Hong Kong financial summit 2022
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James Gorman, chairman and CEO of Morgan Stanley, speaks at the Global Financial Leaders’ Investment Summit in Hong Kong on Wednesday. Photo: Sam Tsang

Inflation, geopolitical tensions will cast a shadow on an uncertain global economy next year, say top bankers

  • Speakers on the first panel at a global investor summit discussed the impact of inflation and geopolitical tensions on the world economy
  • The era of low global inflation is over for now, said James Gorman, chairman and CEO of Morgan Stanley
Inflation and geopolitical tensions are the two main risks hanging over a global economy that is still reeling from the Covid-19 pandemic, Russia’s invasion of Ukraine and rising interest rates, according to leading global financiers who spoke at an international financial summit in Hong Kong on Wednesday.
The world will be clouded by “a significant amount of uncertainty” in 2023, but central banks will step in to tame inflation amid the transition from economic expansion to economic contraction, they said.

“It is a painful transition, but not an unexpected transition,” said James Gorman, chairman and CEO of Morgan Stanley.

Gorman said the era of low global inflation was over for now. The world will have to deal with interest rates of between 4 and 5 per cent and inflation of around 4 per cent, he added.

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Gorman was among the global banking heavyweights whose views were sought during a panel discussion on “navigating through uncertainty” at the Global Financial Leaders’ Investment Summit organised by the Hong Kong Monetary Authority (HKMA).

Other speakers on the day’s first panel moderated by HKMA CEO Eddie Yue Wai-man included UBS Group chairman Colm Kelleher, Bank of China president Liu Jin, Goldman Sachs chairman and CEO David Solomon and Blackstone chief financial officer and senior managing director Michael Chae.

Gorman said the new reality, such as rising interest rates and inflation, was global, adding that this would cause unemployment to “take off”.

“We haven’t met this level of inflation in 40 years,” he said, adding that he expected global central banks to take steps to tame inflation.

Colm Kelleher, chairman of UBS Group, was one of the panel members on the “navigating through uncertainty” discussion. Photo: Sam Tsang

Goldman CEO David Solomon said that the world was going through a rebalancing period. “There is still a significant amount of uncertainty as we get into 2023,” he said.

Last month, the International Monetary Fund left its global growth forecast for this year unchanged at 3.2 per cent, while lowering its projection for next year by 0.2 percentage points to 2.7 per cent.

The multilateral funding agency said that the slowdown next year will be broad-based, with countries accounting for about one-third of the global economy poised to contract this year or next. The three largest economies, the United States, China, and the euro zone will continue to stall.

Bank of China’s Liu said that while the economic cycle of expansion and contraction will always be there, China had made a lot of efforts to tackle problems arising from the Covid pandemic and property crisis.

The country reported better-than-expected economic growth in the third quarter and “that is a good sign about the Chinese economy”, he said.

Liu Jin, president of Bank of China, said the world has to watch out for risks arising from geopolitical tensions. Photo: Sam Tsang

China’s economy grew by 3.9 per cent in the June-to-September period, after almost stalling in the second quarter as Covid-19 curbs and slowing exports hurt the manufacturing sector.

Annual growth is likely to be 3.7 per cent in 2022, according to Wind, a provider of financial data services, below the official target of around 5.5 per cent.

But Liu said geopolitical tension could become a major factor that hurts the global economy.

“Under the geopolitical pressure, any common economic activity will be heavily affected,” said Liu.

From an investor’s perspective, UBS chairman Colm Kelleher said that while the US is relatively attractive Europe has big issues to deal with.

Kelleher said that he was bullish on China, but investors were waiting for the country to open up “to see what will happen”.

The three-day summit commenced on November 1 with a closed-door discussion among global bankers, Hong Kong government officials and the city’s regulators, followed by a welcome dinner at the M+ museum, and a fireside chat.

The summit has attracted over 200 international and regional leaders from around 120 global financial institutions including banks, securities firms, asset managers, private equity and venture capital firms, hedge funds, and insurers. More than 40 of these institutions are represented by their group chairmen or CEOs.