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The Macro Brief – What bananas are telling us about the global economy
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Against a backdrop of continuing uncertainty, James Pomeroy, Global Economist, explains whether the latest data – and the price of bananas - provide any clues about state of the economy.
Disclaimer: https://www.research.hsbc.com/R/101/6dKvcRB
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Transcript
Introduction to HSBC Global Viewpoint
00:00:01
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.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto today's show.
00:00:23
Speaker
This podcast was recorded for publication on the 17th of July 2025 by HSBC Global Investment Research. All the disclosures and disclaimers associated with it must be viewed on the link attached media player.
00:00:34
Speaker
And remember to like and subscribe to The Macro Brief wherever you get your podcasts.
Global Economy: Uncertainty and Tensions
00:00:42
Speaker
Hello and welcome to The Macrobrief, where we assess the key drivers of financial assets. I'm Piers Butler and for the first time we have, what is it, a two or three handle? Because I'm joined by my co-host of The Macrobrief, Eileen van Dijn.
00:00:55
Speaker
Eileen, welcome. Thank you, Piers. It's great to be here. Usually I'm in New York, so it's a treat being here with you in person in London. Now, the global economy remains mired in uncertainty with fresh tariff announcements, geopolitical conflicts and a major US fiscal expansion creating a difficult backdrop for policymakers.
00:01:15
Speaker
So can the latest global data provide any clues about the state of the economy? Well, to help us find out, we're joined by global economist James Pomeroy. James, you've just become a father. You're back at work. Is it as confusing to you as it is to me and Aileen? I mean, we've had letters, announcements, a new deadline, baseline versus sectoral already on tariffs. I'm totally confused. Help.
00:01:37
Speaker
Well, that's it. I keep saying to people, you spend your first few weeks as a father where everything doesn't make any sense and then you come back to work. and it's exactly the same and in looking at the macro data. And that's really the world we're in at the moment, where there's so much uncertainty out there, both in terms of geopolitics, these tariff announcements, the challenges of data quality. At the moment, it's really, really hard to get a handle on what's happening in the global economy, both in terms of trade flows, confidence, investment flows, all of those things.
00:02:03
Speaker
So it's probably harder than ever to get a clear handle on what is happening, at least through all the chaos we've had in the last five years. You can see almost what's happening. It may not be good or bad, but you can least see what's happening. I think at the moment it's just a super blurry global outlook.
00:02:16
Speaker
So we don't know what's happening, but we do know that tariffs are higher than they
Tariffs Impact on Economy
00:02:21
Speaker
were a year ago. Do you agree that that we do know that? That's something we do know. The problem is we don't know where those tariffs are going to be come start of August or maybe mid-August. And at the moment, you think about tariffs in many many different ways. You can think about tariffs in terms of US versus China.
00:02:35
Speaker
And those tariffs went up a lot. They've come back down again. And they're looking like they're going to stay roughly where they are with the various agreements in place. You've then got the big questions about the US tariffs on other countries.
00:02:47
Speaker
And they're where you've probably got a lot of uncertainties. You've had some countries who have signed trade deals, the UK, China, Vietnam, Indonesia now. And there will be some more to come, I'd imagine, in the coming weeks.
00:02:58
Speaker
But then you've got all these other countries who got sent letters in the last couple of weeks, given a tariff rate that is somewhere between 20% and 40%. and we have no real sense 50 in the case of brazil 50 in the case of brazil of course but you really don't know whether these numbers are going to be what actually comes into place when you get it when you get into august are they going to be higher are they going to be lower are you going to get agreements and then on top of that you've got sectoral tariffs so You've got autos, aluminium and steel.
00:03:25
Speaker
Now we've got copper tariffs coming in, which could be 50%. Markets seem to be suggesting they don't necessarily buy it. It will be 50, but at least something on copper. There's a lot of questions out there about where that aggregate tariff rate going into the US s is going to be. You piece all that together, certainly higher.
00:03:40
Speaker
We're trying to put a number on it right now, close to impossible. Anyway, the reality is tariffs are higher. yeah Ex-China, are what they're four times higher than where they where they were the start of the year. So the big question is the impact on the U.S. economy.
00:03:54
Speaker
And it's been a lot written on the inflationary impact. But the latest U.S. inflation data seems pretty benign. Or am i reading it wrong? I think there's an element of reading it wrong. So the US inflation data have been a bit weird this year. They've actually been really quite good in the sense of inflation pressures not really being there. And this was something that was happening long before the tariffs and looks to be carrying on a little bit.
00:04:14
Speaker
And when we have the latest set of inflation data, on the face of it, core CPI inflation, below consensus, everyone starts to think, there's still no tariff impact. When you look at the detail, You can see the tariff impact starting to bite and you can see it in certain products.
00:04:28
Speaker
You can see it in things like audio equipment. You can see it in laundry equipment, the stuff that's directly impacted by these tariffs. Not necessarily that the year on year rate of these inflation um products, year on year inflation in these products is that high.
00:04:41
Speaker
but the previous trends have been broken. So if you look at the sort of downward trends of these prices that were on for two years, that's now reversed and gone much higher. That's the tariff impact right there. And you can see it across a whole load of imported products. My favourite example being bananas, because banana prices have been pretty steady, pretty grinding lower or not that not that much movement.
00:04:59
Speaker
And they've shot up, and they as they should, because most bananas going to the US are imported. So there's a natural sort of direct tariff impact on bananas that's playing a role in US inflation. Tiny, tiny share of the basket.
00:05:11
Speaker
But what you can start to see in some of these product items is a pickup. And the bit that worries me a little bit is you can see this building in the data already. You can see a lot of the direct tariff shocks are going to come through in terms of um the the if you sort of weight imports by the countries they're coming from. We look at those tariff rates.
00:05:27
Speaker
Certain products like clothing, electronics, metals are going to see cost increases for American companies. 20, 30, 40% already. That's before this latest round of tariffs. You look at the ISM surveys or you look at the PMI surveys globally, the price indicators for the US s are skyrocketing. They're really, really high.
00:05:45
Speaker
And in the rest of the world, you just don't have that same story. So it's almost like you're starting to see the very first signs of these tariff shocks feeding through to US inflation. Quite how far they go, quite where US inflation ends up, remains to seen. Eileen, I mean, we can ask you.
00:05:59
Speaker
Residents in New York, Any evidence? you what What's the sense you know on a day-to-day basis? I feel like inflation in New York has been very high for many years. Yes. Nothing to do with tariffs. Yes. But ah the impact on the economy seems to have been less, like you say, than people have said. Maybe in particular areas it's been more.
00:06:18
Speaker
But does that mean that it's likely to start being felt more in the coming months, James? I think you're still going to see this this impact come through. I think the problem you've got is a lot of the cost increases so far have happened in the sort of industrial space. You look at the trade flows coming into the US, a lot of the front loading is sort of avoiding those tariffs.
00:06:37
Speaker
But the areas where you're still going to need to keep buying stuff is going to be within the supply chain. The question is how much of those extra costs in the supply chain then get passed on to consumers? How much of it then ends up in the inflation data?
00:06:50
Speaker
That's a big question. There's also this other part of this, which is a lot of the retailers in the US who are importing a lot of stuff from overseas, they've essentially just hit pause. You can see this in the Chinese exports to the US. They're down about 30% year on year at the moment.
00:07:03
Speaker
And what essentially is happening here is that they're just not taking the tariff shock. But at some point, they're going to need the stuff. And that's when you'll start to see these costs really, really increase through the economy. So I think so much this tariff impact is a wait and see, both in terms of the US economy, but also in terms of the inflation data. And we'll just see more and more of it every single month. The longer these tariffs are in place, the higher the tariff rates end up.
00:07:25
Speaker
If we do end up in August with slightly higher tariff rates, that impact becomes a little bit more pronounced in the back end of the year. But sorry, can I be the devil's advocate and and say, are we over worrying? Is it a one off shock and then it's done? The prices are higher and then we go on from there? Or is there a risk ah that it reignites this inflation spiral?
00:07:46
Speaker
It could well be. And I think this is the worry I think a lot of central banks have, a lot of economists have, that we've had this period of high inflation recently. And so maybe people are more used to inflation. It's easier for inflation to ignite if you do get these cost shocks.
00:07:58
Speaker
But at the same time, there are some downward pressures on inflation in the US and elsewhere from oil and from low energy prices more broadly that could help to mitigate some of that. The problem is that you don't really know until it's happened. I think a lot of people are worried.
00:08:11
Speaker
Why take the risk of this possibility that inflation expectations evolve and you start to get sustainably higher inflation? And that becomes a problem into 2026. So that's the inflation side, but what about growth?
US Growth and Global Trade Boom
00:08:22
Speaker
Is there any evidence as to this having an impact, whether it's on US growth or all countries yeah yeah other countries? Yeah, in the US, it's sort of obviously the data are super, super messy in terms of GDP because the import flows into the US have been wild. There's these huge spikes in imports of the start of the year. They came back. They'll go up again in July. They might go back in August.
00:08:40
Speaker
Reading headline GDP data in the US in in this year is just going to be almost a waste of time. It's going to be so thrown around. if you look at a lot of the other US data, there's signs of softening, both in the survey data, but also in the hard data. US consumers have started to cut back a little bit. We've seen this in the latest PCE spending data.
00:08:57
Speaker
The labour market is not that bad, but it's softening. It's sort of in collective. And I think you can see this sort of slight sort of weakness coming through. But our worry is the longer these tariffs are in place, the more you're sort of disrupting investment plans, hiring plans that could then have a second round impact that's much more damaging on the economy.
00:09:15
Speaker
Now we're not forecasting a US recession. We're certainly looking at a world where the US economy slowing down. Elsewhere in the world though, the data is just messy because a lot of countries look fantastic in the first half this year because all those US imports have obviously been exported from elsewhere.
00:09:29
Speaker
And so a lot of countries I worry about at the moment almost seeing the sugar rush and they're seeing that huge boom in exports that's supporting industry, supporting hiring. And it reminds me a lot of during the pandemic When you had, when none of us could travel or go to shows or whatever, we went and bought durable goods.
00:09:46
Speaker
And a lot durable goods companies were saying, oh, it's fantastic. We sold loads of stuff in 2020, loads of stuff in 2021. And they just extrapolated that into the future. And obviously we didn't need it again. It wasn't sustainable. It wasn't sustainable. And I feel like that's exactly where we could be with a lot of the global trade and industrial data at the moment. There's a payback that's coming that some of those countries have benefited the most in the first half of the year. We're going to give that up in later this year or early 2026.
00:10:09
Speaker
A lot of wait and see, I guess, in terms of the conversation about tariffs still, in terms of really working out what the impact is. The other area where potentially we're going to have wait and see is that the big, beautiful bill has come to pass.
Global Fiscal Challenges
00:10:23
Speaker
yeah ah There's a lot written about the implications for debt, U.S. government debt. I mean, how worried should we be about that? It depends on how you're looking at it. I mean, government debt by itself isn't necessarily a problem.
00:10:37
Speaker
Debt is always one of those things. It's not a problem until it becomes a problem. yeah it increases the risk of something going wrong if you have a high level of debt. And the US for a long time has been out to run high levels of debt because people have been willing to lend the money.
00:10:47
Speaker
But if you run bigger and bigger deficits, the chances of people not willing to lend you money increases. And that's essentially what you're doing by running these these huge deficits, which are projected to now be even bigger in the course of the coming years.
00:10:59
Speaker
The hope is that this does lead to a growth pickup. And the estimates suggest that this could support U.S. growth and in the coming years but with those tax cuts and getting people spending and so forth. But it needs to happen. And there's there's a fiscal risk here. But it's not just the US who's got these fiscal risks. Every country in the developed world is facing these huge fiscal strains because they've got aging populations. They've got commitments in terms of pensions and health care spending and you name it.
00:11:21
Speaker
And they've got a population that makes that even harder to ah to to to fund. And I think this is a challenge that not just the US is facing, but we're seeing it here in the UK. We're seeing it in other European countries trying to grapple those fiscal challenges. And they're certainly not going to be easy to overcome.
00:11:36
Speaker
One thing I'm worried, being half French, outside of the US is how is the French budget going to get through when they're proposing to remove two public holidays? Well, this is the problem, right? certain Every government across the world is trying to balance up the balancing the budget versus the political viability of this. And we've seen, as you say, you've got this happening in France, you've had it in the UK, you've had it to an extent in the US. s You've got to pick who do you want to appease? Do you appease the bond market or you appease the electorate?
00:12:02
Speaker
And interestingly, no changes, for example, to retirement ages in the big, beautiful bill. Exactly. These are the sort of big ticket things that you can use to fix a lot of your demographic problems. And we write about demographics a lot. And we think about the fiscal dynamics of ageing populations. and Retirement ages need to be much, much higher.
00:12:18
Speaker
And it's the slam dunk way of fixing your fiscal problems. But I mean, to Pier's point, taking away public holidays is super unpopular. Can you imagine how unpopular I'd be if I said, guys, I've got this great plan.
00:12:28
Speaker
taking the retirement age north of 70 in every country in the world. I mean, I don't think you'd get a single vote. And it's that sort of thing that the hard decisions in terms of balancing budgets and getting debt under control are so unpopular that governments just aren't going to take them.
00:12:42
Speaker
Well, I think that's probably all we have time for today. One thing I think I've taken away from this podcast with any certainty is that when you get back to New York, Aileen, you're going to have to pay more for your bananas.
00:12:52
Speaker
Yes, yes. And it is slippery slope, of course. And yes, I will try adjust my smoothie making patterns. Smoothie consumption. smoothie consumption.
Upcoming Topics and Closing
00:13:05
Speaker
James, thanks very much. Thanks for having me. Hey, everybody. Fred Newman here from Under the Banyan Tree. If you're listening to the Macro Brief on holiday right now, we hope you're having a great time.
00:13:16
Speaker
But there might be a little part of you wondering what's going to happen in Asia in the next few months when it comes to macro and politics. Don't worry, though. We've got you covered. This week's podcast is all about the key events coming up in Asia in next few weeks. Put your sunglasses on, grab a drink and join us Under the Banyan Tree.
00:13:39
Speaker
A couple of quick things before we go. if you're an HSBC Global Investment Research client, then don't forget to download our mobile app. The app features all of our latest research and videos and podcasts, and you can find it on Apple's App Store and Google Play.
00:13:55
Speaker
And if you've got any questions or comments about anything we've talked about, including the price of bananas, then please get in touch with us at askresearch at hsbc.com.
00:14:08
Speaker
So that's it for this week's podcast. Until next time, thanks very much for joining us.
00:14:39
Speaker
Thank you for joining us at HSBC Global Viewpoint. We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.