How to view the vitality of China’s economy under the pressure of the epidemic

What impact will the progress of the epidemic and prevention and control work have on my country's macro economy and capital market? In this regard, a reporter from Economic Daily interviewed Liu Feng, chief economist of China Galaxy Securities.

Liu Feng believes that if the turning point of the epidemic can be reached in the first quarter through strict measures, there is no need to be overly pessimistic about the impact of the epidemic's progress on the economy throughout the year. Complex internal and external situations should be dealt with scientifically, objectively and calmly, and economic vitality should be stimulated based on market-oriented thinking. Macroeconomic policies should be fully implemented and decisive cuts in reserve requirements and interest rates should be implemented. Provide appropriate tax reductions and exemptions to small and medium-sized enterprises in stages. The capital market should focus on guiding the rational investment behavior of institutional investors and avoid the release of irrational panic.

Objective assessment of the impact of the epidemic on the macro economy

Reporter: How much impact do you think the current epidemic has on economic activities?

Liu Feng: To determine how much impact the epidemic will have on economic activities, we must first clarify two key factors: first, the mechanism by which the epidemic affects the economy; second, how long the impact will last. On this basis, objectively assess the impact of the epidemic and national epidemic prevention work on the economy and market.

From the perspective of the impact of the epidemic on the economy, mainly from the perspective of epidemic prevention, various places have actively (government action) or passively (resident departments spontaneously) restricted and significantly reduced economic and social activities, resulting in the flow of people, logistics and funds. The shrinking flow will bring about a contraction in demand. Terminal demand in service industries such as tourism, catering, entertainment, hotels, transportation and retail has decreased significantly; as terminal consumer demand decreases, through the supply chain, the production, investment, import and export of the entire economic system will be significantly affected, All types of enterprises will face significantly increased operating pressure; in turn, residents' income may decrease due to the above situation, and the unemployed population may increase due to the above reasons; fiscal revenue and expenditure and credit expansion will be hindered; ultimately, the economic operation will further slow down as a result.

From the perspective of the duration of the impact of the epidemic, based on the existing speed and breadth of disease transmission, treatment efficiency and public health response measures, and with reference to the experience of the spread and demise of the SARS virus in 2003, it is expected that the epidemic will be completely It takes May to July, that is, early summer, to be controlled and die out. In other words, there is a high probability that the entire incident will continue into the second quarter, and the economic operation in the first quarter will be significantly affected by the progress of the epidemic. From a full-year perspective, the impact of the epidemic on China's economic growth is expected to be about 0.5 percentage points. It is estimated that the economic growth in 2020 Growth will slow to around 5.5%. After taking into account the hedging effect of economic policies, actual economic growth is estimated to be in the growth range of 5.5% to 6.0%.

Neither belittle nor panic

Reporter: So, aren’t the economic expectations not optimistic?

Liu Feng: The impact of the epidemic on the economy should neither be underestimated nor panicked. It is expected that employment and residents' income will also face significant pressure in 2020. The national urban survey unemployment rate in the first half of the year is estimated to be higher than the 5.0% to 5.3% range maintained in each month of 2019, posing significant pressure on the 5.5% control line. However, it should also be noted that the above-mentioned economic impact has not caused the economic growth rate and unemployment level to significantly slip out of the reasonable range. Moreover, starting from the fourth quarter of 2019, due to the effectiveness of various policy measures, our country's economy has entered a phased rebound, which is a short-cycle recovery. According to the situation, a certain amount of passive inventory replenishment in the upstream industry will also help to hedge against the weakening demand caused by the epidemic. Therefore, there is no need to be overly pessimistic about economic growth in 2020.

Don’t worry too much about the economic impact of the resumption of work after the Spring Festival, which has been postponed due to epidemic prevention needs. Around February 10 at the latest, the production and operation order of the national economic sector will be basically restored. At present, southeastern provinces and cities such as Guangdong, Fujian, Zhejiang, Jiangsu and Shanghai have required non-essential enterprises to resume work no earlier than 24:00 on February 9 (the sixteenth day of the first lunar month). Then, it is foreseeable that the production and operation order across the country (except Hubei) will be basically restored in the future. According to the estimates of Academician Zhong Nanshan and Professor Zeng Guang of the National Expert Group, the existing epidemic prevention measures will be effective around the fifteenth day of the first lunar month, so overall, the national production and operation will enter a relatively good state starting in March.