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Justin Lin: Macro-economic Trends

Mar 27-2020   



 

Since the second half of last year, the IMF and the World Bank have repeatedly slashed 2020 and 2021 growth estimates for countries around the world. The global spread of the COVID-19 and the recent crash of oil price have triggered circuit breakers and plunging share prices in the US and other stock markets, observes Prof. Justin Lin Yifu in a recent commentary. He’s the Honorary Dean of the NSD and the Dean of the New-Structural Economics Institute at Peking University.

 

The Chinese government pulled out all the stops in mid-January to fight against the epidemic and has successfully reined it in. However, the precious experience and time window that China affords to the rest of the world have not been fully taken advantage of, resulting in fast spread of the virus worldwide. Developing countries such as Iran are most menaced due to poor medical capabilities, while developed countries might be hamstrung by impotent mobilization for quarantine and treatment.

 

Given the intractable nature of the virus and the lack of a vaccine thus far, developed countries might see the epidemic persist into the second half of this year or even the first half of next year. It now looks inevitable that the economy of the US and other developed countries, already running out of room for monetary and fiscal maneuvering, will be hit by a recession. According to estimates by JPMorgan Chase last week, the 2020 growth rate might tumble to -1.8%, -3.4%, and -1.3% for the US, the euro zone, and Japan respectively. Mr. James Bullard, President and CEO of the Federal Reserve Bank of St. Louis, reckoned that the US employment rate might skyrocket to 30% in the second quarter while its GDP might plummet by 50%. That the US and other developed countries might be bedeviled by 1930-Great-Depression type has become a high-probability event.

 

Prof. Lin says that China should promptly end lockdowns and get its companies to ramp up production of medical supplies to assist countries afflicted by the virus. Facing the flurry of internal and external challenges, China should utilize the favorable policy leeway generated by the supply-side structural reforms in recent years, adopting proactive monetary policy to stabilize its financial system and proactive fiscal policy to undertake new infrastructure construction. Meanwhile, assistance should be provided to low-income families. By expanding domestic consumption, maintaining social stability, and removing growth bottlenecks, China can expect to enhance its economic growth quality, achieve reasonable growth rate, and act as the main locomotive for global economic recovery and growth much like in 2008.

 

 

Justin Lin: Macro-economic Trends

Mar 27-2020   



 

Since the second half of last year, the IMF and the World Bank have repeatedly slashed 2020 and 2021 growth estimates for countries around the world. The global spread of the COVID-19 and the recent crash of oil price have triggered circuit breakers and plunging share prices in the US and other stock markets, observes Prof. Justin Lin Yifu in a recent commentary. He’s the Honorary Dean of the NSD and the Dean of the New-Structural Economics Institute at Peking University.

 

The Chinese government pulled out all the stops in mid-January to fight against the epidemic and has successfully reined it in. However, the precious experience and time window that China affords to the rest of the world have not been fully taken advantage of, resulting in fast spread of the virus worldwide. Developing countries such as Iran are most menaced due to poor medical capabilities, while developed countries might be hamstrung by impotent mobilization for quarantine and treatment.

 

Given the intractable nature of the virus and the lack of a vaccine thus far, developed countries might see the epidemic persist into the second half of this year or even the first half of next year. It now looks inevitable that the economy of the US and other developed countries, already running out of room for monetary and fiscal maneuvering, will be hit by a recession. According to estimates by JPMorgan Chase last week, the 2020 growth rate might tumble to -1.8%, -3.4%, and -1.3% for the US, the euro zone, and Japan respectively. Mr. James Bullard, President and CEO of the Federal Reserve Bank of St. Louis, reckoned that the US employment rate might skyrocket to 30% in the second quarter while its GDP might plummet by 50%. That the US and other developed countries might be bedeviled by 1930-Great-Depression type has become a high-probability event.

 

Prof. Lin says that China should promptly end lockdowns and get its companies to ramp up production of medical supplies to assist countries afflicted by the virus. Facing the flurry of internal and external challenges, China should utilize the favorable policy leeway generated by the supply-side structural reforms in recent years, adopting proactive monetary policy to stabilize its financial system and proactive fiscal policy to undertake new infrastructure construction. Meanwhile, assistance should be provided to low-income families. By expanding domestic consumption, maintaining social stability, and removing growth bottlenecks, China can expect to enhance its economic growth quality, achieve reasonable growth rate, and act as the main locomotive for global economic recovery and growth much like in 2008.