On HSBC and jobs

The duelling headlines on HSBC the past two days say it all about jobs in North America and Western Europe:

The job cuts are principally in the United States and Europe and the job hires are in the emerging markets. This is a significant shift away from the developed economies, which are mired in a debt crisis to areas of the world which are still experiencing strong growth.

The bank offered this as the rationale for its moves:

Growth in the US and Europe is likely to remain sluggish as long as the impact of high debt levels and government budget cuts weigh on economic activity.

Expect this trend to continue among multinationals.

I am not sure what it means for economic growth but I can take a few guesses. As multinationals transfer jobs from the slow-growing developed economies to emerging markets, it will depress household income and consumption by over-indebted consumers, slow economic and job growth. and depress tax receipts, creating budgetary strains.

During economic recovery, I would expect consumers to try and maintain their lifestyles through a mix of cost-conscious shopping and moderate increases in debt. During economic recession, I would expect consumers to be under enormous debt stress such that defaults and deleveraging occur at an elevated pace. This will put acute stress on government budgets during recessions and may result in fiscal consolidation, which in turn will lead to lower income and more household budgetary stress.

The result will be more volatile business cycles with debt deleveraging as the main secular force on both governments and households for the next five to ten years. After that point, private sector debt levels will be down significantly and the financial sector will have worked through the credit writedowns associated with this period. Then we will be ready for a new world.

1 Comment
  1. David Lazarus says

    I suspect that unless we have a tsunami of private defaults I would expect closer to two decades of stagnant growth in the West. Longer if they cut taxes and drive fiscal deficits higher.

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