This article comes from the WeChat public account: Economic Observer (ID: eeo-com-cn) , author: Ouyang Xiaohong, the subject map from: IC photo
During the darkest period of the global pandemic, are we facing a superimposed economic and financial crisis, or is it a recession or depression?
The history of witnessing every day, how should it be defined? This is a problem, and economists are still arguing about it. Let’s look at two key indicators: New Coronary Pneumonia (Covid-19) confirmed cases and global capital markets. The former, according to data from Johns Hopkins University in the United States, showed that the cumulative number of confirmed cases exceeded 1.36 million cases as of April 8; the latter, after performing a bungee market for two or three weeks in the global market, has stabilized since March 19. Global stock markets rebounded by 23%, and the Dow rebounded at a low point of 24.5%. (As of April 7) is a technical bull market.
The three nodes on the epidemic peak curve that can be outlined are: Wuhan, China, Northern Italy, and New York. When it reaches the second node, the global capital market sends out crisis warning signals in the most extreme way. Panicked people even think that the next wave of peaks may occur in less developed regions and countries with poor medical resources, such as Africa, Latin America, and India.
In the face of huge uncertain dynamic events, perhaps any conclusions and judgments are too light, this is an epic remodeling that modern humans have never encountered, economic and social system values, globalization process, etc. Was refactored.
In the eyes of Harvard economist Kenneth S. Rogoff, the 2008 financial crisis was only a rehearsal, but this time is different— It has become the worst recession in the global economy in 100 years . “Everything depends on the duration of the outbreak. If it lasts for a long time, it must beThere is a source of financial crisis. “
“The biggest risk we see is bankruptcy and layoffs, which will make economic recovery more difficult.” On April 4, IMF President Georgieva said. She worries that the economic recession caused by the new coronary pneumonia epidemic is worse than the global financial crisis, because more than 90 countries have applied for assistance from the IMF.
However, “so far, the probability of a crisis occurring in the financial market is ‘not so high’, and it is currently asserted that the economic crisis must occur ‘it’s too early’.” On March 31, Feng, director of the Asia Global Institute of the University of Hong Kong Chen Zhiwu, chair professor of Shi’s Fund, told Economic Observer.
Jin Keyu, a lifelong professor of economics at the London School of Economics and Political Science, said, Judging from the indicators it obtained, the status quo is very close to the situation during the Great Depression of 1929. Another dimension that can be compared with the Great Depression is the unemployment rate.
The author of “A Brief History of Mankind” Yuval Hralli wrote on March 20 that mankind is now facing a global crisis. Perhaps the biggest crisis of our generation. Decisions made by governments in the next few weeks may change the world in the next few years. He called for a global plan. The epidemic itself and the resulting economic crisis are global problems, and only global cooperation can effectively solve these problems.
Zheng Yongnian, a professor at the East Asia Institute of the National University of Singapore, believes that the impact of the epidemic may exceed the Great Depression of the 1920s and 1930s and change the world ’s development process. Xu Xiaonian, a professor of economics and finance at the China Europe International Business School, called the Great Depression a small probability event. “The balance sheets of financial institutions have collapsed before we can talk about the Great Depression of 1929.”
This global emergency does not seem to leave any safe havens, it all depends on the length of the epidemic.
At the same time, different economies looking for their “policy limits” are still “correcting” their countermeasures. Regardless of whether you are long or short in global macro-policy, its characteristics in the market or-financial market turmoil will not stop for the time being.
How big is the shock wave?
One side is data and the other is prediction. The policies of various countries are almost in a “race” with the epidemic.
“Financial volatility will occur all over the world. There is no doubt about this. I think the impact of the same financial crisis on different countriesIf the results are different, the final effect will be determined by these countries themselves. “On April 5, Jason Feynman, a Harvard professor who spoke with Professor Huang Yiping of Peking University, said.
The reality is that from the beginning of April, the shock wave of the global epidemic that is still fermenting is beginning to show signs. Bad news came from the global real economy or investment institutions. For example, on April 1, Whiting, the first US shale oil company, declared bankruptcy protection. Two days later, FirstState Bank, the first centenary bank in the United States, was also declared to have fallen. However, Whiting, who has been in business difficulties for four to five years, is more likely to be caused by oil prices, and the epidemic is only an incentive. The First State Bank has not recovered from its operating difficulties in 2015, and only four of them The branch was acquired by MVB Bank on April 6.
Furthermore, the British service industry is experiencing the worst economic slowdown on record; Covid-19, which forced restaurants, bars and other businesses to close, almost “destroyed” the business almost instantly. The service purchasing index of the top international economic consulting and survey company IHS Markit showed that its March reading was only 34.5, the lowest level on record. Before the terrible data released by the United Kingdom, Italy released the worst economic activity index ever, with a March PMI of only 17.4.
Zhu Jun, director of the International Department of the Central Bank, said that the PMI of major economies has plunged. In March, the U.S. manufacturing and service industries had initial PMIs of only 49.2 and 39.1, Japan had 44.8 and 32.7, and the United Kingdom had 48 and 35.7, respectively. The Eurozone composite PMI had an initial value of 31.4, both of which were below the 50 Kuei line.
Apart from PMI, the soaring US unemployment rate is even more worrying. The ILO predicted on March 18 that the epidemic may cause 25 million people out of work worldwide, 3 million more than the 2008 global financial crisis. The number of initial jobless claims in the United States for the two weeks of March 21 and March 28 was 3.307 million and 6.648 million respectively, which was 4.8 times and 9.6 times the highest records in history. The new non-agricultural employment fell by 700,000 in March. It was the same as when the US crisis broke out in 2008; the unemployment rate jumped 0.9 percentage points to 4.4% in March, the largest monthly increase in 45 years.
These data show that the UK, the entire EU economy, and the US economy are contracting sharply. In the view of former Federal Reserve Chairman Yellen, the unemployment rate in the United States may reach 12% to 13% or even higher; she believes that the impact of the new crown virus on the US economy is unprecedented and devastating; GDP may fall by 30 in the second quarter%.
Millions of Americans applied for unemployment benefits or showed that the US economy is “falling off the cliff and entering recession.” Wen Bin, chief researcher of China Minsheng Bank, believes that a survey result recently released by the US media also shows that the recession of the US economy under the epidemic is “almost certain.” In some ways, the impact of the epidemic on the US economy may exceed the 2008 financial crisis.
Zhao Xiao, an economist, believes that both the Chinese economy and the world economy are facing the raging of a “global pandemic.” This is a once-in-a-century impact, and its consequences for the destruction of life and wealth may even be greater than the sum of the two world wars. In 2020, the recession of the global economy is a foregone conclusion. It is debated whether it will bring about a “Great Depression”, that is, a continuous recession.
The problem is that all this may just be the beginning. No one knows exactly when the epidemic peaks and when the market bottoms.
British economists predict that the global economy will grow by -2.2% in 2020, and Europe will experience a negative growth of 6%. According to Liu Qian, President of the Greater China Region of The Economist Group, the current global income imbalance is more serious than during the First and Second World Wars. Of course, this does not mean that World War III will break out (The so-called Thucydides trap is still difficult to judge) .
Liu Qian believes that the troubles of the global economy are: the original health “foundation” is not good, coupled with the huge uncertainty caused by the epidemic fuse, after pressing the globalization “pause key”, it directly fell the economic countries . During this period, if a “heart attack” occurs suddenly, even frequent injections of cardiac needles will not help.
So, if the pandemic scenario is assumed to be the last crisis mode without causing panic?
As Jin Keyu explained, when he first described a turbulent economic depression, he referred to the magnitude and depth of the economic downturn. The downward depth of this crisis is likely to be similar to the economic depression of the 1930s, but the rate of recovery will be faster than the moderate 2008 Great Recession. “The correct attitude to deal with this huge economic shock should be: Put the worst and send the best expectations . This is at least what all governments should do to save the people from a real economic depression. Of. “
McKinsey gave two scenario assumptions, namely delayed global economic recovery and prolonged global economic contraction period.
The former, such as mass isolation, travel restrictions, and social isolation, have allowed individuals andCorporate expenditures have fallen sharply, and this phenomenon continued until the end of the second quarter, which in turn triggered a recession. Although the epidemic in most parts of the world was brought under control in the second quarter of the second quarter, the vicious circle of economic recession began to play a role, and the depression continued until the end of the third quarter. People continue to stay at home, companies lose income, lay off employees, and the unemployment rate rises sharply. Business investment has shrunk, corporate bankruptcy has skyrocketed, and pressure on banks and the financial system has skyrocketed.
The economic impact of the latter is that, as people have cut their spending, the annual consumer demand has suffered a severe setback. In the most affected industries, there are more and more layoffs and bankrupt companies, and the global economy has experienced a “spiral” decline. The financial system is under tremendous pressure. Fortunately, there will not be a full-blown crisis in the banking industry, because banks ’capital strength is strong enough and macro-prudential supervision is also in place. Under this scenario, fiscal and monetary measures are not enough to break the “spiral” decline.
“The global economy has been severely hit, approaching the global financial crisis of 2008-2009. The GDP of most large economies shrank significantly throughout the year, and the recovery will not begin until the second quarter of 2021.” The McKinsey report said .
In Zhu Jun ’s view, the impact of the epidemic on the real economy has intensified, manifested in four aspects: First, it directly impacts the consumption and service industries, destroying total demand; Second, production and operation stagnation, destroying total supply; Third, Employment pressure is rising rapidly; Fourth, market expectations are getting worse . “The impact of the epidemic will be transmitted to all countries in the whole chain through the global value chain, and global economic activities are facing the risk of stagnation.”
Now, “the epidemic has covered almost all important nodes in the global value chain, and regions in Europe and the United States that have been severely affected by the epidemic have successively introduced strict epidemic prevention measures to stop all economic activities except essentials. Production activities involving personnel contact are forced to stop, limiting personnel Mobility will make it difficult to carry out business activities. “Zhu Jun said.
Probably, the general conclusion that can be drawn at present is that after pressing the operation pause button, the short-term global economy instantly fell into the “quick freezing box”. When to unfreeze depends on when the ban is lifted, and the balance between epidemic prevention measures and economic operation.
In China, where the epidemic first came first, the February PMI was 35.7, but the March PMI exceeded expectations by 52. In this regard, Xie Yaxuan, the chief macro analyst of China Merchants Securities, believes that the PMI rebound does not mean that other macroeconomic data will change in the same direction. Generally speaking, when the PMI tends to expand for more than three months in a row, it can indicate the trend of economic recovery.
Of course, the Chinese model also has its uniqueness and is not very reproducible. As Harvard Professor Feynman said, “The problem of poor control of the financial system does not exist in China.” He is not too worried about the financial crisis in the United States, Europe and China.And worry about what will happen to some low-income countries, such as India, Turkey, Brazil, Argentina and other countries.
The worst thing is the Great Depression that broke out in 1929-it caused a disaster like never before in human history.
Great Depression scene
What if we make the worst plan and treat this short-term “dramatic contraction” of the global economy as a “Great Depression”? Let’s first look at what happened during the Great Depression of the 20th century?
In the first five years of the Great Depression, US GDP shrank by 50%. In 1929, based on GDP, the economic output was 105 billion US dollars. In the past six years, (1923 ~ 1929) , the United States experienced a period of economic prosperity after World War I, and GDP and industrial production grew rapidly For “Coolidge prosperity”.
In August 1929, the economy began to shrink; the US stock market plummeted in September of the same year; at the end of the year, 650 banks closed. In 1930, the economy shrank again by 8.5%. GDP fell by 6.4% in 1931, and by 12.9% in 1932. In 1933, GDP, which had experienced at least four years of economic contraction, was only US $ 57 billion, half of that in 1929. From 1929 to 1933, a total of 9,000 banks in the United States went bankrupt; it was not until 1934 that the US economy experienced negative growth.
Former Fed Chairman Ben Bernanke believes that the domestic stock crash and the resulting deflation in exports to the world are the core issues of the Great Depression.
The reality behind the data is: The Great Depression (1930 ~ 1933) Serious social problems brought about by: millions of students drop out of school; Many people suffer from physical and psychological pain; social security deteriorates. The total number of unemployed people in the United States is 8.3 million, while in the United Kingdom, 5-7 million people are unemployed. This Great Depression caused a great famine and widespread malnutrition throughout the United States, resulting in a large number of abnormal deaths. The book Glory and Dreams, which records American history, reads: “Millions of people are saved from death only by living like animals.” This scenario describes the livelihood of the United States during the Great Depression.
In 1932, about 2 million Americans wandered around—over 250,000 of them were between 16 and 21 years old. Many of these people used to beThe well-dressed middle class—the irresistible bank governor or a well-known writer who had commented in a famous newspaper, knocked on the door at night to beg or curled up among the crowd queuing for bread in the city …
What about today? The United States is staged a terrible wave of unemployment. Once the fashion capital-New York 5 days (March 23 to March 28) 370,000 people applied for relief, compared with the previous It increased by 286,000 in one week. Terrorist riots in luxury stores have closed their doors, such as the Louis Vuitton store in the SoHo district, which is blocked by the LV’s iconic orange wooden board; “scene.
According to the public information of NYPD (New York Police Department) , after the “suspend” ban takes effect, March 12 to March 31 In New York City, robberies such as supermarkets and shops smashing windows have quadrupled from the same period in previous years. In fact, within one week after New York City first declared a state of emergency on March 12, the New York Police Department received 4,708 alarm calls for non-injurious traffic accidents.
These scenes resembling war disasters are familiar and unfamiliar. It is hard to imagine that the New York Avenue a month ago was still a bustling scene.
Zhu Jun described the unique characteristics of the Great Depression as follows: the economic recession lasted for more than 18 months, the GDP fell by more than 10%, and the unemployment rate was as high as 25%. The Great Depression was recognized only once in the past century from 1929 to 1933. After the 2008 financial crisis, the global economy “recessed”, but did not meet the “Great Depression” standard.
According to this standard, the current epidemic crisis has not yet reached the stage of the “Great Depression”. So, how do we define the impact of this epidemic?
“It is necessary to understand the situation of the Great Depression of 1929 before we can further analyze whether the Great Depression will occur.” Xie Yaxuan said. He believes that the current governments are actively taking policy measures, the purpose of which is to prevent the epidemic from eroding the texture of the real economy, thereby causing the Great Depression, which is also one of the important differences between the current and the Great Depression.
According to Xie Yaxuan, the logic of this epidemic may cause the Great Depression is that the continuation of the epidemic will break the capital chain of a large number of SMEs, resulting in bankruptcy, a sharp rise in unemployment, deflation, deleveraging, the disappearance of residents ’wealth, and economic The texture is fundamentally damaged, then part of theDemand has also disappeared permanently and cannot be recovered directly. The entire economy continues to be in a negative cycle of deflation and recession, and the length of the economic downturn needs to be measured in years.
So, to what extent is the economy in recession? Will the Great Depression reappear?
According to Xu Xiaonian, a professor of economics and finance at China Europe International Business School, the first thing to answer is, Can the international financial system, especially the commercial banking system, withstand this wave of shocks, and since the spread of new coronary pneumonia in the world Can the banking system survive the inevitable bankruptcy of real economy enterprises and decline in household consumption? This is the core problem.
“The cause of this crisis is new coronary pneumonia and oil prices. But the deeper reason is that the capital market is overvalued.” Xu Xiaonian said. However, he believes that the occurrence of a Great Depression similar to 1929 is a small probability event, and the observation is based on the capital market / span> —Whether there is a liquidity crisis, and whether the policy mix of the Fed and the US Treasury has eased market tensions. “The balance sheets of financial institutions have collapsed before we can talk about the Great Depression of 1929.”
Chen Zhiwu admitted that there is indeed a misalignment within the financial market, and there are some unusual behaviors that are not too strange. However, so far, the financial market as a whole has not seen too many runs, and there has been no financial crisis. Of course, there is an important background. The Fed has made record-breaking and substantial interventions, including lowering the lower limit of policy interest rates to zero, quantitative easing, and unlimited purchases of bonds.
“Many people are discussing that the virus crisis will turn into a financial crisis, and then the financial crisis will be further transmitted into a crisis of the entire economy. At present, this transmission is ongoing, but it is not so violent. Of course, the probability of an economic crisis It may be higher than originally estimated, but it is too early to say that there will be an economic crisis. “Chen Zhiwu told the Economic Observer Network.
Cheng Shi, chief economist of ICBC International, believes that for the global economy, the new crown epidemic is not only a short-term impact, but also a long-term challenge. In the decades since China’s reform and opening up in 1978 to Brexit in 2016, the global economic system in the modern sense has been formed and continuously improved, and the golden paradigm of “factor input × production efficiency = steady growth” has been laid on the supply side. Taking the Brexit and trade games as the prelude, and taking this epidemic as a new chapter, the global macro “chaotic era” is difficult from the supply side, breaking the above golden paradigm.
Since 2018, the global economy has returned to weakness