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The Macro Viewpoint - Will AI take your job and how much will the ECB’s rate hikes hurt?
29 Plays2 years ago
James Pomeroy looks at how advances in AI could reshape the world of work, Fabio Balboni explains why ECB rate hikes may hurt growth more than expected and Jon Brandt considers how China’s reopening could boost metals prices. Disclaimer: https://www.research.hsbc.com/C/1/1/320/nHXXldS 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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Introduction to Macro Viewpoint Series
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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, and now onto today's show.
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You're listening to the Macro Viewpoint, our weekly focus on the views of the HSBC Global Research Team.
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This podcast was recorded on Thursday the 26th of January 2023.
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Our full disclosures and disclaimers must be viewed in the link attached to this podcast.
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Hello and welcome everyone.
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Will
AI's Impact on Jobs and Global Markets
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artificial intelligence one day take your job?
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We're going to explore what AI advancements may mean for all of us in the labour market today.
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Ahead of big decisions next week by the Fed, the ECB and the Bank of England policymakers, we focus on how the aggressive rate rises to treat inflation here in Europe may affect the region's growth prospects.
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And with the focus in financial markets on the impact of China's reopening, we are looking at the outlook for metals around the world.
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Hello, I'm Aline Van Dyne in New York.
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And I'm Piers Butler in London.
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We begin this week with a look at a technology that has seen rapid developments in recent years, artificial intelligence.
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Users can now create images and text in an entirely self-generated manner with OpenAI's chat GPT tool getting much attention and a multi-billion dollar investment from Microsoft.
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So what do these advancements mean for the economy and the labor markets in particular?
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Could AI really take your job or mine?
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Let's ask James Pomeroy, Global Economist.
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Hi, James.
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Welcome to the podcast.
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Thanks for having me.
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So, James, should I be worried?
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Possibly.
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I think it's quite likely that artificial intelligence and the rapid developments we've seen over the course of the last few months in particular are making us think about the role that it's going to have in influencing the labour market going forwards.
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I don't think necessarily it's going to take away an enormous amount of people's jobs entirely.
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I think the impact of artificial intelligence is going to be much more so taking away parts of our jobs.
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And actually, the encouraging thing is it's probably going to take away the boring parts of our jobs, the bits that are repetitive, the bits that don't require any really complex thought or idea generation, and a lot of the processes that we do day to day.
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So I think AI will not necessarily
AI Innovations and Challenges
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take many jobs, but the parts of our jobs it takes will be probably much more interesting.
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So you have this fascinating chart in your report that shows that the interest in AI has rocketed up.
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And I guess that's because the AI du jour is chat GPT.
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Explain to us why that's become such a sensation.
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So for a long period of time, economists and technologists have thought about artificial intelligence, this amazing technology that will transform the world at some point in the future.
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But then essentially what we got at the back end of last year was the release of this chat bot, ChatGPT, which essentially has brought really showcasing the power of artificial intelligence very, very clearly in a way that people can use very, very easily.
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So it's allowed everyone in the world suddenly has access to this amazing AI bot and it's really unleashed the potential of what it's capable of.
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Now, that tool in itself is powerful and is an interesting development and will help a lot of people with their jobs or personal lives.
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And I think it's a really, really, really good invention.
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But the problem is that that's only the starting point.
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We then have to think, where does it go from here?
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And I think the
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huge leap forwards we've seen in the past few months has basically got people thinking.
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What is next in terms of artificial intelligence and how could it be rolled out much more broadly into people's jobs?
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And it's that next step that's really, really exciting when we think about some of the use cases, some of the impacts on the economy and, of course, the impacts on the labour market.
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So it's sort of got people thinking rather than necessarily being game changing all by itself, no matter how good a step it has been.
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And the challenge, in fact, is that ChatGPT doesn't always give the right answer.
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And that makes me think about what's the governance around something such as that?
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Yeah, it's a particularly difficult issue here because there's a whole load of challenges you've got with artificial intelligence.
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You've got to think about whether it's biased in terms of how it's coded.
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You've got to think about the accuracy of it that needs to be checked.
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And therefore, you've got to think about how do you go about controlling for those things?
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These are clearly big, big hurdles.
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But if you take the examples of how it can be used at the moment, particularly regarding digging into topics or problem solving or coming up with ideas, it's very easy to verify a lot of the output you're getting.
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But we need the artificial intelligence to improve or to develop in a way going forwards that allows it to be much more embedded within systems and thus not having to continually check or verify the output that it's giving us.
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So at this stage, it is a challenge, it's a hurdle, but going forwards,
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better artificial intelligence will probably alleviate some of those concerns, even if we can't get rid of them completely.
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But as they say, this is a stepping stone on a journey to a world where artificial intelligence is more widely used.
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So fascinatingly, you went to ChatGPT and you had a conversation about the future of AI.
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You asked ChatGPT a number of questions and the full conversation is in the report.
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One of the questions that I thought was quite brave of you to ask was what was going to be the economist's role and how would it be affected by AI?
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What was the answer to that?
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It gives quite a complex answer looking at the sort of skills that economists have and some of the roles that can be, so parts of the role that can be automated away by artificial intelligence.
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So it can analyse data, interpret data, possibly even more efficiently than we can.
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Of course, some economists would argue that that is impossible.
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But there is also thinking in our job, in particular as economists,
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There's a genuine role for ChatGPT in his current form, which is essentially the start of a lot of research reports.
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And he's trying to dig out and find historical precedents or other articles that people have written or other analysis that people have done.
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It's just a really, really powerful tool to get a lot of base research done in terms of generating ideas, in terms of generating reports and in terms of building data that you can analyze.
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So I think at the moment, economics actually is a job where
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It fits this sort of brief really, really well that artificial intelligence isn't going to take our jobs necessarily, but it's probably going to act as an enormous productivity benefit if we can use the technology properly.
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Well, I'll look forward to that.
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James, thank you very much for joining us.
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Thank you.
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We've got a big
European Central Bank's Inflation Strategy
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week coming up for central banks.
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Here in Europe, the ECB has hiked rates by 250 basis points since last July, making it the most aggressive tining cycle in its history.
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And with more rises still expected, including at next Thursday's meeting, what could be the impact on the region's growth outlook?
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Fabio Balboni is our senior European economist, and he joins us now.
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So Fabio, a lot of challenges, of course, still in Europe in terms of inflation, growth, the outlook.
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How is the ECB going to handle this at next week's meeting?
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Well, we think the ACB will stay the course, so we expect another 50 basis point rate rise, and we do not expect any signaling of a possible slowdown in the future.
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So we expect a continuation of the hawkish tone that we had in December.
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And the main reason is that even though we had some positive news in terms of inflation,
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It does seem that finally inflation is past the peak in the eurozone.
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Headline figures are starting to come down.
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Actually, the main reason is policy intervention and a significant drop in energy prices.
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Gas prices have halved since last December.
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But when you look at underlying inflationary pressure, they're still building up.
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Core inflation is still going up in the eurozone.
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And that means that there is still a risk of a possible wage inflation spiral emerging.
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And the ECB is very well aware of that.
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And what about the growth outlook?
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Because if you look at the cycle a bit more broadly and looking into next year, you think that there is a bit too much optimism baked into the market right now in terms of the growth inflation tradeoff?
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Absolutely.
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In our view, the prevailing view in the market and among some ECB policymakers is that inflationary pressure will be tamed.
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Inflation will revert back to the ECB target within a relatively short timeframe.
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And at the same time, without having to pay too much of a price in terms of growth.
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If you look, for instance, at the ECB growth forecast,
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They already have growth above potential next year at close to 2%.
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Now, we challenge that view.
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And in particularly, we see that this has already been the most aggressive tightening cycle in the history of the eurozone.
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250 basis points of rate rises since last July.
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By March, we think we are going to be at 350 basis points.
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We see another 50 basis point hike in March following the one
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in February, and it's very unlikely that these will not have negative consequences from a growth perspective.
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There are many channels, corporate investment, housing investment, higher mortgage payment, or even the public sector channel with a significant reduction of the fiscal space available for governments to support growth.
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So when you put everything together in our view, it's more likely that growth will remain subdued, even if a recession can be avoided.
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And the other side of the equation, even on the inflation outlook, as I mentioned, we see still ongoing underlying inflationary pressure.
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We think that wage growth is likely to stay high for at least the next couple of years.
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And therefore, we think that even those rate rises would not be enough to bring back inflation
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back to 2% within such a short time frame as the market is currently expecting.
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So within that market view, we certainly see a risk that either the ECB will have to be more aggressive to bring inflation back to 2% faster with more negative consequences from a growth perspective, or that the ECB will have to live for a higher inflation for longer.
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Very interesting, Fabio.
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Can you just talk a little bit more about the wage pressures?
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Any quick thoughts on that and how important that is?
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Absolutely.
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Wages are the one to watch.
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What we see in the eurozone is wages are going up.
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Of course, the labour market is very tight.
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Wages in the eurozone tend to be backward looking because of the importance of collective deals, because of the importance of inflation indexation.
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So we haven't seen wage growth in line with inflation for last year.
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But what we're tending to see is that pay rises are spread over several years.
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And they are certainly increasing, even though there are no signs just yet of a wage inflation spiral.
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So putting everything together, our view is that certainly the ECB needs to send a strong signal that they will tackle inflation to prevent
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such a wage inflation spiral to emerge.
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But the risks are still there.
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And certainly for Eurozone firms, it is very likely that some of those wage pressure are going to remain there for the next couple of years that could contribute to some of those underlying price pressures.
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Fabio, thanks so much for the update.
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Thank you very much.
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Let's just
Divergent Rate Hikes: Fed vs Bank of England
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review expectations for the Fed and the Bank of England before we turn to the world of metals.
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Aileen, what's our view in the US?
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Yes, thanks, Piers.
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So our U.S. economist, Brian Wang, is expecting a 25 basis point rise on Wednesday, which would lift the federal funds target range to 4.5 to 4.75 percent.
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So after that, he expects another 25 basis point rise in March and then a halt to rate rises.
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Interestingly, he doesn't think there will be cuts until the second quarter of 2024.
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And back across the pond here in the UK, our senior UK economist Liz Martin thinks the Bank of England will hike rates by 25 basis points to 3.75% at Thursday's meeting.
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While we see significant risks of a larger 50 basis points hike, Liz thinks a mix of factors will persuade policymakers to opt for a slower pace of 25 basis points.
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The combination of circumstances include lower near-term inflation, a rapid slowdown in the housing market, and the Bank of England's own medium-term inflation view.
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We finish this week with a look at metals prices, which have been under pressure since June due to poor economic data out of China and recession fears in the US and Europe.
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There has been
China's Reopening and Metal Demand
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some good news recently though, Piers, with prices rallying on the back of China's reopening.
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John Brandt, senior metals and mining analyst, joins us now to assess whether this momentum can continue.
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John, welcome.
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So let's start with the big question.
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How important is China reopening for metals?
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Well, thanks, Aline.
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It's significantly important, right?
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If you look at China's demand for metals, it accounts anywhere from 50 to 60% of total demand.
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And that's a big deal.
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We were previously expecting demand to decrease across a variety of metals this year, but with the reopening,
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Certainly, it seems like it's going to accelerate.
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Now, what's interesting is we haven't necessarily seen real demand increasing as of yet.
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What we've seen and what we think is propelling a lot of these metal prices higher is inventory rebuilt.
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Inventories were quite low last year.
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So they remain low, but we're starting to see that increase.
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And then we're also seeing net speculative positions across a variety of metals.
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They have also increased, which has propelled metal prices higher.
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Now, we think sort of post-Chinese New Year and into the spring and summer months that we'll start to see real demand across metals really increasing and further increasing in the fall and next winter due to China.
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But it's not just about China.
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We're also expecting better demand across a lot of developed markets, just given the emphasis that we're seeing on energy transition, renewable energies and EVs as well.
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So, John, which metals are particularly supported by these trends of China reopening and also the move to electric vehicles and energy transition?
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Well, some of the big metals that will benefit would be copper, lithium, potentially nickel.
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If you look at sort of the need for energy independence, given what's happening with Russia and Europe and to the rest of the world, we think that that will increase the investment for renewable energy
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that is obviously beneficial for things like copper.
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You need a lot more copper in renewable power plants than you do in sort of your more traditional power plants.
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And then obviously nickel and lithium should benefit as EVs increase, the EV penetration rates increase,
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And a big part of how much they benefit will depend on the battery technology.
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But certainly lithium and nickel will benefit from sort of the EV theme.
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Well, copper should also benefit from the EV theme.
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It's really about renewable energy for them.
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And John, in terms of supply issues, just remind us what the main drivers are.
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Like what is constraining supply?
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A variety of things,
Metal Supply Constraints and Market Effects
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right?
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You've had the miners who have been unable or unwilling to invest like they have in the past.
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Really, since 2015, you haven't seen significant investment in the sector, at least in expansion projects.
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The one exception to that is copper.
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But copper has their own issues.
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You have a difficult political environment in places like Peru and Chile, which account for 35 to 40 percent
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of the market.
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You have grade issues, you have water issues, you have social issues.
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So it's just becoming increasingly hard to get metal out of the ground and get it where it needs to go.
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And we think that that problem persists.
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So even though demand across metals is coming down or the growth rates are coming down,
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you definitely don't have the same type of supply coming out of the ground that you've had in years past either.
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And so that's really what's going to create the balanced market or slight deficits.
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It's just a lack of supply that's coming.
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John, thank you so much.
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Thank you.
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So that's all from us this week.
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Thanks to our guests, James Pomeroy, Fabio Balboni, and John Bren.
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From all of us here, thanks for listening.
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We'll be back again next week.
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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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