Edmund Shing (BNP Paribas): “US growth is set to slow”

The son of a Chinese and a Portuguese mother, Edmund Shing was born in England, lives in France and has a son in China and another in Taiwan. He is the epitome of a global manager, in addition to his position as chief investment officer of one of the largest European banks, BNP Paribas. He has recently visited Madrid to speak with clients.

What do you think of Trump's announcement of tariffs on the EU?

I think the starting point is to think from Donald Trump's perspective. What is he seeking by using this tariff policy against trading partners like the European Union? He seems to be pursuing two goals. The first is pretty obvious, to make money. Tariffs are a tax on imports, and that means a tax on consumption. If you want to help American households, putting a tax on consumption is not good. A second goal is to achieve something else. He uses tariffs as a negotiating tactic. In the case of the European Union, I think they are perhaps not so much a tool for collecting as for negotiating. Perhaps to secure higher defense spending by European NATO members.

Does the United States have the upper hand?

I think there are limitations to what Trump can do. He was elected largely because inflation was so high and the average American household feels like they have lost purchasing power since the invasion of Ukraine and Covid. Given that there are midterm elections in the US next year, there is also pressure on Trump not to let inflation rise too much. That is also a limitation for him. Although he wants to apply tariffs, he does not want to have a big inflationary impact on the consumer because that could be a factor in losing votes next year. So with Europe, it is perhaps about negotiating something else. Maybe that we buy more American goods and services, but especially energy.

Trump wants to lower energy prices to avoid inflation and that could be positive for Europe”

What is your forecast for energy prices in this new Trump era?

I think it could at least stabilise or maybe come down. If you look at petrol or electricity prices, we are still paying about twice the level before the Ukraine war. That is still a huge disadvantage for European industry and a huge burden for European consumers, who spend more on electricity and gas. The cost of energy in the United States is coming down. And Trump, as I said, wants to control inflation. Of course, the way to do that is to lower the price of energy. That could be positive for Europe.

How will Trump make energy cheaper?

In two ways. First, it will lead to deregulation of the energy sector to allow US oil companies to drill more wells, especially in Texas. Second, it will put political pressure on countries such as Saudi Arabia within OPEC to also produce more.

What should the EU do on energy policy?

I think that in the EU we are not helping ourselves. We still have this very clear link between the price of gas and the price of electricity, which to me makes no sense. Take the example of France. 95% of France's electricity production is renewable or nuclear. It's not gas. The link to gas is minimal. And yet the price of electricity is still very much linked to gas. When the price of gas goes up, the price of electricity goes up. This is something that the European Union could change, again, if it were a bit more sensible. Also, if the EU decided to negotiate as a bloc with the US and other countries, it could get a better price. The goal of the EU should be to act as a single market.

Could low energy prices in Europe offset Trump's tariffs?

Of course. The positive impact of lower energy prices could be much greater than the negative effects of tariffs. Moreover, the potential impact of a ceasefire in Ukraine could be much more positive for Europe than anything negative coming from the United States over tariffs. But the real problem is Europe itself. Within the so-called single market, we still have too many regulations. We worry too much about the Americans. What we should be more concerned about is negotiating better terms, creating a proper single market within Europe.

We worry too much about the Americans, but the real problem is the EU itself"

Is Trump's strategy to weaken and divide Europe?

Exactly. Their strategy is always to make the US negotiating position as strong as possible and the other side's negotiating position as weak as possible, always. Not just in the case of Europe, but in general. The same goes for Mexico, Canada, China or whoever.

Both the Draghi report and the new debate on defence agree on the need to issue more debt. Is this a good option?

Sometimes increasing debt to boost things that will improve the long-term growth potential of the economy makes sense. You can increase debt today, but do so only if it is to invest in areas that will increase the long-term growth potential of the European economy.

What consequences could the gap between a strong dollar and a cheaper euro have?

My sense is that growth in the United States is going to slow down because, if you look at the consumer, it's already slowing down. They talk about the Department of Government Efficiency, Elon Musk, and trying to cut all the costs. It's good for the economy in the long run, but in the short run it hurts the economy. The impact on the labor market from government layoffs could be much bigger than we think. We could see a slowdown in overall growth and a slowdown in inflation. Then the Federal Reserve could cut interest rates. I think there's a good chance that we've already seen the peak of the dollar and it's starting to weaken.

How do you see the economic situation in Spain?

We are seeing a complete reversal of the situation we saw in 2011 and 2012, when Spain, Portugal and Greece were struggling, and France and Germany were the strongest economies. Now the situation has turned around. In Spain, tourism is extremely buoyant. But productivity growth remains weak, as in the rest of Europe. I think that part of the solution can come from deregulation, which can be achieved with better use of technology.

What do you think of the banking consolidation movements in countries such as Spain, Germany or Italy?

Bigger banks are part of the solution. I think it makes perfect sense to have stronger banks in Europe and it makes sense to have more cross-regional M&A. From that point of view, what UniCredit is trying to do, for example, is very important. To test European banking at a European regulatory level, we need to see if we can achieve these cross-border mergers because that way we can achieve more synergies. I think that is necessary. Just as we hope to see more consolidation in the US banking sector.