?
Speaker: So we have seen over the past few months, a number of economies implement various types of sanctions on Russian trade.
Speaker: But given the importance of Russia and Ukraine for agricultural production and trade, food protectionism as well has been on the rise.
Speaker: So currently there are over 20 countries that are implementing some sort of food export restriction, and this is similar to the number of economies that restricted food exports during the food price crisis of 2008 at the equivalent stage in time.
Speaker: And just recently, India moved to ban exports of wheat, mainly due to the constrained supply from Russia and Ukraine, but also because of the heat wave that it's currently experiencing.
Speaker: And this caused wheat prices to spike.
Speaker: So there are still some challenges out there.
Speaker: How likely is it that these bottlenecks will ease?
Speaker: So it is still very difficult to say when exactly these disruptions might ease, but I think a lot of it will depend on how exactly consumer demand evolves in the second half of this year.
Speaker: So currently the US National Retail Federation expects containerized retail imports to grow by around 3% year on year over June to September this year.
Speaker: But there is a risk that demand could wane if inflationary pressures continue to bite.
Speaker: But this, of course, could help to ease some trade disruptions in certain sectors going forward.
Speaker: I think it's also worth noting that peak container shipping season is nearing.
Speaker: And given all the disruption that businesses are facing at the moment, our shipping analysts are actually cautioning that this year's peak season could be more disruptive than previously.
Speaker: We could be in a situation, for example, where there are pent-up shipments coming from mainland China.
Speaker: Businesses could be bringing forward their holiday restocking.
Speaker: Plus, there's also the issue of ongoing labour contract negotiations at US West Coast ports, which could again lead to some
Speaker: operational disruption.
Speaker: Finally, Chanel, Brexit is back on the agenda.
Speaker: How could trade be effective?
Speaker: Yes, that's right.
Speaker: So Brexit's back, although, of course, businesses have been grappling with Brexit-related challenges for a number of months now.
Speaker: And actually, it is the leading cause of exporting challenges for UK businesses.
Speaker: Where we are at currently is that the UK intends to introduce some legislation in the coming weeks to essentially override or disapply aspects of the Northern Ireland Protocol.
Speaker: This is mainly to facilitate the free flow of trade from Great Britain to Northern Ireland, but they also intend to amend some other aspects, so around VAT,
Speaker: around subsidy control and also governance.
Speaker: Now, we think this move is mainly designed to get the EU back to the negotiating table.
Speaker: But of course, there is a risk that the EU could retaliate, possibly with some targeted tariffs.
Speaker: They could look to withdraw the UK's data adequacy decision, or they could even withdraw from the entire trade deal.
Speaker: Shanela, that's a great summary.
Speaker: Thanks very much.
Speaker: Thank you.
Speaker: As just discussed, parts of China have been severely disrupted by COVID-19 related lockdowns.
Speaker: And although cases in Shanghai have dropped, flare ups are persisting in other areas.
Speaker: Let's get an update from Shan Shan Song, Greater China Economist.
Speaker: Shan Shan, what's the latest in terms of case numbers and restrictions in China?
Speaker: Well, the pandemic situation in China has been generally under control during the past week.
Speaker: In the case of Shanghai, for example, new cases have dropped to below 1,000 daily cases for 11 days, when it used to be above 20,000 daily cases in the pick times in mid-April.
Speaker: And in terms of peripheral provinces like Jiangsu and Zhejiang provinces, the pandemic has also been generally under control with only single-digit number of daily new cases in the past week.
Speaker: And the rest of the country generally sees a few hundred daily new cases recently, but it's also on a downward trend.
Speaker: It's just worth highlighting that the situation in Beijing and the neighbor or port city of Tianjin is worsening with still dozens of new cases per day.
Speaker: And in terms of containment measures, well, the city of Shanghai is still in lockdown.
Speaker: But there are removal of restriction measures at regional level.
Speaker: So the population in Shanghai under level one and two lockdowns, i.e.
Speaker: home or residential community based quarantine was reduced by a large extent over the past week.
Speaker: But in the city of Beijing and Tianjin, for example, the majority of the residents are required to stay at home and outdoor activities are highly discouraged.
Speaker: And has economic activity started to recover?
Speaker: Economic activity continued to recover from the nadir in the April.
Speaker: So if we look at Shanghai specifically, traffic has picked up from the nadir, but only very moderately.
Speaker: The city promised to start three-stage reopening from around yesterday, and it aimed to realise full normalisation in June.
Speaker: But if we look at the traffic data and housing sales and other economic activities, there was still only minor pick-up from the native points.
Speaker: In the cases of Beijing and Tianjin, for example, the traffic and economic activities are still worsening in general.
Speaker: But a nationwide economic activity
Speaker: continue to improve during the past week.
Speaker: So in general, I'd say economic activity is recovering, but it still takes some time for the pandemic hit cities to recover fully.
Speaker: What additional measures have policymakers taken to try and support the economy?
Speaker: Well, with economic growth still under persistent pressure and the Omicron situation remaining highly uncertain, there has been
Speaker: a ramp-up of policy support from the recent State Council Executive Meetings, especially the one that was held this Monday, Premier Li Keqiang introduced a series of 33 measures focusing on six areas to help support economic growth.
Speaker: These include fiscal policy, financial policy, and also other policy support aiming at the harder-hit areas like supply chains and consumption, etc.
Speaker: For example, the tax rebates
Speaker: will be expanded and also increased to more industries and payment of fees and loans will be deferred for those hard to hit areas and businesses.
Speaker: And in terms of financial policy, the SME inclusive loan support tools will be doubled in amount and proportion, and the large and state-earned banks will also be guided to increase SME inclusive loans.
Speaker: It is also worth mentioning that at a national teleconference that was held only yesterday, the key message is to act quickly and
Speaker: and to implement all those measures as quickly as possible.
Speaker: Shan Shan, thanks very much for your time.
Speaker: Thank you.
Speaker: We finished this week here in the UK, where 2022 sees the Platinum Jubilee of Queen Elizabeth II.
Speaker: To mark the occasion, our teams from across the asset classes have been looking at how the UK's economy and markets have changed over the past seven decades.
Speaker: Simon Wells, Chief European Economist, joins us now.
Speaker: Simon, welcome.
Speaker: Hi.
Speaker: So how does the UK economy today compare with 1952?
Speaker: Well, in some ways, there are some similarities because back when the Queen ascended to the throne, retail sales were at low levels, the public was reluctant to buy and stores were facing rising costs, which could equally apply today.
Speaker: But of course, the structure of the economy has changed enormously with a huge shift
Speaker: away from areas like manufacturing and mining and a much more service-based economy.
Speaker: And of course, we've pretty much had seven decades of uninterrupted growth.
Speaker: Although that pace of growth has maybe slowed as time has gone on, real GDP per capita has still more than tripled since 1952.
Speaker: And if we look at the FX market, sterling has had several seismic events to deal with, hasn't it?
Speaker: Well, it certainly has.
Speaker: I mean, shortly before the Queen came to the throne, you could have got $4.03 to your pound.
Speaker: But after several big devaluations, the pound had almost reached parity with the dollar in 1985.
Speaker: And even after then, there were some very big events, the global financial crisis, Brexit referendum, and of course, Black Wednesday in 1992, when sterling crashed out of the European exchange rate mechanism.
Speaker: The stock market has come a long way.
Speaker: What changes have we seen?
Speaker: The stock market has also changed quite a bit, although in the report we show that maybe some of the companies that were in the FT30 back in 1952 haven't changed quite as much as you might first imagine.
Speaker: What has changed, of course, is the level of prices.
Speaker: Between this year and 1952, UK equity prices have risen a massive 10,000%.
Speaker: Although, again, the pace of increase has been a lot slower in the 21st century than it was in the 20th century.
Speaker: And what do the data say about consumer tastes?
Speaker: Well, of course, these have changed remarkably over 70 years, as you might expect.
Speaker: Let's take celebratory drinking, for example.
Speaker: According to the items that go to make up the UK's inflation basket, in 1952, you pretty much faced a straight up choice between beer and whiskey.
Speaker: This year, you've got lager, cider, vodka, wine, spirits and gin, all feature.
Speaker: So there's a much wider choice of stuff to raise a glass to.
Speaker: But some things haven't changed.
Speaker: 1970s fears that metrication and European rules would mean pub goers would soon have to order beer in 0.568 of a litre were, of course, unfounded and the good old pint has prevailed.
Speaker: As you've been doing your research, what else has stood out?
Speaker: Well, as well as changing drinking tastes, one thing that we thought was interesting was the humble men's suit fell out of the inflation basket this year.
Speaker: So that really shows changes in working practices and working attire.
Speaker: And who knows what further changes await us over the coming 70 years.
Speaker: Simon, many thanks.
Speaker: Thank you.
Speaker: So that's all from us today.
Speaker: Thank you to our guests, Shanella Rajanayagam, Shan Shan Song and Simon Wells.
Speaker: And as a result of those Jubilee celebrations that we've just talked about, we have a long weekend coming up here in the UK.
Speaker: So we'll be back again in two weeks time.
Speaker: We'll speak to you then.
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.
