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Speaker 1: We're joining us in the Singapore studio as Janet Henry.

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Speaker 1: HSBC global chief economists are normally based in London, and

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Speaker 1: there's so much to talk about, Janet, But you and

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Speaker 1: I were just talking off air then, and the energy

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Speaker 1: escalation is certainly very much a big risk at the moment,

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Speaker 1: with benchmark futures for gas surging up to twenty two percent.

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Speaker 1: I mean, how worrying is this is as your part

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Speaker 1: of the world is about to face winter, well going

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Speaker 1: into winter. At least we're starting in Europe, certainly continental

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Speaker 1: Europe with high gas levels UM. But it does with

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Speaker 1: this renewed disruption, pose a risk of enforced rationing at

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Speaker 1: some point. You know, what we've seen in the last

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Speaker 1: couple of months was that there was reduced usage of

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Speaker 1: gas UM, consumption of being cut back. We'd filled the

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Speaker 1: storage levels, and the feeling was if we could get

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Speaker 1: through the winter UM and negotiate new contracts and at

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Speaker 1: least get some resumption of flow, that we could manage

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Speaker 1: to muddle through. But if we get enforced rationing, then

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Speaker 1: it's going to potentially make what is already looking like

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Speaker 1: a European recession somewhat deep. If we have to see

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Speaker 1: significant curtailments. It's almost seeming unavoidable that there will be

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Speaker 1: a European recession. What about on the global front though,

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Speaker 1: in terms of the aggressive FED tightening too, and how

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Speaker 1: much that just impacts the world economy. Well, globally, we're

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Speaker 1: already seeing something of a recession. It's still been quite uneven.

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Speaker 1: We've had a degree of reopening UM, but Europe is

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Speaker 1: at the forefront of it. You know, we think the

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Speaker 1: UK is already in a recession that began in the

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Speaker 1: second quarter. Europe is going into one. Parts of Asia

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Speaker 1: we're obviously seeing still some reopening effects UM, and even

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Speaker 1: in parts of Latin America we've seen some reopening effects.

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Speaker 1: And even the US is in a partial recession. The

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Speaker 1: residential construction UM has already been in recession, but the

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Speaker 1: consumer is still reasonably strong. So I think when we're

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Speaker 1: talking about recession in many ways, we're thinking at what

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Speaker 1: point does unemployment start to rise? And this is where

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Speaker 1: the UK has been informative, been in recession for a

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Speaker 1: couple of quarters, but unemployment has actually still remain remarkably low.

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Speaker 1: We were talking about the fact that you say recession

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Speaker 1: in many places around the globe looks unavoidable. What is

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Speaker 1: your forecast for global growth for twenty three now for three, well,

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Speaker 1: I think, like a lot of people, we've lowered our

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Speaker 1: growth forecast. So we've lowered g d P from to

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Speaker 1: one point eight percent for three, so pretty pretty weak

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Speaker 1: from two point six percent, So that's that's quite a

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Speaker 1: big cut there. We're talking about a lot of the

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Speaker 1: risks that we are seeing. I know you've been focusing

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Speaker 1: very much on on where you are, and your trip

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Speaker 1: to Singapore probably made a lot more expensive with what

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Speaker 1: has happened with the pound. What are the chances of

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Speaker 1: intervention here? Currency intervention? I still think it is extremely unlikely.

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Speaker 1: Unilateral intervention um that perhaps runs counter to the fundamentals

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Speaker 1: typically tends to be quite futile. I think what it's

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Speaker 1: going to take is a broader policy response. It's interesting

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Speaker 1: overnight you have the I m F calling on the

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Speaker 1: UK to reevaluate its planned tax cuts. Politically, that is

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Speaker 1: going to be quite difficult to do a complete U turn.

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Speaker 1: So really the onus now is on the Bank of

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Speaker 1: England and clearly we had those comments from the Bank

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Speaker 1: of England Chief economist Hugh pill overnight. Basically saying this

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Speaker 1: degree of fiscal stimulus, the forty five billion of tax

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Speaker 1: cuts that are planned, is going to require a significant

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Speaker 1: monetary response. But but it looks like we're gonna have

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Speaker 1: to wait till November. Yeah, well, I was going to say,

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Speaker 1: November is still more than a month away. So a

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Speaker 1: lot can happen then, as we have noticed that a

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Speaker 1: lot has happened in the last couple of months on

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Speaker 1: the global economic front. But if we look at the

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Speaker 1: scenario where we are, now, what should the Bank of

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Speaker 1: England do in November. Well, first of all, they've got

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Speaker 1: to analyze all the information that they've got. It's interesting

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Speaker 1: that the government has now said that there's going to

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Speaker 1: be an announcement later in October. Remember they talked about

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Speaker 1: trying to boost growth. You know, growth has actually only

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Speaker 1: averaged a little bit above one percent over the last decade,

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Speaker 1: and it's been they suggesting that they're going to raise

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Speaker 1: it to two and a half percent just by tax cuts.

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Speaker 1: Now they've agreed there's going to be many more supply

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Speaker 1: why side measures, and that will be important for the

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Speaker 1: Bank of England because when the Bank of England sets policy,

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Speaker 1: they're thinking about how it's going to influence the economy

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Speaker 1: over the next couple of years. So if the government

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Speaker 1: does come up with productivity enhancing measures over the medium term,

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Speaker 1: that might help things. But really what the Bank of

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Speaker 1: England's got to do is assess how much that fiscal

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Speaker 1: stimulus is going to add fuel to the inflationary fire

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Speaker 1: and what's the monetary offset going to be. So we've

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Speaker 1: been forecasting seventy five basis points at the November meeting.

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Speaker 1: Obviously the markets pricing in quite a lot more um

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Speaker 1: so depends on where we are by the time we

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Speaker 1: get to November. I would suggest that whatever's priced in

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Speaker 1: pass for the Bank of England will be delivering in November.

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Speaker 1: Every every meeting is a live meeting, particularly in this environment.

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Speaker 1: Getting back to the broader macro picture and the Fed,

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Speaker 1: I mean we continue every day to here from FED

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Speaker 1: speakers saying that they need to keep on this aggressive

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Speaker 1: tightening path in terms of trying to restore price stability.

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Speaker 1: Do you think that the Fed's credibility is on the

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Speaker 1: line here? I think it is. We need we need

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Speaker 1: to remember that the last time we had double digit

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Speaker 1: inflation rates in countries, policy rates were in double digits

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Speaker 1: to UM you know, and certainly that was the case

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Speaker 1: in the UK. So when the inflation has been high

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Speaker 1: and rising and so far above target for so long.

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Speaker 1: UM as much as financial market measures of inflation expectations

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Speaker 1: are still pretty well anchored, because central banks are still

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Speaker 1: saying they're going to be back to target in two

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Speaker 1: years time, the FED knows that the biggest risk is

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Speaker 1: that household consumer expectations are the anchored and that wage

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Speaker 1: setting behavior is going to shift. So inflation falling from

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Speaker 1: nine till eight is an encouraging sign, but that's not

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Speaker 1: going to stop people asking for higher pay rises. And

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Speaker 1: that is that the risk of the de anchoring, and

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Speaker 1: if the FED allows that to happen, then yes, their

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Speaker 1: their inflation credibility will be at risk. And that's obviously

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Speaker 1: what James Bullard alluded to UM the one of the

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Speaker 1: FED governors overnight. We talked earlier about as well. The

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Speaker 1: jobs market holding up pretty well, which is a very

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Speaker 1: different scenario to when we've seen other global recessions. But

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Speaker 1: on that front of a wage prices or at the

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Speaker 1: lower end of people are not getting those increases or

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Speaker 1: their risk of losing their job, At what point does

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Speaker 1: the consumer really start to I guess lead to potential

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Speaker 1: downturn if you don't have enough money to pay your

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Speaker 1: energy bills in and you're very much coming back on spending,

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Speaker 1: and you're worried about just a general cost of living prices. Well,

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Speaker 1: in the US, one thing that has happened over the

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Speaker 1: last year, it's actually the lower earners that have seen

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Speaker 1: the biggest pay rises, but they also see by far

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Speaker 1: the highest inflation rent rate um, you know, higher rental costs.

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Speaker 1: They're more likely to be renters um, they spend a

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Speaker 1: bigger share of their income on food and energy, which

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Speaker 1: are obviously some of the areas of inflation that have

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Speaker 1: been quite a lot higher UM. And the bottom twenty

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Speaker 1: percent of income earners in the US haven't been amongst

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Speaker 1: the groups that have accumulated a lot of savings during

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Speaker 1: the pandemic, even with that fiscal stimulus, so to some

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Speaker 1: extent that part of the population are already in a

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Speaker 1: consumer recession. But in the US, the top thirty percent

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Speaker 1: of households account for half of the consumer spending. So

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Speaker 1: without a doubt, we are seeing a slowdown. It was

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Speaker 1: still pretty solid in the first half of the year.

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Speaker 1: We're going to see a meaningful slowdown over the course

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Speaker 1: of the next couple of quarters, with with some obviously

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Speaker 1: curtailing their spending because inflation so high, but others, especially

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Speaker 1: hiring commerners, holding up a little bit better. All right,

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Speaker 1: let's get to the China picture, because this is a

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Speaker 1: very different story as it continues on its COVID zero policy.

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Speaker 1: A lot of first school of thought that maybe we

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Speaker 1: see a relaxation of that after the Party Congress. But

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Speaker 1: then as Brian was telling us to China, warning that

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Speaker 1: global demand is a top threat to trade here, how

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Speaker 1: do you see the concerns of the second biggest economy

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Speaker 1: in the world slowing down on the overall global picture.

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Speaker 1: We've already seen some impact of China slowing down on

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Speaker 1: the global economy. A lot of the reasons for some

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Speaker 1: of the commodity price declines has weakening demand that's happened

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Speaker 1: to China. So slowing China demand does in a high

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Speaker 1: inflation world. At the margin, China adds some deflation reforces

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Speaker 1: to the global economy, particularly via commodity prices. But China's

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Speaker 1: export performance has been quite resilient. It's been a zero

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Speaker 1: COVID strategy. But the closer loop system has obviously allowed

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Speaker 1: production to to reopen. China's still been gaining market share

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Speaker 1: in certain countries and it has outperformed a lot of

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Speaker 1: countries on the export front. But as Europe goes into recession,

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Speaker 1: Europe still the world's biggest trading block UM and weakening demand.

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Speaker 1: Recessionary demand from Europe will weigh on world trade growth

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Speaker 1: and China is going to need other drivers of exports

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Speaker 1: are not going to be as supportive. So I think

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Speaker 1: the reopening will be slow paced and gradual throughout twenty

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Speaker 1: three UM. So they still need to stabilize the property

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Speaker 1: market and add infrastructure spending. Slow paced perhaps, but we're

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Speaker 1: starting to see I guess positive signs that that could

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Speaker 1: be on the way. If you look at the likes

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Speaker 1: of some of the relaxation in Hong Kong and Macau,

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Speaker 1: if we did see a faster turnaround, say for the

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Speaker 1: likes of what we saw in Singapore where everything was

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Speaker 1: very strict and then it fell away very very quickly,

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Speaker 1: how fast can China turn around. I think it will

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Speaker 1: be more slowly because you know, partly because of the

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Speaker 1: health care system. Also, if you think about when China

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Speaker 1: came out back in early twenty. It was very much

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Speaker 1: a V shaped recovery. Um. They clamped down very aggressively,

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Speaker 1: they reopened very quickly, UM, and they got back to

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Speaker 1: pre pandemic levels of GDP very quickly, swiftly. I'm not

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Speaker 1: expecting a complete you turn straight after the Party Congress.

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Speaker 1: I think it will take longer. It will be very

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Speaker 1: gradual around the edges, and then it will gradually be

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Speaker 1: stepped up after you know, about the first quarter of

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Speaker 1: next year. I think more slowly, more gradual, and a

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Speaker 1: lot of it will be more be felt more domestically

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Speaker 1: in terms of consumer services, rather than something that's going

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Speaker 1: to have a massive impact on global demand on the

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Speaker 1: consumer side. I asked you earlier whether you think in

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Speaker 1: events and in sterling, we've certainly sent a lot of

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Speaker 1: intervention in Asian currencies. I mean, look at what we

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Speaker 1: saw with the yen. How are you kind of reading

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Speaker 1: these moves by Ministry of Finance and Bank of Japan officials. Well,

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Speaker 1: I think as far as Japan is concerned, they have

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Speaker 1: a very different policy. The rest of the world, apart

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Speaker 1: from Japan and China, does have an inflation problem, and Japan, yes,

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Speaker 1: there's been a certain amount of intervention just to bring

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Speaker 1: some some variations, some volatility to the currency so that

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Speaker 1: there isn't a kind of one way bet um dowwards.

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Speaker 1: So I don't I still see them pursuing a very

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Speaker 1: divergent policy. Inflation expectations are still too low, wage growth

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Speaker 1: is still too low in Japan. It's actually some of

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Speaker 1: the other Asian countries that have been intervening on the

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Speaker 1: currencies almost as an alternative to raising interest rates. As

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Speaker 1: the FED continues to tighten, and particularly as the dollar

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Speaker 1: remains strong. I think what you're probably going to see

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Speaker 1: as some of the other Asian countries having to raise

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Speaker 1: rates a little bit more swiftly, and I think it

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Speaker 1: might be one of those over the course the next

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Speaker 1: couple of months where we do see more aggressive rape rises.

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Speaker 1: All right, Janet has been an absolute pleasure to have

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Speaker 1: you in our Singapore studio. I know you're joining the

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Speaker 1: team on television shortly as well. Janet Henry as HSBC

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Speaker 1: Global Chief Economists with us in our Singapore studio, and

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Speaker 1: Janet did allude to the fact that they are confident

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Speaker 1: at HSPC that major central banks will be able to

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Speaker 1: do enough to prevent an immediate wage price spiral,