HSBC Malta hosts top in­ter­na­tional ex­pert on for­eign ex­change

The Malta Business Weekly - - FRONT PAGE -

HSBC Bank Malta hosted one of the world’s lead­ing for­eign ex­change strate­gists, David Bloom, to pro­vide his un­ri­valled in­sights on the chang­ing face of global trade driven by cur­rency pric­ing. A packed hall of busi­ness and cor­po­rate cus­tomers learned about the cur­rent wave of syn­chro­nised global growth, the USD dy­nam­ics as well as the on­go­ing EU-Brexit de­bate.

Apart from re­ceiv­ing Bloom’s per­spec­tives on global trade and FX, the au­di­ence ben­e­fited also from an anal­y­sis of the lo­cal econ­omy by econ­o­mist Dr Gor­don Cor­dina, who pro­vided a num­ber of key in­sights into the cur­rent per­for­mance and fu­ture out­look of the Mal­tese econ­omy.

Guests were wel­comed by the bank’s CEO An­drew Beane, who re­it­er­ated HSBC’s ca­pa­bil­ity to bring the lat­est and best knowl­edge re­sources for the ben­e­fit of Mal­tese busi­nesses and the econ­omy as part of HSBC’s com­mit­ment to grow its cor­po­rate bank­ing busi­ness in Malta.

Bloom, Global head of FX at HSBC Global Re­search, renowned for his grip­ping can­dour on ev­ery­where from Bloomberg to CNBC, picked up on a re­cent HSBC re­search ar­ti­cle, Syn­chro­nised global sink­ing, which ques­tioned that while the world cel­e­brates an un­prece­dented global growth, from an econ­o­mist’s per­spec­tive the dilemma is whether this is ac­tu­ally an end.

“It’s ac­tu­ally an end be­cause what hap­pens is that when you get syn­chro­nised global growth pres­sure starts to rise like high oil prices, high com­mod­ity prices, it squeezes on the econ­omy, and things get more dif­fi­cult be­cause we are all fight­ing for the same things,” he said.

If the mo­men­tum of the on­go­ing syn­chro­nised global growth stut­ters, he asked, how will those cen­tral banks be­have when they did not raise in­ter­est rates in the case of an eco­nomic down­turn, such as Sweden, Switzer­land, the eu­ro­zone and Ja­pan? Fur­ther­more, will the cur­ren­cies weaken a lot be­cause they do not have the abil­ity to cut in­ter­est rates? he asked.

Ex­plain­ing how cur­ren­cies are eval­u­ated, Bloom said whether it is bonds or FX or fi­nan­cial mar­kets, one needs to look at three as­pects: struc­tural, cycli­cal and the po­lit­i­cal. “The struc­tural is of­ten the coun­try’s ac­count, the debt-to-GDP, the debt dy­nam­ics, the cur­rent ac­counts, while the cycli­cal is the day-to-day move­ment of in­dus­trial pro­duc­tion, re­tail sales, the eco­nomic health and em­ploy­ment num­bers.

“The third as­pect is po­lit­i­cal. Pol­i­tics is play­ing a greater role in fi­nan­cial mar­kets than it used to and its im­pact on prices is be­com­ing ex­treme,” said Bloom.

In light of the three as­pects, Bloom main­tained that on cycli­cal­ity, the USD is do­ing “fan­tas­ti­cally well” with the US econ­omy ex­pand­ing and this is caus­ing the Fed­eral Re­serve Bank to con­tinue to raise in­ter­est rates.

“So which force is the strong­est? It seems as though the cycli­cal force is now win­ning, thereby pro­pel­ling the USD higher.” He then added that in the case of ster­ling, cycli­cally the econ­omy is slow­ing down, the po­lit­i­cal worry of Brexit hangs over the coun­try, and struc­turally the United King­dom has a big cur­rent ac­count deficit. This paints a poor pic­ture for the UK pound.

The an­a­lyst also high­lighted the big puz­zle in eco­nom­ics at the mo­ment: why are un­em­ploy­ment rates so low yet there is no wage pres­sure?

“This idea is what the aca­demics call the ‘Philip’s curve’, which means low un­em­ploy­ment rates puts up­ward pres­sure on wages and thereby cre­ates in­fla­tion. That wage pres­sure doesn’t stop un­til un­em­ploy­ment starts to rise again and un­em­ploy­ment only rises when the econ­omy slows down. But this time, in this cy­cle, in the cur­rent world, be it the US, the UK and look­ing glob­ally, un­em­ploy­ment rates are fall­ing but wages are just not ris­ing,” he ex­plained.

On Malta, Bloom noted the struc­tural im­prove­ments in the pub­lic debt-to-GDP ra­tio, debt lev­els and the external cur­rent ac­count. Fol­low­ing Bloom’s pre­sen­ta­tion, econ­o­mist Dr Cor­dina re­marked that these im­prove­ments are tak­ing place within the con­text of eco­nomic growth that is un­prece­dented in re­cent times, and stronger than that of most EU coun­tries.

He turned next to ad­dress the ques­tion of the sus­tain­abil­ity of such growth, to con­clude that the fu­ture out­come will very much de­pend on the ex­tent to which the Mal­tese econ­omy will be able to of­fer an at­trac­tive lifestyle and at the same time an eco­nom­i­cally com­pet­i­tive propo­si­tion to de­velop as a re­gional hub for busi­ness, tourism niches and higher value added ser­vices and man­u­fac­tur­ing activities.

In devel­op­ing this anal­y­sis, Dr Cor­dina em­pha­sised that for eco­nomic growth to re­sult in de­vel­op­ment, it needs to be sus­tain­able into the fu­ture and re­silient to risks. He also re­flected on the im­por­tance for an eco­nomic struc­ture which would be able to with­stand the ef­fects of a tem­po­rary slow­down in ac­tiv­ity.

“A num­ber of data points ap­pear to sus­tain the eco­nomic sus­tain­abil­ity hy­poth­e­sis for Malta, in­clud­ing the re­duc­tion in debtto-GDP ra­tios, the in­crease in pro­duc­tive in­vest­ment, the rate of job cre­ation and the pattern of sec­to­rial eco­nomic di­ver­si­fi­ca­tion,” said Dr Cor­dina.

There are how­ever risks to the fu­ture evo­lu­tion of the econ­omy, he added, po­ten­tially aris­ing from dif­fi­cul­ties in man­ag­ing a rapid in­flux of mi­grants, the depen­dence on sec­tors which may be prone to external shocks and the car­ry­ing ca­pac­ity of the econ­omy from the per­spec­tives of the in­fra­struc­ture and en­vi­ron­men­tal re­sources.

In con­clud­ing, Dr Cor­dina ad­vo­cated that the eco­nomic div­i­dends of the cur­rent growth phase need to be di­rected towards in­vest­ments in lifestyle, en­vi­ron­men­tal and in­fras­truc­tural ameni­ties as well as in busi­ness com­pet­i­tive­ness. This is in­dis­pens­able to en­sure the con­tin­ued suc­cess of the Mal­tese econ­omy and avert the ef­fects of po­ten­tial threats, he said.

At the end of the event, both speak­ers were asked a num­ber of ques­tions. HSBC Malta Com­mer­cial Bank­ing head Michel Cor­dina thanked the au­di­ence and said: “Bring­ing in­ter­na­tional ex­per­tise within the HSBC Group to Malta and to your busi­nesses to support your growth is unique to HSBC Malta. In 2018, we will be re­con­nect­ing even more with our cus­tomers and aim to of­fer an ex­cel­lent cus­tomer ex­pe­ri­ence.”

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