HSBC Economist Sees Stronger Outlook for China through 2022

ULI MEMBER–ONLY CONTENT: Every major global economy except Mainland China will see a decline in growth this year due to the coronavirus pandemic, according to Janet Henry, chief global economist at banking giant HSBC, who spoke in early September at the ULI Asia Pacific REImagine conference. Although Henry forecasts an uptick in growth rates from 2020 to 2021, she emphasized that the strength of most large economies will not have returned to pre-pandemic levels by the end of the calendar year 2021.

Economic recovery will be “uneven” among countries and industrial sectors because of “the overhang of the pandemic not being completely under control,” she said.

This year, Henry predicts that global GDP, or gross domestic product—a key barometer of economic health—will fall a record 4.8 percent compared with 2019. She expects developed nations to witness a bigger GDP drop (6.9 percent) than emerging nations (1.9 percent). The United Kingdom (10.3 percent) and France (10 percent) will experience the biggest hits to GDP in 2020, according to Henry’s forecast.

In only one major economy, Mainland China, will GDP rise this year (2.4 percent) over last year, up from a previous projection of 1.7 percent, according to HSBC. In August, Qu Hongbin, HSBC’s chief China economist, wrote that Mainland China’s economic recovery “is beating expectations” after GDP shrank a record 6.8 percent in the first quarter of 2020 versus the first quarter of 2019.

“While private consumption is likely to continue to lag, infrastructure and property investment seem set to be the most important drivers of GDP growth in the remainder of 2020,” Hongbin wrote of the Chinese economy.

Next year, Henry envisions every major economy getting a GDP bump compared with this year. Her forecast shows France leading the way (8.6 percent), followed by Mainland China (7.5 percent) and India (6.6 percent). By contrast, the smallest year-over-year GDP gains in 2021 will be in Russia (2.1 percent) and Japan (2.2 percent), she predicts.

Worldwide, GDP will grow 5.1 percent next year versus this year, with developed countries at 4.6 percent and emerging countries at 5.7 percent, according to Henry’s forecast.

Henry said that relatively high unemployment rates and household, corporate, and government debt levels will be “lingering challenges” for the global economy even two years from now. Measures that will be employed to address the surge in debt might include rapid growth, inflation, spending cuts, low interest rates, and tax increases, she said.

Pandemic-era strategies like remote working, social distancing, and cashless shopping “may mean the pandemic encourages investment in technology, automation, and payment systems,” Henry wrote on the HSBC website. “But more generally, we think cash-depleted companies will remain reluctant to invest, implying less innovation, lower productivity, and, given high unemployment, subdued wage growth.”

As for the continued vigor of the stock markets, Henry attributed this trend to “the hunt for yield,” similar to what occurred after the global financial crisis of 2007–2009.

“To many investors, the serious challenges on Main Street do not seem to be reflected on Wall Street, where stocks have bounced sharply from their March low,” according to an HSBC investment outlook published in May. “This is in part because unprecedented economic pain has also triggered unprecedented policy action, which has seriously reduced the . . . risk of a credit crisis and allowed capital markets to continue to function.”