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The Macro Brief – Talking Trade
27 Plays1 year ago
Shanella Rajanayagam, Trade Economist, considers whether a recovery is in sight for global trade in 2024 – and discusses the key risks to watch. Disclaimer: https://www.research.hsbc.com/R/61/CHtzMFX 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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Transcript
Introduction and Subscriptions
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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.
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And now onto today's show.
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This podcast was recorded on the 11th of January 2024 by HSBC Global Research.
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All the disclosures and disclaimers associated with it must be viewed on the link attached to your media player.
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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.
Global Trade Challenges
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Hello and welcome to the Macrobrief.
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I'm your host Peter Stegall in London.
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Now it's been an eventful few years for global trade.
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From supply chain congestion to pandemic-related spikes in demand, importers and exporters have had to contend with widespread disruption.
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And with geopolitical pressures, not least recent attacks on shipping in the Red Sea, some have begun to adjust their supply chains.
Trade Recovery Predictions
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As we head into a new year, is recovery in sight?
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Or could further policy change beyond the horizon as elections loom?
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To discuss, I'm joined today by Schnella Rajnega, trade economist.
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Schnella, welcome, or perhaps I should say, welcome back.
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I think this is your first podcast since 2022.
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It's great to see you.
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Thanks, Peter.
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It's nice to be back.
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So what does the picture look like for global trade as we head into 2024?
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So 2024 is looking a bit better for global trade, especially compared to last year, which was really quite dismal for growth.
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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.
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And now we do see two key factors that could really support trade flows this year.
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The first being inventory rebuilding, particularly following
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the wave of destocking that a lot of businesses have been doing over the past year.
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And that could kick in perhaps in the latter half of this year.
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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.
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And also cooling inflation should help that a little
Risks to Trade
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bit.
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So those are some reasons to be cheerful about the prospects for trade in 2024.
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But in your report, you talk about a number of risks too.
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What do you see as the key risks?
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So we see four key risks to the outlook.
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The first being heightening geopolitical tensions.
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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.
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The second is that trade policy uncertainty could heighten, particularly amid the many, many elections that we have this year.
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You know, it could be the case that some political candidates want to score geopolitical wins.
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and they might look to take a bit more of a tougher stance on trade.
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Thirdly, there could be a rise in protectionist actions, particularly as a lot of advanced economies are looking to strengthen their industrial policy.
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And finally, of course, climate-related risks, particularly with what's going on in the Panama Canal, which we've written about recently.
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And what is going on in the Panama Canal?
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Just could you remind me?
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Yes, of course.
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So the Panama Canal has been imposing drought restrictions since March last year, which is essentially constraining the number of ships that can transit.
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And so although the number is expected to increase shortly, it still remains well below what it typically is.
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And you mentioned a couple of other risks there to do with potential policy changes and protectionist actions.
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I mean, when it comes to the area of trade policy, what's the mood like at the moment generally?
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So it still is a bit strained and it hasn't quite recovered to where it was pre-2016.
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There is really a sense of wanting to strengthen the industrial policy toolkit to secure supply chains, to build resilience into supply chains.
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And because of that, we've seen a number of countries around the world implement subsidy actions.
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And some of these can be quite harmful for trade.
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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.
Supply Chain Disruptions
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And that's up nearly three times what it was in 2019.
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So certainly something to keep an eye on.
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You also talk in your report about grey swans, which is an intriguing phrase.
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What do you mean by that?
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So, grey swan events are essentially events that are knowable and possible, but that we consider quite unlikely at this stage.
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And the reason I've flagged it is because we just don't know what can happen.
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And time and time again, we've seen how supply chains can get upended by these grey
Nearshoring Trends
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swan events.
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So it's certainly another thing to keep in mind.
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Do you think we'll see more businesses and countries looking to adjust their supply chains, perhaps through nearshoring in 2024?
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Yes, I think we will, especially because supply chains and trade flows are continuing to evolve.
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Already there is some evidence in the FDI data that reshoring is starting to occur, especially into Mexico and into ASEAN.
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And so we do expect that trend to continue this year.
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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.
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For example,
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It currently stands as the top import source for 70 markets around the world.
Key Dates Impacting Trade
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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.
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So Shanila, there's clearly a lot of opportunities and challenges ahead for global trade in 2024.
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What are some of the key dates and events we should be looking out for?
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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.
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Another key date is that the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, this is the big trade deal in the Asia-Pacific,
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That's set to take effect for the UK in the second half of this year.
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And that's important because the UK will be the first new member to join the big trade deal.
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In addition, the UK is looking to strike a bilateral free trade agreement with India ahead of elections in both countries this year.
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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.
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if it finds out that these are being unfairly subsidised.
Economic Insights
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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.
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So plenty for us to think about and an eventful year.
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Thank you very much, Shanila.
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Thank you.
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Shanela Rajanagam there on the Outlook for Trade.
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And here are some other highlights from the Global Research team this week.
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Bond yields enjoyed a strong performance in the last two months of 2023 and that momentum should stand them in good stead for 2024.
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That's according to our Global Head of Fixed Income Research, Steve Major.
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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.
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Emerging markets also finish the year strongly.
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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.
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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.
Conclusion and Q&A Event
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And don't forget that our Global Chief Economist, Janet Henry, will be taking your questions at our next live insights event.
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taking place on the 19th of January at 3pm UK time.
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For details on how to register and more on the reports mentioned on today's podcast, please email askresearch at hsbc.com.
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So that's it for this edition of the Macro Brief.
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Thanks very much for listening.
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We'll be back 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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Make sure you're subscribed to stay up to date with new episodes.