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 on the 11th of January 2024 by HSBC Global Research.
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Speaker: And don't forget that you can follow this weekly podcast on Apple and Spotify, or wherever you get your podcasts, by searching for The Macro Brief.
Speaker: Hello and welcome to the Macrobrief.
Speaker: I'm your host Peter Stegall in London.
Speaker: Now it's been an eventful few years for global trade.
Speaker: From supply chain congestion to pandemic-related spikes in demand, importers and exporters have had to contend with widespread disruption.
Speaker: And with geopolitical pressures, not least recent attacks on shipping in the Red Sea, some have begun to adjust their supply chains.
Speaker: As we head into a new year, is recovery in sight?
Speaker: Or could further policy change beyond the horizon as elections loom?
Speaker: To discuss, I'm joined today by Schnella Rajnega, trade economist.
Speaker: Schnella, welcome, or perhaps I should say, welcome back.
Speaker: I think this is your first podcast since 2022.
Speaker: It's great to see you.
Speaker: Thanks, Peter.
Speaker: It's nice to be back.
Speaker: So what does the picture look like for global trade as we head into 2024?
Speaker: So 2024 is looking a bit better for global trade, especially compared to last year, which was really quite dismal for growth.
Speaker: So according to our forecast, world exports are expected to pick up by around 1.8% this year, and that follows a contraction of 0.7% last year.
Speaker: And now we do see two key factors that could really support trade flows this year.
Speaker: The first being inventory rebuilding, particularly following
Speaker: the wave of destocking that a lot of businesses have been doing over the past year.
Speaker: And that could kick in perhaps in the latter half of this year.
Speaker: And the second factor is that of a sustained pickup in consumer spending, particularly as the real wage picture is improving, as some consumers could tap into that excess savings that they have.
Speaker: And also cooling inflation should help that a little bit.
Speaker: So those are some reasons to be cheerful about the prospects for trade in 2024.
Speaker: But in your report, you talk about a number of risks too.
Speaker: What do you see as the key risks?
Speaker: So we see four key risks to the outlook.
Speaker: The first being heightening geopolitical tensions.
Speaker: We've already seen what's going on with disruption in the Red Sea, and that could certainly accelerate this year, causing further supply chain strains.
Speaker: The second is that trade policy uncertainty could heighten, particularly amid the many, many elections that we have this year.
Speaker: You know, it could be the case that some political candidates want to score geopolitical wins.
Speaker: and they might look to take a bit more of a tougher stance on trade.
Speaker: Thirdly, there could be a rise in protectionist actions, particularly as a lot of advanced economies are looking to strengthen their industrial policy.
Speaker: And finally, of course, climate-related risks, particularly with what's going on in the Panama Canal, which we've written about recently.
Speaker: And what is going on in the Panama Canal?
Speaker: Just could you remind me?
Speaker: Yes, of course.
Speaker: So the Panama Canal has been imposing drought restrictions since March last year, which is essentially constraining the number of ships that can transit.
Speaker: And so although the number is expected to increase shortly, it still remains well below what it typically is.
Speaker: And you mentioned a couple of other risks there to do with potential policy changes and protectionist actions.
Speaker: I mean, when it comes to the area of trade policy, what's the mood like at the moment generally?
Speaker: So it still is a bit strained and it hasn't quite recovered to where it was pre-2016.
Speaker: There is really a sense of wanting to strengthen the industrial policy toolkit to secure supply chains, to build resilience into supply chains.
Speaker: And because of that, we've seen a number of countries around the world implement subsidy actions.
Speaker: And some of these can be quite harmful for trade.
Speaker: So overall, when we have a look at the number of harmful policy interventions affecting trade, the number is about 3,000 at the moment.
Speaker: And that's up nearly three times what it was in 2019.
Speaker: So certainly something to keep an eye on.
Speaker: You also talk in your report about grey swans, which is an intriguing phrase.
Speaker: What do you mean by that?
Speaker: So, grey swan events are essentially events that are knowable and possible, but that we consider quite unlikely at this stage.
Speaker: And the reason I've flagged it is because we just don't know what can happen.
Speaker: And time and time again, we've seen how supply chains can get upended by these grey swan events.
Speaker: So it's certainly another thing to keep in mind.
Speaker: Do you think we'll see more businesses and countries looking to adjust their supply chains, perhaps through nearshoring in 2024?
Speaker: Yes, I think we will, especially because supply chains and trade flows are continuing to evolve.
Speaker: Already there is some evidence in the FDI data that reshoring is starting to occur, especially into Mexico and into ASEAN.
Speaker: And so we do expect that trend to continue this year.
Speaker: However, it is also worth noting that mainland China still remains a very important investment destination, but also an important trading partner for many countries around the world.
Speaker: For example,
Speaker: It currently stands as the top import source for 70 markets around the world.
Speaker: So while we do expect to see some of these shifts take place, it is gradual and it will take some time to fully bear out at the macro level.
Speaker: So Shanila, there's clearly a lot of opportunities and challenges ahead for global trade in 2024.
Speaker: What are some of the key dates and events we should be looking out for?
Speaker: So the US election on 5th November will be a key date, particularly as there's a risk that trade tensions could heighten in advance of that, especially given that candidates on both sides of the political aisle are looking to take quite a tough stance on trade and with grievances related to mainland China.
Speaker: Another key date is that the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, this is the big trade deal in the Asia-Pacific,
Speaker: That's set to take effect for the UK in the second half of this year.
Speaker: And that's important because the UK will be the first new member to join the big trade deal.
Speaker: In addition, the UK is looking to strike a bilateral free trade agreement with India ahead of elections in both countries this year.
Speaker: And also there is a risk that EU mainland China tensions could heighten, particularly in July this year, because that's when the EU could potentially levy some new tariffs on Chinese electric vehicles.
Speaker: if it finds out that these are being unfairly subsidised.
Speaker: And finally, the World Trade Organisation is set to hold its ministerial meeting early this year, which is seen as a bit of a bellwether for the future of the organisation.
Speaker: So plenty for us to think about and an eventful year.
Speaker: Thank you very much, Shanila.
Speaker: Thank you.
Speaker: Shanela Rajanagam there on the Outlook for Trade.
Speaker: And here are some other highlights from the Global Research team this week.
Speaker: Bond yields enjoyed a strong performance in the last two months of 2023 and that momentum should stand them in good stead for 2024.
Speaker: That's according to our Global Head of Fixed Income Research, Steve Major.
Speaker: Steve has been assessing the push and pull factors affecting the bond market and on balance concludes that yields are likely to fall further this year.
Speaker: Emerging markets also finish the year strongly.
Speaker: Murat Ulgan, Global Head of EM Research, says that after two years of battling an inflation threat, the squeeze from tight financial conditions finally appears to be easing.
Speaker: He says that this by itself is enough to be hopeful about the EM outlook and to expect another positive year in terms of financial asset returns.
Speaker: And don't forget that our Global Chief Economist, Janet Henry, will be taking your questions at our next live insights event.
Speaker: taking place on the 19th of January at 3pm UK time.
Speaker: For details on how to register and more on the reports mentioned on today's podcast, please email askresearch at hsbc.com.
Speaker: So that's it for this edition of the Macro Brief.
Speaker: Thanks very much for listening.
Speaker: We'll be back next week.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
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