Janet Henry (Bristol, United Kingdom, 1969) pilots the economic forecast area of one of the biggest banks in the world: the HSBC. From his privileged watchtower he sees a slowdown in the world economy, but he sees no risk of recession at the moment.
Question. The market consensus states that the world economy will grow less next year. Do you agree?
Answer. Yes. World growth has peaked. This also works for the USA, which in 2019 will still grow above its potential, helped by the tax cuts. In Europe, the data for the third quarter were worse than expected, hampered by the situation in Germany, although a recovery is expected in the fourth quarter. A similar case is detected in China: the year started very strong but now we see a slower evolution, although the Chinese authorities have reacted so that the situation does not get out of hand, especially with greater spending on infrastructure. We believe that these stimuli will continue in 2019, facilitating access to selective credit and cutting rates.
Q. Do you also detect this economic fatigue in emerging economies? What pressure does it have for Latin America?
R. In Latin America there are a series of specific factors that affect depending on the country we analyze. Argentina, for example, it is in recession, although we expect the situation to reverse in the second half of 2019. In Brazil, the evolution will depend to a large extent on whether the new government of Jair Bolsonaro manages to implement the necessary structural reforms. If you manage to make changes it is possible that the sentiment of international investors improves. Many countries in this region, like the emerging economies, have been affected by the rate hikes in the US. To the extent that they have already suffered a good part of the adjustment this year, an acceleration of these economies could be experienced in the course of 2019.
Q. You, like most economists, only talk about a slower rate of growth, but how far do you see the next recession?
"In the US, the braking will be more marked in 2020 with the end of fiscal stimuli"
R. It is true that we are at an advanced stage of a long economic cycle. In the US, specifically, it is the second longest since the Second World War. It would not be unusual for a decade-long expansion at the end of a Fed adjustment cycle [Reserva Federal] a recession follows. At this time, our projections, which extend to 2020, do not include a recession, as we expect the Fed to adjust cautiously and keep interest rates on hold in the second half of 2019. It is unlikely that the Fed will be surprised by inflation because, although wages increase gradually, the impact is offset by higher productivity and part of this impact will be noted in the profit margins. However, we are forecasting a more pronounced slowdown in 2020 as the fiscal stimulus fades.
Q. If I had to keep the three great risks that hover over the world economy, which ones would I choose?
R. The main risk I would say are commercial tensions. In recent decades we have seen how the development of global production chains has improved the standard of living of people and has brought higher levels of efficiency. Outside the US, another point of tension is the rise in interest rates, especially in those economies with a high deficit, in countries with a lot of debt denominated in dollars or those that depend a lot on external capital flows.
Q. As you have recalled several times, the US central bank is in the middle of a stimulus withdrawal phase and the ECB will begin to imitate you. Do you think it is possible to drain all the liquidity in the system without the world economy derailing?
R. We expect three more rate hikes from the Fed in 2019. In addition, in the coming months you should make a decision on whether or not to continue reducing your balance sheet size. This policy is already having an impact on investor sentiment, although the Fed could take a break. As for the ECB, it is true that it has announced its intention to normalize its monetary policy, but it is still not clear how far it will come with this plan. At the moment, the financial markets do not expect rises in the euro zone rates until 2020
"There are greater limitations to respond when the next crisis arrives"
Q. Do you think that both central banks and governments have run out of monetary and fiscal tools to combat the next crisis?
R. It is true that now both central banks and politicians are more limited in responding with conventional measures when the next crisis arrives. During the economic contractions, the Fed has lowered average rates in the US by 500 basis points. Our forecast is that the price of money will reach 2.75% -3%, so that rates may not fall so much in the next slowdown but, at least, the Fed will be able to cut more than the ECB or that the Bank of Japan. Therefore, I think we will see more experiments with negative rates and greater collaboration between central banks and governments because the most obvious option will be a more flexible fiscal policy.
Q. What would these experiments consist of?
P. The so-called money helicopter will undoubtedly be considered again. In any case, there are always new measures that can be put into practice. Now everyone speaks naturally about the Quantitative Easing [expansión cuantitativa de la base monetaria]But in 2010, when it began to be studied as a new formula against the crisis, it was a territory to explore for central banks around the world. Another question is whether the next range of policy instruments that will be experimented with will be effective.