Before the outbreak of the new crown epidemic, the market’s general expectation of the economic outlook is that the main line of economic operation will be further transformed from a weak recovery at the end of 2019 to a strong recovery in 2020. In view of the optimism of the market, many economic outlook indicators, including the manufacturing PMI index, have shown a clear rebound in the fourth quarter of last year. The IMF ’s World Economic Outlook released in October 2019 also expected that the global economic growth rate will be from 2019 3% rebounded to 3.4% in 2020.
Figure 1 PMI data source for manufacturing in the four countries: Wind
Figure 1 PMI data source for manufacturing in the four countries: Wind
However, with the sudden spread of the new crown epidemic in the world, countries have suffered from multiple rounds of shocks such as public health security crisis, fierce financial market volatility, and substantial economic contraction. “Transformed to” the economic recovery process under the impact of the epidemic. “Specifically, the connotation of the recovery process is the flattening process of the three curves.
The first curve is the epidemic curve (The Great Pandemic Curve) . According to statistics from Johns Hopkins University in the United States, as of 10:00 a.m. Beijing time, more than 3.66 million people have been infected worldwide, and the number of deaths due to illness has been confirmed to exceed 257,000. According to the experience of the Epidemic Center in Asia, during the evolution of the outbreak from the outbreak to the rise to the effective containment, the number of newly diagnosed cases every day will show the inverted “V” shape of the typical epidemic characteristics. The first round of global outbreaks of the epidemic may have contained momentum.
The first curve is the epidemic curve (The Great Pandemic Curve) . According to statistics from Johns Hopkins University in the United States, as of 10:00 a.m. Beijing time, more than 3.66 million people have been infected worldwide, and the number of deaths due to illness has been confirmed to exceed 257,000. According to the experience of the Epidemic Center in Asia, during the evolution of the outbreak from the outbreak to the rise to the effective containment, the number of newly diagnosed cases every day will show the inverted “V” shape of the typical epidemic characteristics. The first round of global outbreaks of the epidemic may have contained momentum.
However, given that there have been secondary outbreaks in Japan, Singapore and other places, it is not yet possible to conclude that the outbreak has been completely contained, especially in Before effective vaccines and treatments were developed, when did the epidemic pandemic curve enter the right side of the inverted “V” shape, there was a flattening change, and there were still many variables , and experts have warned not to rule out the new crownThe epidemic may break out again in autumn and winter this year.
Figure 2 Global newly diagnosed cases of new pneumonia daily (person) Data source: Wind
The second curve is The Great Contraction Curve. Because of the high contagious power of new coronary pneumonia, coupled with the good results of China ’s earlier “lockdowns and social isolation” measures and the failure of the British attempt to “herd immunity” The “social isolation” epidemic prevention measures have been widely accepted and adopted by various countries. Of course, the cost of such epidemic prevention measures is huge, and the economic activities of the microeconomic entities are almost stagnation, the economic operation has been interrupted for a short time, and the economic output has contracted greatly. The IMF’s World Economic Outlook in April this year significantly reduced the global economic growth rate. It is expected that this year’s global economic growth rate will decline by 5.9% compared with the previous year. When the global financial crisis in 2008, the global economy contracted 3%.
Figure 3 Data on the decline in economic growth in 2020 compared to 2019 Source: IMF
In view of the fact that when the epidemic pandemic curve is flattened, there are still variables, so when and in what posture will the economy recover after the current round of contraction, that is, the flattening of the economic operating curve will have Great uncertainty.
Figure 2 Global newly diagnosed cases of new pneumonia daily (person) Data source: Wind
The second curve is The Great Contraction Curve. Because of the high contagious power of new coronary pneumonia, coupled with the good results of China ’s earlier “lockdowns and social isolation” measures and the failure of the British attempt to “herd immunity” The “social isolation” epidemic prevention measures have been widely accepted and adopted by various countries. Of course, the cost of such epidemic prevention measures is huge, and the economic activities of the microeconomic entities are almost stagnation, the economic operation has been interrupted for a short time, and the economic output has contracted greatly. The IMF’s World Economic Outlook in April this year significantly reduced the global economic growth rate. It is expected that this year’s global economic growth rate will decline by 5.9% compared with the previous year. When the global financial crisis in 2008, the global economy contracted 3%.
Figure 3 Data on the decline in economic growth in 2020 compared to 2019 Source: IMF
In view of the fact that when the epidemic pandemic curve is flattened, there are still variables, so when and in what posture will the economy recover after the current round of contraction, that is, the flattening of the economic operating curve will have Great uncertainty.
A few days ago, the Brookings Institution (Brookings Institution) released a report to conduct a scenario analysis on this. They divided the post-epidemic economic recovery scenarios into three types:
Optimistic scenario: The flattening process of the economic contraction curve will show a “Z” or “V” shape, that is, after a brief interruption, it will fully return to the running track before the epidemic, “Z” and ” The “V” difference is that the former belongs to retaliatory recovery.
Neutral scenario: The flattening process of the economic contraction curve will show a “U” shape, a “√” shape, or a “W” shape. The difference between the “U” and “√” in the previous operating trajectory is that the former has a relatively short period of economic downturn, and the “W” type means that there has been a second outbreak of the epidemic.
Pessimistic scenario : The flattening process of the economic contraction curve will show an “L” shape, that is, the epidemic will cause permanent damage to the economic operation, and the economy has never been able to return to the trajectory before the epidemic. The “Great Depression” is such a classic example.
Figure 4 Economic recovery path data source: Brookings Institution, for the economic operation trajectory before the new crown epidemic; for the economic recovery after the new crown epidemic Trajectory
Optimistic scenario: The flattening process of the economic contraction curve will show a “Z” or “V” shape, that is, after a brief interruption, it will fully return to the running track before the epidemic, “Z” and ” The “V” difference is that the former belongs to retaliatory recovery.
Neutral scenario: The flattening process of the economic contraction curve will show a “U” shape, a “√” shape, or a “W” shape. The difference between the “U” and “√” in the previous operating trajectory is that the former has a relatively short period of economic downturn, and the “W” type means that there has been a second outbreak of the epidemic.
Pessimistic scenario : The flattening process of the economic contraction curve will show an “L” shape, that is, the epidemic will cause permanent damage to the economic operation, and the economy has never been able to return to the trajectory before the epidemic. The “Great Depression” is such a classic example.
Figure 4 Economic recovery path data source: Brookings Institution, for the economic operation trajectory before the new crown epidemic; for the economic recovery after the new crown epidemic Trajectory
In the early stage of the outbreak, out of the judgment that the impact on the outbreak is short-term and exogenous, the market generally expects the economic operation to be “Z” Or the “V” shape can be restored, but with the deepening of people’s understanding of the epidemic situation, before effective vaccines and medical methods to reduce the mortality rate are developed, it is inevitable to take some restrictive measures to prevent epidemic normally, which leads to It is difficult for the economy to fully recover to the trajectory before the epidemic in a short period of time, that is, in reality, the best path for economic recovery is to flatten out according to the “U” shape and graduallyMake up for the output gap caused by the economic contraction.
Because there are many uncertainties in the flattening process of the epidemic epidemic curve and the economic contraction curve, it is directly destined to the complexity of the flattening process of the Great Recue Curve in various countries.
Figure 5 Data source of global fiscal direct aid as a percentage of GDP: GS
Because there are many uncertainties in the flattening process of the epidemic epidemic curve and the economic contraction curve, it is directly destined to the complexity of the flattening process of the Great Recue Curve in various countries.
Figure 5 Data source of global fiscal direct aid as a percentage of GDP: GS
According to Goldman Sachs estimates, as of now, the scale of global direct financial assistance for epidemic response has exceeded 6% of GDP (excluding the financing expenditures of various countries ’financial pockets), and developed economies have exceeded 8%. Whether the scale of financial assistance can fully hedge the impact of the epidemic is still difficult to say, that is, before the epidemic epidemic curve and the economic contraction curve have flattened, the scale and duration of aid will be expanded and extended. This brings up another question, how to digest the scale of the sudden increase in fiscal expenditure. Because logically, once the epidemic situation improves and the anti-epidemic measures are lifted, then the rescue curve of each country should also be flattened according to the inverted “V” shape. It has become a problem, and how serious the problem will be at that time depends largely on the effectiveness of national aid.
Therefore, the conditions for the rescue curve to be flattened include the containment of the epidemic, the economic recovery and the actual effect of the rescue.