Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
Beyond the pandemic: economic prospects for Asia and the world
20 Plays4 years ago
Following a unique 12 months, where we have seen the global economy respond to the COVID19 pandemic, hear from Frederic Neumann, Co-head of Asian Economic Research at HSBC on what does the outlook for 2021 look like and will the world chart a course towards steady progress? And will financial markets, in such rude health over the past year, stay equally resilient as central bankers start to pull the reins?
This episode was recorded in February 2021 from the HSBC Asia Pacific Trade Exchange. During the event, we have explored the current landscape of trade, shared ideas, and discussed what the future holds alongside thought leaders from across the world.
For more information about anything that you have heard in this podcast and to view related content click here
Hosted on Acast. See acast.com/privacy for more information.
Recommended
Transcript
Introduction to HSBC Global Viewpoint
00:00:00
Speaker
This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
00:00:09
Speaker
Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
00:00:18
Speaker
A heads up to our listeners that this episode has been recorded remotely, therefore the sound quality may vary.
00:00:24
Speaker
Thank you for listening.
Asia's Economic Growth and COVID-19 Impact
00:00:29
Speaker
it is the year of the ox in asia we're expecting a snap back the year of the ox which certainly bring stronger growth across asia uh... we seeing vaccine rollouts we seeing uh... domestic activity rebounding trade is already quite strong now there are some nuances though and is very bright picture and i will talk about this uh... but overall will remain fairly positive on the economic outlook for asia
00:00:58
Speaker
But to start with, let me put things in perspective and just talk about the impact of the COVID outbreak and how it really differs across the world.
00:01:09
Speaker
So you find here the cumulative infection rate per millions of population across different economies in the world.
00:01:18
Speaker
You have, for example, in the United States currently
00:01:22
Speaker
per million inhabitants, over 70,000 people who have infection rates, the highest rate in the world.
00:01:28
Speaker
And you can see most of the high infection economies are really in the West.
00:01:33
Speaker
They include the UK, France, Brazil, Italy, and Germany.
00:01:37
Speaker
When it comes to Asia, we have been quite successful in containing the virus.
00:01:43
Speaker
India, even with very high infection rates, still has a share of population.
00:01:47
Speaker
Nowhere near Western economies.
00:01:50
Speaker
Then you have places like Japan, where there has been a resurgence, but still overall infection rates are low.
00:01:56
Speaker
And of course, China, where despite the recent outbreaks, really the infection rates remain broadly well contained.
00:02:04
Speaker
What this meant was that last year, Asia could outperform on the domestic side.
00:02:09
Speaker
But it also means that this year, the Western economies will likely reach herd immunity
00:02:16
Speaker
before Asian economies because they have these high infection rates.
Mobility Data and Economic Activity
00:02:20
Speaker
In addition to that, they also have faster vaccine rollout.
00:02:24
Speaker
And that means actually this year that some of the economic momentum will swing back to the Western world because they achieve this herd immunity
00:02:33
Speaker
earlier than some of the Asian parts.
00:02:36
Speaker
Having said that, we also want to look at the impact on mobility of current restrictions that are still being imposed across Asia and what this means for economic activity.
00:02:47
Speaker
What you find here is really based on Google data.
00:02:51
Speaker
With Google tracks, see how much you use your phone and how much you move about.
00:02:56
Speaker
We can really measure how much mobility has declined relative to pandemic levels.
00:03:03
Speaker
In the United States, for example, current mobility is about 27% below what was a year ago.
00:03:10
Speaker
And that gives you a sense of the economic disruptions.
00:03:14
Speaker
Now, in some Asian economies, notably in Malaysia, mobility is even lower
00:03:18
Speaker
than the United States because we have a lockdown at the beginning of this year because of rising infection rates.
00:03:25
Speaker
That will dissipate over the course of this year, but it still highlights how challenging it is for some Asian economies at the beginning of this year, given we have resurgent infection rates.
00:03:36
Speaker
But there are also other economies like Vietnam, for example, that are almost normalized already.
00:03:41
Speaker
Yes, mobility is still down, but broadly speaking, it's nowhere near as disrupted as it is in some of the Western economies of other parts of Asia.
Asian Export Growth and Trade Dynamics
00:03:52
Speaker
So this is where we stand in terms of COVID-19, the rollout of vaccines, which may take a little bit longer in Asia than elsewhere.
00:04:00
Speaker
But broadly speaking, it's really been a success story for Asia.
00:04:05
Speaker
The other success story has really been the resilience of exports across the region.
00:04:10
Speaker
And just to put this into context,
00:04:13
Speaker
What you see right here is export volumes across emerging Asia.
00:04:17
Speaker
If you just look at the red line here, it's the volume growth of shipments across the region.
00:04:24
Speaker
And you see the sharp acceleration of late.
00:04:27
Speaker
And compare that to advanced economies, the black line, you can see actually that Asia really outperforms the developed markets in terms of exports in recent months.
00:04:39
Speaker
and that is because the world has shifted its demand from some of the services that were demanded pre-pandemic to the types of goods that really Asia is good at producing from electronics to furniture to household items all of that is driving Asia's exports and that will likely
00:04:57
Speaker
continue in 2021.
00:05:00
Speaker
In fact, a very important sector here is electronics.
00:05:04
Speaker
And here we show you the new orders being placed with the consumer electronics businesses across the world.
00:05:11
Speaker
A reading above 50 means an expansion of orders.
00:05:14
Speaker
And just look at the sharp pickup in new orders for
00:05:18
Speaker
consumer electronics at the beginning of 2021.
00:05:20
Speaker
And even when we look at industrial orders, industrial electronics orders, there too you see a very sharp acceleration again of late in new orders.
00:05:33
Speaker
And all that suggests that trade still has enormous momentum going through 2021.
00:05:39
Speaker
There are admittedly some signs that things are cooling at the margin.
00:05:44
Speaker
If we look at new orders placed with Asian manufacturers or total new export orders, there's a bit of a cooling.
00:05:52
Speaker
What you see here, the black line is new orders.
00:05:55
Speaker
You see just a bit of a cooling off towards the end there.
00:05:59
Speaker
And that's partly because we already had such a strong rebound in recent months.
00:06:03
Speaker
that now there's a time for a bit of a breather.
China's Economic Growth and Policy Trends
00:06:06
Speaker
When we look at new export orders, it's the same.
00:06:09
Speaker
So electronics are doing well, but broadly speaking, new export orders have also started to ease back a little bit.
00:06:18
Speaker
Now it's not too alarming, but we would suggest that some of the strength that we've seen in trade numbers will start to dissipate over the course of this year.
00:06:27
Speaker
Export will continue to grow, but not quite at the same pace as over the last six months.
00:06:33
Speaker
Now another important aspect to consider here is mainland China.
00:06:38
Speaker
It has been the growth engine over the past year.
00:06:42
Speaker
Its rebound has really dragged the rest of the region with it as well.
00:06:47
Speaker
And one particular sector that was important for Asia's rebound has been investment spending.
00:06:53
Speaker
Here you see, for example, property investment in China.
00:06:57
Speaker
It's collapsed at the beginning of 2020.
00:07:01
Speaker
but then really rebounded on the back of these containment measures on the mainland and the stimulus that was administered.
00:07:09
Speaker
When you look at manufacturing investment, the story is similar.
00:07:13
Speaker
This manufacturing investment has collapsed, but it's now growing again very strongly.
00:07:18
Speaker
And when we look at infrastructure spending, the red line, it is a similar story as well.
00:07:24
Speaker
So overall investment continues to be fairly strong in mainland China, but there is a bit of a change here in terms of the underlying drivers.
00:07:32
Speaker
You see, for example, infrastructure spending and property spending that is broader construction easing back.
00:07:39
Speaker
And that means that the global demand for commodities that feed into China's vast construction sector may also begin to cool in 2021.
00:07:49
Speaker
At the same time, you still see an acceleration in manufacturing investment, and that is demand for machinery in China.
00:07:57
Speaker
Imported machinery will likely continue to rise this year as manufacturing plants really execute expansion plants, and that drives this manufacturing investment that we're seeing.
00:08:09
Speaker
But having said that, there is also really signs that we shouldn't get too excited about a further acceleration in China's growth.
00:08:17
Speaker
And that's because policymakers are pulling back a little bit on the stimulus that they have administered.
00:08:24
Speaker
Here you see the credit impulse for mainland China, the red line here.
00:08:31
Speaker
The credit impulse really measures the amount of new credit that is being pumped into the economy, new lending relative to GDP.
00:08:39
Speaker
And you can see over time we go through several cycles here.
00:08:43
Speaker
You have, for example, during the global financial crisis, you have this enormous spike in new lending that was pumped into the economy.
00:08:51
Speaker
And then you get a normalization.
00:08:54
Speaker
Since then, you had two more credit cycles.
00:08:56
Speaker
And what really happened in 2020 is that the government allowed a further acceleration in lending to come through.
00:09:04
Speaker
However, since October, at the very end, you see the credit impulse starting to roll over.
00:09:10
Speaker
And that's because policymakers are pulling back a little bit on the reins because they want to make sure that debt levels don't rise too far further.
RCEP's Impact on Asian Trade
00:09:20
Speaker
Now, this doesn't mean that the Chinese economy itself will decelerate, but it does mean that a further acceleration seems unlikely at this point.
00:09:30
Speaker
One way to think about this is to think about China as a maturing cycle in the sense that we've accelerated sharply and are now starting to level out.
00:09:40
Speaker
Why is this important?
00:09:41
Speaker
Well, it does help to explain volatility in financial markets.
00:09:45
Speaker
You will have noticed, for example,
00:09:47
Speaker
that interest rates in China, particularly short-term interest rates, were extraordinarily volatile over the first few weeks of this year.
00:09:55
Speaker
And that is whenever you get an inflection point from easy monetary policy to slightly tighter monetary policy, you get that volatility in interest rates, and that's something that's really occurred in China.
00:10:08
Speaker
Now this will steady out over the course of this year, but this is really what explains the context for this.
00:10:16
Speaker
Now by and large we are optimistic about China.
00:10:18
Speaker
One thing I didn't mention about China, for example, is that consumer spending will also help to revive the recovery.
00:10:25
Speaker
And on the external side, China will also see stronger export growth well into 2021.
00:10:32
Speaker
And one aspect of the stronger export growth from China is really the regionalization
00:10:38
Speaker
that will kick into high gear in 2021.
00:10:42
Speaker
Last year, if you remember, Asian economy signed the Regional Comprehensive Economic Partnership, which is actually the biggest free trade area in the world.
00:10:52
Speaker
And while they signed it last year, the implementation really only kicks in in 2021.
00:10:59
Speaker
So it's this year that you'll see the first tariff reductions and thereby
00:11:04
Speaker
the acceleration in trade.
00:11:06
Speaker
You can see here three big squares.
00:11:10
Speaker
The green square is actually the RCEP, which is the Regional Comprehensive Partnership.
00:11:14
Speaker
It comprises 26 trillion US dollars in GDP.
00:11:19
Speaker
That's much bigger in fact than the CPTPP area, which only comprise about 11 trillion.
00:11:26
Speaker
And the North American Free Trade Agreement, which is called the USMCA,
00:11:32
Speaker
which comprises about 24 trillion or so.
00:11:35
Speaker
So you can see in the making here is the world's largest free trade area which is being implemented this year and which will accelerate trade across the region, benefiting interestingly, particularly Japan and Korea in particular.
00:11:51
Speaker
But there's a second aspect about the RRCEP, this creation of the
00:11:56
Speaker
a regional comprehensive partnership, and that is that it will drive intra-regional trade in particular, particularly between China and ASEAN.
00:12:05
Speaker
If you look on the left-hand side here, you see a chart that shows China's total trade, imports and exports with ASEAN, the EU, and the United States.
00:12:17
Speaker
Now the red line is trade with ASEAN, bilateral trade.
00:12:21
Speaker
You can see the sharp acceleration already in recent years, and you would expect this to accelerate further as the RCEP is being implemented.
00:12:30
Speaker
Now interestingly, if you compare that trade relationship,
00:12:34
Speaker
with the size of the EU trade relationship between China and the EU, you can see that trade with ASEAN just surpassed trade with the European Union.
00:12:44
Speaker
So from China's perspective, ASEAN is now more important than the EU as a trade partner.
00:12:51
Speaker
And in fact, trade between China and ASEAN is also bigger
00:12:55
Speaker
than trade between China and the United States.
00:12:58
Speaker
So the most important trade relationship now in the world is actually that between China and ASEAN.
00:13:06
Speaker
Now that benefits the ASEAN economies, more integration with the Chinese economy, but there's something else, and that is that RCEP will drive investment flows over the coming years.
00:13:17
Speaker
It will really help to incentivize multinational corporations, even from outside the region,
00:13:23
Speaker
to invest more within RCEP and particularly in the ASEAN economies.
00:13:29
Speaker
And already on the right hand side here you can see foreign direct investment trends continuing to rise.
00:13:36
Speaker
In fact China has gone up even despite the US-China trade tensions.
00:13:40
Speaker
You saw increased investment into China.
00:13:43
Speaker
In fact last year China overtook
00:13:46
Speaker
the United States is the biggest recipient in terms of foreign direct investment.
00:13:51
Speaker
But if you take ASEAN as a whole, ASEAN is actually starting to exceed China in terms of the amount of foreign direct investment it is receiving.
Risks of Inflation and Financial Volatility in Asia
00:14:01
Speaker
So what does this highlight?
00:14:02
Speaker
It really highlights increasing regionalization and connectivity across the region that will help to catalyze more growth, not just in trade terms, but also investment within the region.
00:14:14
Speaker
and particularly investment side will benefit the ASEAN economies.
00:14:20
Speaker
Now, we should also acknowledge that despite the relatively rosy economic outlook, there are risks of volatility.
00:14:29
Speaker
We have seen quite a bit of volatility at the beginning of the year.
00:14:33
Speaker
And that may be something that will continue to intensify over the next couple of quarters or so.
00:14:40
Speaker
And one big risk here is the return of inflation.
00:14:44
Speaker
One particular aspect from the recovery from the pandemic is that price pressures are coming back
00:14:50
Speaker
surprisingly quickly.
00:14:52
Speaker
Now this chart here shows you the red line, or the black line rather, output prices as reported by manufacturers.
00:15:00
Speaker
And you can already see that over the last two months or so there's been an increase in reported output price pressures by manufacturers.
00:15:07
Speaker
Not usually so, but given the depth of the current recession it's remarkable that prices are already increasing.
00:15:14
Speaker
But when you look at the input price side, you see even a sharper acceleration in input prices as reported by manufacturers.
00:15:24
Speaker
Look at this enormous jump in the input price pressures.
00:15:27
Speaker
What does this tell us?
00:15:29
Speaker
It does suggest that over the next two quarters, you might see accelerated inflation volatility, not just in Asia, but in Western markets as well.
00:15:40
Speaker
And that can change expectations about interest rates, about central bank policy, and just introduces an enormous amount of uncertainty into financial markets, including foreign exchange markets.
00:15:53
Speaker
And we have to also acknowledge that at the same time debt levels have increased across Asia quite sharply.
00:16:00
Speaker
Just to put this in perspective, what you have here, the red line shows you the bank credit to GDP ratio across emerging Asia.
00:16:10
Speaker
And even when we include China, it's roughly a similar pattern.
00:16:14
Speaker
Now what does this chart show us?
00:16:16
Speaker
It shows us
00:16:16
Speaker
the total macro leverage relative to GDP, the amount of debt relative to GDP that is present in economies.
00:16:25
Speaker
You start in the early 1990s, and what you find is that debt climbed all the way up to the Asian financial crisis in 1997.
00:16:31
Speaker
Then the bubble burst, and we got a deleveraging period for quite some time, all the way up until the global financial crisis kicked in in 2008.
00:16:42
Speaker
In fact, the advantage for Asia was that we entered the global financial crisis with relatively low debt levels, allowing us to leverage up over subsequent years and really drive economic growth.
00:16:55
Speaker
Now, in recent years, that increase in leverage has actually steadied out.
00:16:58
Speaker
However, at the very end here, you see that again the acceleration in debt that has occurred over the past year.
00:17:06
Speaker
Now when you combine inflation volatility and financial market volatility with the fact that debt has increased quite a bit, that sets us up really for very accentuated financial market risk.
00:17:18
Speaker
Now none of this is to suggest that we might see a systemic financial crisis in Asia, but it does suggest that we need to be cautious when we think about the FX risk, the interest rate risk over the coming year, because higher debt levels tend to accentuate
00:17:35
Speaker
financial market risks.
00:17:37
Speaker
And it's not just a broader economy.
00:17:39
Speaker
Just to provide you with one example, if you look at household debt in Asia, this is the household debt to GDP ratio across the region.
00:17:48
Speaker
And just to give you a comparison, this is roughly
00:17:51
Speaker
the averages we have for developed markets, the average we have for global emerging markets.
00:17:57
Speaker
And you can see that most economies in Asia actually have household debt levels that are well above the emerging market average for Asia.
Challenges in Asian Economic Recovery
00:18:05
Speaker
So we can no longer talk about this region being a low-debt region.
00:18:09
Speaker
In fact, some sectors of economies have high debt.
00:18:14
Speaker
China included.
00:18:15
Speaker
China's debt now is well above emerging market levels.
00:18:20
Speaker
There are, of course, other examples like India where it's well below.
00:18:23
Speaker
But broadly speaking, the elevated level of household debt does pose some risks in terms of accentuating financial market volatility.
00:18:34
Speaker
Now, having said all that, what really does this mean for economic growth?
00:18:38
Speaker
As we said at the beginning, we are very bullish on economic growth.
00:18:42
Speaker
This will be a year where things snap back.
00:18:46
Speaker
And certainly, the vaccine rollout, the government stimulus, all will help for Asia to kind of continue to prosper.
00:18:54
Speaker
But we shouldn't lose sight of the fact that really the road towards a full recovery is still very long.
00:19:01
Speaker
In fact, even if growth rates look very stellar this year because of annual comparisons in China, for example, we're looking at 8.5% growth
00:19:10
Speaker
this year compared to 2.3 in 2020.
00:19:13
Speaker
The question is really, to what extent have Asian economies recouped all the losses of output last year?
00:19:20
Speaker
When will they fully recoup those output losses and get back to the level of output they saw previously before the pandemic struck?
00:19:29
Speaker
And here we have one chart that really highlights by the end of 2021 where GDP will stand relative to its pre-pandemic level.
00:19:39
Speaker
If you look, for example, in the Philippines, Thailand, Japan, Hong Kong, actually even with the rebound at the end of this year, output will not quite be back where it was.
00:19:49
Speaker
and the vast majority of the Asian economies are ever led by China and Vietnam, we're going to exceed well the levels of output we saw in 2019.
00:19:58
Speaker
So for most of the region, still, this is a genuine recovery, even if for some economies the full, full mending of the economic losses will take some time indeed.
00:20:11
Speaker
And with that, we want to thank you and wish you all the best for the year of the ox.
00:20:18
Speaker
Thank you for listening today.
00:20:20
Speaker
This has been HSBC Global Viewpoint Banking and Markets.
00:20:24
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.