China would expect an economic rebound in the second half of 2020: expert
By
Wu Lejun from People’s Daily
The
recent outbreak of the new coronavirus in China has raised concerns about the development
of the disease and its impact on China and the global economy.
Stephen
Roach, a senior fellow at the Jackson School of Management at Yale University
and a former chairman of Morgan Stanley Asia, told the People’s Daily that the
Chinese government has enough monetary and fiscal space to deal with the
economic impact of the outbreak and he expects an economic rebound in the
second half of the year.
China’s
Central Bank pumped 400 billion yuan (about $57 billion) into the banking
system on Feb 4, after an injection of 1.2 trillion yuan into the system via
reverse repos on Feb 3. Roach said the Central Bank’s move significantly
demonstrates determination and commitment to address financial anxiety caused
by the outbreak, and also provides an important liquidity backstop for banks
that have been hit hard by disruptions in commercial and industrial activity,
at a time of exceptional preparedness and containment.
Roach
also noted, however, that the Central Bank’s efforts to inject liquidity into
the market were necessary but not sufficient to deal with the growing pressures
of the current outbreak.
“At
the same time, control of the rapidly spreading 2019-nCov disease is less a
task for the Central Bank and more a responsibility of China’s public health authorities.
Curtailment of inter-city travel, coupled with multi-city quarantines in Hubei
Province and rapid construction of two new virus-dedicated hospitals in Wuhan,
are likely to be far more effective at prevention and control of this virulent
disease,” Roach said.
On
Feb 3, the IMF and World Bank issued statements that China has sufficient
fiscal and monetary space to cope with the economic downturn caused by the
outbreak and expressed confidence in the resilience of the Chinese economy.
Roach agrees, arguing that China has ample fiscal and monetary policy
ammunition to deal with downside risks, whether from the coronavirus outbreak,
the early impact of the first phase of the China-US trade conflict or more than
three years of deleveraging.
Roach
said it is difficult to predict with any accuracy the short-term and
medium-term impact of the outbreak on the Chinese economy. Just before the
outbreak, the latest data on the Chinese economy, such as the Purchasing
Managers’ Index for January, were actually fairly stable. But now, a
combination of strict segregation of Chinese cities and travel restrictions in
some countries has hit economic activity. For now, the problem with
countercyclical stimulus is that the Chinese economy lacks a vigorous growth
cushion that would enable these policy actions to be most effective.
He
cites the impact on the economy after the SARS outbreak in early 2003. SARS hit
the Chinese economy hardest in the second and third quarters of that year,
reducing nominal gross domestic product growth by about 2 percentage points
from 13.4 percent in the second quarter of 2003 to 11.5 percent in the third
quarter. The short-term downside risks to growth are all the more worrying
because China’s economy is now growing much more slowly than it did that year,
and GDP growth slowed to 6 percent by the end of 2019 before the new
coronavirus hit.
“The
logic of the lack of a growth buffer also applies to the world economy,” Roach
added. According to the IMF’s latest estimates, the world economy grew by just
2.9 percent in 2019. That is just 0.4 percentage points above the 2.5 percent
threshold for a global recession, which is likely to heighten financial market
fears. And many multinational companies, such as Ford, Apple, Siemens, Honda,
McDonald’s and Disney plan to suspend operations in China, so further downward
pressure has weakened the global manufacturing, retail, entertainment and
travel industries. Moreover, industrial activity in other economies, from East
Asia, Latin America and North America to Europe, could be severely damaged as
China plays a key role in many global supply chain centers.
Roach
believes that, as with SARS 17 years ago, any coronavirus-related damage is
likely to be temporary, followed by a sharp economic rebound. After the SARS
outbreak in early 2003, nominal GDP growth rebounded sharply in late 2003 and
early 2004, accelerating by about 4 percentage points over the next four
quarters to 15.3 percent (q3-q4).
“Assuming
the outbreak control measures in the next 2-3 months, China’s combination of
monetary and fiscal stimulus, coupled with rapid public health policy reforms,
would ensure a rebound and recovery in the second half of 2020,” he said. The
public health component is particularly important to highlight China's
commitment not to allow such outbreaks to happen again, he added.
China would expect an economic rebound in the second half of 2020: expert
Reviewed by PEOPLES MAIL
on
11:55
Rating:
No comments: