We may not see 'full economic recovery' until 2022: Economist

HSBC Global Economist James Pomeroy joins Yahoo Finance Live to discuss how the global economy is faring as covid-19 cases surge across the country.

Video Transcript

MYLES UDLAND: Let's stay on the economy and how we can see things unfolding. Certainly, the COVID situation continues to be challenging here in the US as well as in Europe. For more on this conversation, we bring in James Pomeroy. He's a global economist over at HSBC. So James, let's start with the virus, the vaccine rollout, the expectations I think a lot of consumers have that life is going to be back to normal.

But as we were chatting in the break, you're in the UK, things are quite locked down here-- or there. Here in the US, the vaccine rollout is getting better, but it's still a bit disappointing. How is this factoring into your expectations for the economy? And is it maybe worse than you'd feared?

JAMES POMEROY: So there's a few things going on. So you've got this sort of bad news to start the year in much of the world, to be honest, in terms of the pick up in cases, some new strains of the virus, more lockdowns, all of these things, meaning we're starting 2021 maybe in a worse position than we hoped we would be. But then there is this optimism about vaccines. And, you know, to be fair, there are parts of the world who are doing quite a good job, Israel, UAE.

The US and the UK, by our own sort of maybe what we could have expected, we're doing pretty well, and things are starting to be rolled out quite quickly. But the problem you've got is that it's not so simple to say you vaccinate everyone, you reopen the economy, we get a boom. There's more at play than that. You've got to have, one, a lag between getting enough of the population vaccinated before you start to see COVID cases, hospitalizations, and deaths start to roll over.

And then you've got a political decision about what makes you open up the economy? How quickly do you open up the economy? And what do you open up first and last? And all of those decisions are going to play a role in this sort of slow rebound throughout 2021.

And it's only going to be realistically in the second half of the year where you're going to see this sort of big boom in activity. And for some parts of the world where the access to vaccines is much, much sort of lower. It's much-- anyways, not going to come for some time, and the recovery may not be until-- at least a full recovery may not be until 2022.

JULIE HYMAN: Well, and James, I'm struck, you know, the data that Myles was just talking about, the PMIs here in the US, a sharp contrast with what you all saw out of Europe this morning as well, where there was a contraction, right? So what also strikes me is this sort of rolling reopenings, rolling growth that we see across the globe, where Asia is much further along in its recovery than the United States or Europe.

So as we see the interconnectedness of the globe, economically continues, right? So how is that all going to work as we all try to make our way out of this at different paces?

JAMES POMEROY: Yeah, it's interesting you mention that difference between the US data and the European data, particularly at the beginning of the year. So this is January data, right? Most of Europe is deeply in lockdown of one way, shape, or form. And that's going to mean clearly much weaker activity numbers, not just in January, but it's going to mean a weaker first quarter.

And you're likely to see some of that in the US, and you've got some states where there's still restrictions in place and consumers are pulling back on doing certain activities because of higher case numbers. But you haven't got the same drop in terms of activity in the US as you have on this side of the Atlantic. Whereas in Asia, you've had this sort of much longer run up in terms of a recovery.

And in many parts of Asia, you've got sort of much lower case numbers, you haven't had the collapse in activity, and you can get a little bit of-- a little bit of a recovery this coming through. You've seen that in the Chinese data, you've seen it in the likes of Australia, New Zealand. But it's those countries who have got the virus under control where that's the case, whereas the other parts of Asia who haven't got the virus under control, particularly in ASEAN, they could struggle as well to get a fast recovery, particularly in the first half of this year.

But there's one country that's doing really well, sort of partly by chance, partly by design, that's India, where case numbers are coming down, they've started a vaccination program, activity data's been really good in the last, sort of, three, four, five months. And actually, there's an economy that probably has more upside risks to it in 2021 than downside ones. And there's not many of those around at the moment.

BRIAN SOZZI: James, what's the-- do you think a US recession has been pulled off the table for the front half of this year?

JAMES POMEROY: It's quite hard. Because if you just describe a sort of a recession, it's two negative quarters. This seems unlikely you get two negative quarters from here. You could get a negative quarter, wouldn't be surprising at all. In fact, our forecast say it's pretty likely. But it would only be a very, very minor negative number. But it's really going to be hard to get a sense of where those numbers go because there's a few things at play.

Firstly, you've got where you were in Q4, and then you've got sort of the speed of reopening in the second quarter. Sorry, first quarter and then the second quarter. It's almost certain the second quarter in most parts of the world is going to be better than the first. So an actual, sort of, technical recession feels pretty unlikely.

But it's quite possible. We do see negative GDP print in the first quarter, partly because of tighter restrictions and partly, and what we're seeing in much of the world is people pulling back on activities, even when they don't have sort of enforced lockdowns. People seem to be careful when case numbers are high, when death numbers are high. And there's evidence of that happening in the US and a lot of the high frequency mobility data.

MYLES UDLAND: All right, James Pomeroy, senior economist with HSBC. James, always appreciate you taking the time. And I know we'll talk soon.

JAMES POMEROY: Great, thanks very much.