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Janet Henry, Global Chief Economist at HSBC
David Bloom, Global Head of FX Research at HSBC

A year ago, the overarching narrative about the global economy was that it was in a state of synchronised expansion. Today, the consensus is far less optimistic, with many economies now undergoing a synchronised downturn. Janet Henry, Global Chief Economist at HSBC, and David Bloom, Global Head of FX Research at HSBC, shared their insights about what corporate treasurers should be looking out for in these difficult macro conditions.

On the global economic outlook, Henry said: “There is a global slowdown happening right now, which is concentrated in the industrial sector, especially across the Eurozone and in Latin America, where some countries are actually in outright industrial recession. While forecasts for the US have barely shifted despite the knock-on effects of the government shutdown, the same cannot be said for Eurozone markets. This is because a number of Eurozone countries are heavily exposed to the export sector, which has been seriously impacted by the economic slowdown in China and the overall drop off in world trade.”

On consumer market outlook, Henry said: “We are optimistic about the consumer market outlook. Despite economic growth having not been spectacular over the last decade, it has been a job rich recovery. Unemployment rates are at record lows across a number of countries including the US. Unemployment is also still failing in markets such as Germany – which narrowly avoided recession last year – and still low in Italy – which is in recession. We are also seeing nominal wage growth edge upwards while inflation is being tamed by low oil prices.”

On the probability of interest rate rises, Henry said: “We believe the Federal Reserve is more likely to increase interest rates in 2019 rather than cut them and have pencilled in one more 25bp rise in the Fed Funds rate for September, by which time we expect unemployment to have fallen further and wage growth to have edged higher. Even if the Federal Reserve does not deliver an interest rate rise, it could just be that the market anticipates one will happen so the tightening of financial market conditions comes via falling markets or a significantly stronger dollar rather than the rate rise itself.”

On the USD, Bloom said: “In 2018, we were bullish on the USD because we liked it. Today, we are bullish on the USD because we don’t like any of the other currencies. Everywhere else is struggling yet the reserve currency of the world is giving us the highest interest rates.”

On the UK GBP, Bloom said: “We are bullish on the UK and GBP. This bullishness comes after two years of bearishness and telling people to be wary of UK assets due to Brexit. We believe that if there is a Brexit deal, GBP will rise to 1.45 from its current rate of around 1.30/1.31 whereas if there is no deal he is expecting it to drop to around 1.10. If the UK Brexit political issues were to seriously diminish, Bloom went on to say “the economy could enjoy a lift, as investment growth picks up.  We could even be in a situation where the Bank of England (BOE) decides to raise rates.” 

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