Global Economic Outlook

Recently, we are all concerned about the topic, what’s the impact of the novel coronavirus epidemic has on the economy? What is the future of the world economy? What will be the impact on China?

Mr. Xu Qiyu and his team spent two months tracking the reports of think tanks around the world. Following up, he found that the judgment of the international community on the economic situation had undergone a major turn.

So what is this turn? Next, let’s listen to his explanation.

Now the biggest thing in the world is the epidemic. Everyone knows that this outbreak has a great impact on the economy and the prospect is not optimistic, but what will happen next? This report will tell you what think tanks think about the global economy under the epidemic.

In fact, our team has been tracking the news and statistics for two months and found a very interesting phenomenon: the news and statistics in February are very different from those in March.

What is February like? China’s epidemic situation was the most critical, and other places were not affected very much. At that time, the analysis of foreign countries basically focused on the global supply chain. This means the center of the global supply chain is in great danger in China. It has to be moved out. Where should it be transferred to? Not Southeast Asia, because Southeast Asia is still too close to China. The report mentions three places: Mexico, Turkey, and Eastern European countries. Hence the entire February presented the same tune of events. March is very different. Why? China’s epidemic was under control, and the worldwide impact of the epidemic has begun. So, the report in March is from a larger perspective, and the overall feeling is more objective and optimistic than that in February. Hence, we focus on the March report.

What is the overall economic situation in the world?

OK, let’s look at the first question: how to evaluate the overall economic situation? Everyone agrees on this issue, that is, the impact is much greater than that of SARS in 2003. The Oxford economics think tank predicted in early March that the world economic growth rate would drop from 2.6% last year to 2% this year. At that time, the data was pessimistic, but now it may be optimistic.

McKinsey’s analysis in early March of this year provides three prospect models. Optimistic outlook; the world economy will rebound rapidly, economic slowdown and economic recession. According to the report, the first optimistic prospect is basically impossible. It mainly analyzes two kinds of prospects, thus slowing down and recession.

Generally speaking, economic growth slows down, but the recession is more serious. According to American standards, the total economic output has dropped by more than 5% for two consecutive quarters, while the unemployment rate has risen to 6%, which is a recession. Now that we know the difference between a slowdown and a recession, let’s look at the prospects of the slowdown reported by McKinsey.

McKinsey predicted at that time that if Hubei’s economy could initially return to normal at the beginning of the second quarter, that is, in April, the growth rate of cases in other places, including the Middle East and Europe, would begin to decline. In the middle of the third quarter, that is, in October, international tourism and shipping would start to return to normal. To meet these standards, the world economy will show the perspective of a slowdown.

What are the prospects for a recession? The first point remains unchanged. Hubei’s economy initially returned to normal in April, which is the same as before. However, cases in the Middle East and Europe did not start to decline until May, and cases began to break out in North America and India. International travel and aviation ban do not get to be lifted until November, which leads to a recession. Reading the reports in April, looking at the current situation of the epidemic, it’s clear the entire global economy will definitely lead to a recession, not a slowdown. It’s a big pronouncement.

Three kinds of recession

Another report written by Carlson Slazac (chief economist of Boston Consulting Group) titled “what does the novel coronavirus epidemic mean to the global economy?”

The report also believes that the novel coronavirus outbreak caused a recession. What will happen next in this recession? The report said that going out of recession is no more than three ways: V-shaped, that is, a step rebound, and U-shaped, which is a long gradual rebound. The worst is L-shaped, which lingers at the bottom for a long time. The reports show that the possibility of V-type is greater than that of L-type in the recession development caused by the epidemic.

Why? Four major outbreaks have happened in the past 100 years, which four?

The second outbreak, global influenza in 1968, the death toll in the United States was 100000. Then there was the great flu in 1958. The death toll in the United States was 116000. Of course, including the most famous Spanish influenza in 1918, the death toll in the United States reached 670000.

As you can see from the number of deaths, those outbreaks were very serious. But these four times, the global economy took a V-shaped shape, in other words, a rapid recession, but also a rapid recovery. Therefore, after this epidemic, it will likely be a V-shaped rapid rebound out of recession. Of course, it’s also a big pronouncement. It’s still time to test whether this is the case in the future. I would like to remind you that this is the analysis made in early March, and the western response to the epidemic is generally a little too optimistic. So, you should have a clear idea of this conclusion.

Small and medium-sized enterprises become the focal point

But I also want to tell you that in addition to focusing on China’s overall economy, these big think tanks pay special attention to China’s small and medium-sized enterprises.

Why?

There are two reasons:

First, SMEs are very important to our country’s economy. The employees employed by small and medium-sized enterprises account for 80% of the national employment and more than 60% of the GDP. Second, in this epidemic, the impact on small and medium-sized enterprises is far higher than that on large enterprises. So small and medium-sized enterprises become the focus of attention.

Here I’ll introduce you to a Rand report. The report was presented on March 11 at a house of Representatives hearing by Rand researcher Jennifer Buye. The report is very long. With respect to time, I will not introduce the analysis process but jump to the conclusion part.

What is the conclusion of the report? It includes positive and negative aspects:

On the one hand, it is inevitable for Chinese small and medium-sized enterprises to go through a wave of bankruptcy, many of which have to close down. On the other hand, small and medium-sized enterprises are more flexible than large enterprises, and the previous support measures of the Chinese government are effective. If the government continues to support, small and medium-sized enterprises, in general, can survive the difficulties.

How are Chinese enterprises doing in this epidemic?

Finally, let’s look at a more relaxed and specific topic, that is, how did Chinese enterprises perform in this epidemic, and what are the opinions of those big think tanks?

On this issue, it can be said that as long as we read so many reports in this period of time, as long as they involve Chinese enterprises, they are basically be considered.

What I want to introduce here, in particular, is a report issued by Henderson Research Institute, which was released in mid-March. What is it? It’s interesting to summarize the early experience of Chinese enterprises in response to the epidemic.

For example, the first one says that enterprises should look forward and constantly adjust their response measures. As the first Chinese enterprise in the example, you may not necessarily guess that it is not an online enterprise, but Master Kang.

It said that Master Kang tracked the dynamic situation every day, quickly shifted the focus from offline and large-scale retail channels to o2o, e-commerce and small stores, and highly flexibly adjusted its supply chain by tracking the re-opening plan of retail outlets, so a few weeks after the outbreak, its supply chain recovered by more than 50%, three times that of its main competitors.

The second is to supplement the top-down mode of action with a bottom-up approach. In fact, it emphasizes the initiative of the front line in the crisis period.

Third, take the initiative to create clarity and safety for employees.

Safety is easy to understand. What is creating clarity? It means that when the information is in crisis, it must be chaotic and contradictory. At this time, the enterprise must quickly work out a set of clear and operable processes, including how to work and how to protect itself. This is called the initiative to create clarity.

There is a total of 12 of these experiences. Because of the time, I can’t say it one by one here. Finally, to conclude with a somewhat overused quote from Churchill, “don’t waste a crisis.”. The novel corona virus epidemic crisis is far from over, but the process of learning from the crisis and improving from the crisis should start early.