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Simon Brown: I'm speaking with Sanisha Pakirisamy, an economist at Momentum Investments. Sanisha, thank you for today. trade disruption. We know about the Red Sea issue with the Houthis – it's understood around the world – but there are other potential threats out there as well. There is a strait around Taiwan. Drought could occur in the Panama Canal and…, Iran is up. There were also trade disruptions and disruptions to shipping routes. This situation is likely to worsen throughout the year.
Sanisha Pakirisamy: Thank you so much, Simon. Yes, I think the world is increasingly concerned about global maritime trade. And as you pointed out, it's not just the conflict in the Red Sea that has brought about a resurgence in ocean freight prices, but we've also seen a number of other challenges that account for a large portion of global trade. It seems like we're under the banner of some kind of hotspot, and we're starting to see things like drought impacting the Panama Canal. Conflicts could erupt in other hot spots, further disrupting global trade routes.
As a result, it was found that there is a possibility that it may affect inflation such as oil prices in the future. At the end of the day, I think that living in a world with more geopolitical pressures than we've seen in the last few decades, we're starting to get pretty concerned about future global trade volumes.
Simon Brown: And clearly this is only a matter of time. It just takes time to get from A to B. After that, container prices will also rise. There was something called the World Container Index, which has almost doubled since the end of last year.
You mentioned inflation. If you look at some of the forecasts there, the U.S. will have core PCE [personal consumer expenditures] – and I know PCE is Fed-friendly inflation – it could suddenly be 2.4 this year and 2.2 next year. Will that take the Red Caps off the table in a worst-case scenario?
Sanisha Pakirisamy: Now, if you look at that World Container Index, what's really interesting about this chart is that if you had to look at this from the beginning of last year, you see this very noticeable uptick towards the end of last year. . This year's. These interest rates hover around $4,000. But what's even more interesting is that if you go back a little further on this chart and look at what happened during the pandemic, you'll see that the very same index actually rose to $10,000. What's different this time?
What we saw during the pandemic was that global supply chains around the world were affected by the fact that there were restrictions on movement. But this time, it's really a particular chokepoint that's affected, and fortunately there's an alternative route for smuggling some of these container ships, and that's through the Cape of Good Hope.
Unfortunately, the Cape of Good Hope is a bit further than a normal journey, so there are additional costs such as insurance and time delays. So we are still seeing supply disruptions in some sectors, particularly in electronics and automotive manufacturing.
As you point out, inflation could still have an impact. Despite geopolitical tensions erupting in the Red Sea, the international price of oil has not actually skyrocketed, so I think the impact of inflation this time has been relatively contained. Of course, significant risks remain with this view.
But for now, it looks like US core inflation could rise another 0.4 percentage points by the end of this year. This is a forecast released by Fitch Ratings.
In terms of what that means for interest rates, central banks around the world are signaling to the market that they may cut rates a little later than the market is implying in terms of pricing. I think they are sending it. I think that's because central banks remain quite nervous about the possibility of inflation rearing its ugly head again in an environment of high risk, such as the outbreak of the Red Sea conflict.
Simon Brown: I also respect your opinion. That's what central bankers are supposed to do. Don't be too aggressive; instead, be a little more cautious. You claim that so far the Houthis in the Red Sea have not attacked oil tankers. So, [dollar] Oil prices are in the low 80s, up a little this year, but still not up.However, this could hurt global GDP growth somewhat [where] A year ago, the debate was whether it was a hard landing or a soft landing.
We seem to be close to arguing that there will be no “landing” at all, but perhaps a decline in GDP, particularly in China below 5%, which is President Xi Jinping's goal.
Sanisha Pakirisamy: That's exactly right. So we've seen this “hard landing vs. soft landing” debate evolve into a “soft landing vs. no landing” debate.
I think we'll see some decent growth in many major economies this year, but as the International Monetary Fund has actually pointed out in conjunction with the World Bank, this year's growth rates, even if they seem reasonable, are still It will be at a fairly high level. That's below the 10-year average seen before the pandemic.
So don't get me wrong. The fact that there is a global pandemic has adversely affected trends and potential growth in most major economies.
We see that there is still a lot of pain for consumers in China. Chinese consumers still tend to prefer saving over spending, meaning household spending cannot compensate for slower export growth or slower manufacturing growth.
In addition, significant problems in the real estate sector still exist. We may see some improvement from the real estate sector, or perhaps some drag, as it remains on a fairly low base, but it is likely that China's growth will continue to be below 5% this year. means to become And for next year.
Simon Brown: Understood. It's not ideal, but it might not be the end of the world. However, we will focus on these different trade routes. As I said, everyone knows about the Red Sea, but of course other things, like the drought in Panama, are perfectly fine. [in the works].
I always appreciate the insights of Momentum Investments economist Sunisha Pakirisamy.
