Transcript
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.
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Speaker: And now onto today's show.
Speaker: This podcast was recorded for publication on the 27th of June, 2024 by HSBC Global Research.
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Speaker: Just search for The Macro Brief.
Speaker: Hello and welcome to the Macrobrief.
Speaker: I'm Peter Stegall in London.
Speaker: It's been a busy first half of the year.
Speaker: Uncertainty over monetary policy, elections and new trade tariffs have made a complex backdrop for the world economy.
Speaker: And while global growth may have stabilised, there are still plenty of dangers for policy makers to dodge.
Speaker: To discuss the outlook, I'm joined by Janet Henry, Global Chief Economist.
Speaker: Janet, welcome.
Speaker: Hello Peter.
Speaker: So Janet, as we head into the second half of the year, what kind of state is the world economy in?
Speaker: Well, given what it's facing in terms of uncertainty in this key election year, but also in a world when there are wars underway and we're seeing tariffs being imposed, not just from the US and Europe, but it's been remarkably steady.
Speaker: It hasn't been spectacular, but we've seen a consumer-led expansion continuing to muddle through the beginnings of some signs of an improvement on world trade.
Speaker: So, yeah, remarkably steady.
Speaker: So how have you changed your growth and inflation forecasts compared with your last quarterly three months ago?
Speaker: Well, actually, compared with three months ago, the global aggregates are pretty much unchanged.
Speaker: In fact, our GDP forecast for both this year and next is still 2.6%.
Speaker: but as always there are some moving parts within that it's been a familiar story over the course of the last year pretty much that we've had to upgrade india so we had another upside surprise in the first quarter so now look for indian growth of seven point three per cent
Speaker: In 2024, we've also edged slightly higher our eurozone numbers.
Speaker: And some of those Asian economies that are exposed to tech that have been doing well, like Korea and Taiwan, we've seen some upgrades there.
Speaker: But they've been offset by some downgrades for various reasons in a range of advanced and emerging economies.
Speaker: So what does this backdrop mean for your view on central banks?
Speaker: When might they start cutting?
Speaker: Well, that's always been the question.
Speaker: When will the main act and the Federal Reserve finally join a lot of the European central banks in now cutting rates?
Speaker: Well, our inflation picture hasn't really changed.
Speaker: We haven't changed our inflation numbers.
Speaker: The global aggregate has come down a bit, but that's all been driven by Turkey and Argentina.
Speaker: For the rest of the world, we still look for a gradual disinflationary adjustment.
Speaker: But we are in a world now where the kind of easy gains from much lower energy prices and core goods prices are kind of over.
Speaker: And we've still got that sticky service sector inflation.
Speaker: So it is still the idea that this year inflation's been falling a bit less rapidly than had been hoped for.
Speaker: We've seen a slowdown in terms of the pace of monetary easing in some of the emerging economies.
Speaker: Some of them have been pushed a little bit later.
Speaker: We have, in the last few months, seen other European central banks start to cut rates, most notably the ECB, and we look for two more rate cuts this year.
Speaker: And the Federal Reserve, we are still looking for one rate cut this year in September.
Speaker: But in order to get that rate cut in September, we will need to see some further progress on the inflation front.
Speaker: And thinking about world trade, you mentioned things have started to look up a little bit this year.
Speaker: What's the outlook from here?
Speaker: Well, yes, at the moment, it's somewhat narrowly based, particularly in the first quarter.
Speaker: It was led geographically by the US and it is very much focused on the tech sector.
Speaker: So broadly speaking, emerging market exports have been better, particularly those tech producers, Korea and Taiwan.
Speaker: But we're not looking for a real upsurge in world trade.
Speaker: We do think it's primarily
Speaker: an inventory adjustment apart from that more structural tech-related story.
Speaker: So better than last year when world trade fell, but we're still only talking about world trade growth in the 2% to 3% range this year in terms of volumes.
Speaker: In your report, you also talk a lot about risks and uncertainties.
Speaker: What are some of the biggest risks that the world economy faces?
Speaker: There's always risks in the global economy.
Speaker: And as I said, we haven't changed our forecasts.
Speaker: But a lot of these short-term, more cyclical risks, some are still to the upside.
Speaker: And that might include even the possibility that European consumers finally lower their savings rates if they become more confident because interest rates are starting to come down.
Speaker: But there are also risks in global labour markets.
Speaker: Some of those are now more skewed towards the downside and other risks.
Speaker: issues that have been underway for some time now that could eventually become more worrying like US commercial real estate is still on people's radars.
Speaker: But actually in the report we focus much more on some of those political and geopolitical risks and uncertainties because we still got quite a lot of elections in the rest of this year and the all-important one of course in November the US presidential election.
Speaker: And when it comes to fiscal choices that governments might be making, how do you see the balance of risks there?
Speaker: The fiscal obviously will hinge on what happens as a consequence of some of these elections that are coming through.
Speaker: Debt stocks, also in the advanced economies and in the emerging world, have grown a lot in recent years, partly because of the response to the pandemic and partly to support growth.
Speaker: and even subsidies for industrial policy on top of the other areas of spending that we're well aware of, like increased defence spending, the energy transition costs, and don't forget the interest spending.
Speaker: With interest rates quite high and the debt stops having risen, governments are spending a lot more in terms of interest spending.
Speaker: So it has become a little bit more of a growing concern just over the course of the last couple of months and no sign that really the advanced economies are going to rein in their spending.
Speaker: And that can't continue indefinitely.
Speaker: You know, I think a lot of discussion is about industrial policy and the fact that by driving growth higher, but because they've supported innovation, that you could see stronger productivity growth.
Speaker: But the trouble is trying to deliver stronger growth and stronger productivity at the same time as introducing protectionist measures that add inefficiencies and actually push up prices for companies and consumers will be no mean feat whatsoever.
Speaker: for Western governments.
Speaker: So I'm interested that you mentioned productivity there.
Speaker: There's a lot of interest around the world in artificial intelligence, whether it might ride to the rescue and increase productivity around the world.
Speaker: What's your current take on artificial intelligence?
Speaker: AI certainly makes us more hopeful for some improvement in productivity growth.
Speaker: And certainly the US does seem to be at the forefront of this.
Speaker: It makes up a bigger share of the economy and investment spending generally and particularly in that area has been stronger in the case of the US.
Speaker: The difficulty, of course, is that while it is potentially transformative, we don't know over what time period or indeed by what magnitude it could transform the productivity and therefore the growth outlook, which is why it may not transform the fiscal outlook too quickly.
Speaker: But from the data that we have in the post-pandemic years, we have seen some signs that certain areas of US productivity growth is actually a little bit firmer.
Speaker: So those big employment sectors like education and health and professional business services, it's not spectacular, but actually a little bit better than was the case in a pre-pandemic era.
Speaker: But it needs to be a lot stronger.
Speaker: and particularly in manufacturing, and it needs to be economy-wide to really increase revenues enough to transform that fiscal outlook for what are now increasingly indebted governments.
Speaker: So in this complex environment, who do you see as relatively well-placed and who perhaps has the potential to outperform when it comes to growth?
Speaker: Well, the global picture for the coming years is still something of a muddle through.
Speaker: As I say, we have got stable growth, 2.6% this year and next year in terms of global GDP.
Speaker: But it is certainly compared with the case a decade ago, it is a deteriorating growth inflation trade-off.
Speaker: So compared with pre-pandemic, growth a bit lower, inflation is a bit higher, and interest rates, while lower than currently, are still going to be certainly not going back to a zero level.
Speaker: But the countries that we continue to highlight as being well placed are largely in the emerging world, actually.
Speaker: And it is some of those large emerging economies that have positive demographics and are geopolitically
Speaker: well-placed, but also have been undergoing a degree of structural reforms.
Speaker: So India has been a persistent upside surprise over the course of the last couple of years.
Speaker: It will still be a relative outperformer, but so too have some other Asian economies.
Speaker: And also some improvements still likely.
Speaker: on a structural basis from some of the Middle Eastern countries, particularly Saudi and UAE.
Speaker: And relative to history, and while they've had a little bit of a setback recently, even some of the Latin American countries, we've actually seen a little bit of, not peasant
Speaker: but a cooling of the optimism on the likes of Brazil and even Mexico.
Speaker: But structurally, I think, you know, in the coming years, they would still be economies that we think might be on a slightly stronger growth path potentially than was the case pre-pandemic.
Speaker: So overall then, what's your key takeaway as we head into the second half of 2024?
Speaker: Still plenty of uncertainty ahead, not least from the elections that are coming through, but the global economy still muddling through in the short term.
Speaker: But the fiscal danger in particular is something that governments will need to take action for because it can't be dodged indefinitely.
Speaker: Janet, thank you very much.
Speaker: Thank you very much, Peter.
Speaker: Before we go, here are details of two other key reports published by the Global Research team this week.
Speaker: Trade economist Schnella Rajanagam has just published her latest trade tracker.
Speaker: Peak container shipping season has arrived early this year amid ongoing disruption and impending tariff hikes, but we remain cautiously optimistic about the outlook, says Schnella.
Speaker: Our global economists expect world trade to grow by 2.8% this year and 3.6% next year.
Speaker: In Asia, Fred Newman and team have been assessing the outlook for the region's economies.
Speaker: Amid all the noise from elections to volatile geopolitics, Asia's economic performance continues unperturbed.
Speaker: But significant policy easing will be needed for the region to dial up the volume, says Fred.
Speaker: Don't forget you can hear more from Fred and colleagues on our sister podcast, Under the Banyan Tree, where they put Asian markets and economies in context.
Speaker: Just search for Under the Banyan Tree wherever you get your podcasts.
Speaker: If you have any questions about the reports we've discussed today, please do get in touch by emailing askresearch at hsbc.com.
Speaker: So that wraps things up for today.
Speaker: From all of us here, thanks for listening.
Speaker: We'll be back again next week.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
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