The fastest growing sector of global consumer demand is set to be recreation, according to leading commentator, James Pomeroy, global economist at HSBC.
Speaking at the IHIF EMEA 2024 on Monday, Pomeroy noted that discretionary spending around travel and leisure was likely to become the most important economic driver as the global economy recalibrates in favour of Asian consumers and a slate of emerging economies.
India is forecast to be the world’s most important growth story in the medium term, he said, becoming the third largest economy in the world by 2028, from the fifth largest today. “International travel in particular will see Indian consumer demand grow 12% per year, every year, for the next 20 years. This economy will completely transform the way we think about global growth,” Pomeroy said.
In an ambitious address which tackled everything from interest rate cuts to international elections, Pomeroy said that the overall macroeconomic outlook was “upbeat” both in the short and medium term.
Interest rate cuts
Although the prospect of interest rate cuts and international elections are being hotly awaited by the markets, leaving investors in “impatient” mood, Pomeroy noted that neither issue was likely to usher in negative outcomes. Although central banks to date have not made the “aggressive rate cuts” that were desired, Pomeroy predicted that the Fed would start cutting rates in June – earlier than some other forecasters have suggested – with both the European Central Bank and the Bank of England set to follow swiftly on the Fed’s heels.
On the topic of elections, he said that the most hotly discussed ballots were those in the US and the UK, with most debate around the latter focused on “when, not who”. With the US election race currently placing Biden and Trump at “neck and neck”, Pomeroy said that while a Trump win “might mean more uncertainty around global trade”, he remarked that “elections matter less than you think”.
Markets in recovery
Overall, he painted a picture of global markets in recovery, with bright signs everywhere. While the US and India were likely to lead growth stories, he also identified “promising signs” in Europe and China, compared to 18 months ago. Turning to Europe, although he predicted that Germany would continue to struggle due to its depressed manufacturing segment, he noted that UK was out of recession, while Spain had moved into the driving seat as the “surprise powerhouse of Europe” – something that “no one had had on their bingo card”.
He added: “China has struggled over last 18 months in a weak global trade environment and due to its weak domestic housing market, but things are starting to turn.” He identified key China policy changes, driving up construction and manufacturing data, while consumer spending in China was “growing year on year”. He said: “For all the recent pessimism, things aren’t as bad as they have seemed”.
Macroeconomic headwinds
Referencing the weekend’s events, when Iran attacked Israel, Pomeroy advised that geopolitics could still take a turn for the worse, stirring up macroeconomic headwinds. Persistent inflation, particularly that driven by discretionary spending in areas such as leisure and tourism, also still looked worrying. “What is the interest rate which would cause you to cancel your holiday?” he asked the room, referencing how consumers continue to prioritise spending on experiences, even in the face of 6-7% inflation in the recreation segment. He also addressed the bright outlook for key markets including China and Indonesia, set to drive the consumer spending story in decades to come.
Pomeroy joined HSBC’s economics team in 2013, having previously worked within the asset allocation research team. His global work focuses on longer-term trends and themes, and the impact that they have on the economy and policy decisions today.