A leading global economist has warned that inflation shocks may become more frequent and the era of “super-low” interest rates is probably over.
HSBC Global Economist James Pomeroy said the world economy pre-pandemic and post-pandemic was fundamentally different.
Writing in the bank’s 2024 second quarter global update, he said some of the changes were a direct result of the COVID-19 impacts while others just accelerated as a result.
“We’ve moved to a world where global inflation may be higher and more volatile than the world we were used to before,” he said.
“As a result, the period of super-low interest rates may be behind us. While rate cuts are looking likely to start across the developed world in the coming months, we must remember that even where we think rates could get to by the end of 2025 is much higher than anything expected prior to the pandemic or even in 2020 or 2021.”
Mr Pomeroy said, while some of the drivers of high inflation related to pandemic-era supply shocks and realignment of energy suppliers, “we appear to be living a world where many of these shocks look likely to become more frequent”.
This would be largely due to geopolitical issues such as the disruption in the Red Sea, climate shocks affecting food prices or stickiness in “services prices” Inflation.
The pandemic years also saw changes in the components of global economic growth.
“Since 2019, some parts of the world have become relatively less important as a driver of global growth – namely Europe and Japan,” Mr Pomeroy said.
“At the same time, the US and China remain key, while the likes of India, Mexico and Indonesia are becoming more important.
“A great example of the changing landscape of the world is that in 2019, Italy was the world’s eighth biggest economy, 1.5 times the size of Mexico’s. By 2028, on the IMF’s projections, they will be very close in terms of GDP size.”
