How COVID-19 is shifting the balance of the world economy

Yahoo Finance’s Julie Hyman, Myles Udland, and Brian Sozzi discuss the state of the global economy with HSBC Global Economist James Pomeroy.

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JULIE HYMAN: All right, let's turn to the broader economy now, because a lot going on today. We've got jobless claims coming in above what economists and so therefore worse than what economists had predicted. We have the ECB adding some more stimulus and continuing to reassure markets it is going to be accommodative.

We bring in James Pomeroy. He's HSBC Global Economist. James, thanks for being here. So as you look, because I know you look globally, as you look globally from the jobs market here to the ECB there in Europe, how are you assessing where we are right now in terms of the global economic recovery?

JAMES POMEROY: Yeah. It's really, really multispeed. And I think that's sort of the term we've been using a lot this year. And It's even more relevant today. I'm sat here in London and Europe where we've all been in knockdowns again, and we're slowly coming out of them. And there's a little bit of improvement in the data. The outlook isn't great. You're likely to get negative GDP prints here in the fourth quarter. That's why the ECB is stepping in to do a little more.

And then, obviously, in the US, where you've got this little bit of uncertainty because of the higher COVID numbers, that's meaning some restrictions are coming into place or some consumers are pulling back on doing things. And that's likely to mean weakness too, both in the jobs market, and of course, in terms of the viability of firms.

But if you step outside of those two regions, things are actually looking a little better. And that's even before we start thinking about this vaccine news. So if you look at what's happening in the manufacturing sector globally, things look pretty good and are rebounding nicely, what's happening in China, you've had the momentum in the economy continue to build over the course of the last few months.

And if you look in the likes of India, as well, where you've had a real recovery in the data in the last couple of months. So it's easy for us all to be pretty negative, sat here in Europe or in the US. But actually outside of those two regions, there's some relatively good news out there.

MYLES UDLAND: Speaking of good news, just an update for our viewers here, we're of course watching Airbnb. Indications that it's set to open $139 a share, that would be a double from the $68 IPO price. Of course we'll track that as we get towards the open. But James, coming back to your note that you sent over to us in a chart that stood out to me was what we've seen in services relative to the increase we've seen in spending on goods.

And I wonder, if you look at 2021, if there's a catch up at play there. Services right now, in the US at least, still, I think, 5%, 6% below where we were January 2019. But we're 10% above that in goods spending. Do you see those converging? And is that kind of part of a bull case maybe for the US economy, at least, next year?

JAMES POMEROY: I think so. And I think what you've got to do when you're thinking about these sort of spending numbers and thinking about what's going to happen to the world in a sort of post-COVID world, sort of post-vaccine world, you've got to look at the countries who are sort of through to the other side. Now, I'd go and look at the New Zealand data. I'd go and look at the Taiwanese data.

And actually, you're going to see this more and more in the Australian data in the course of the coming weeks and months. And these policies all look pretty good. And there's people packing into music festivals in Taiwan and Australia in the past few weeks. You've got people getting on planes in New Zealand to travel between the North Island and the South Island.

And one thing you have seen in New Zealand, going back to your sort of original point on the US spending, services spending is up year on year in New Zealand already. And so it sort of feels like one of those things where you could easily see a pretty strong service sector next year, particularly as we've all missed many of things this year, be it going to gigs, or sporting events, or travel, or seeing friends and family, all of those things.

People are going to want to go and do those things. And it feels sensible to me that the service sector should have a pretty good 2021, even if it is skewed a little bit towards the second half once we're through the other side of getting enough people vaccinated.

BRIAN SOZZI: James, so many folks, even on Wall Street and certainly in financial media are just fixated on what happened on DoorDash with the IPO yesterday, stocks up 90%. We have an indication on Airbnb now, may open around $145. It's priced at $68.

As you take a step back, do you think the global economy will be as such, or the recovery will be strong enough to report some of the earnings growth, the earnings growth recovery that is being priced into these IPO stocks. Looking at Disney, stock has rallied at 80% from the March lows. It doesn't make any sense to me. Does it make sense to you?

JAMES POMEROY: Well, you're right. There's certain companies who are going to be clearly beneficiaries of this shift, companies who are benefiting from a recovery in travel or are going to benefit from a recovery in services demand. We'll probably see a fair bit of growth next year. But there's a whole load of questions out there, particularly around the amount of savings that have been accumulating.

You're seeing this at the moment in economies around the world. Savings rates have been really, really high this year. How much of that gets spent next year? How strong is the labor market next year? How many businesses make it through to the middle of next year to a post-vaccine economy?

These are the big questions, because if you can get through to the second half of next year without a big spike in bankruptcies, without a big weakness in the jobs markets, if people have still got money to go and spend, and you've got to stock a savings to be released, I'd be pretty positive about the second half of next year. And there's a clear sign that you could get a big pickup in consumer spending.

But of course, the risk is that one or many of those things that aren't in play. And that's the big challenge in this sort of data we're keeping an eye on at the moment, is not necessarily from a purely macro perspective, worrying about the lockdown's at the moment and some of the short term data, but thinking about how likely that jobs are still going to be there, how likely the business is still going to be there.

And if they are, then you could easily have a very strong second half of 2021. And that may calm some investor's sort of worries about some of the rallies you've seen in some of these stocks.

JULIE HYMAN: Yes, still though, a lot of outstanding questions to be answered in the coming six months to 12 months. James Pomeroy, thank you so much. Come back and see us soon, HSBC Global Economist. Thank you.