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Yao Yang: Beware of Systemic Recession

Apr 07-2020   



 

The Chinese economy was sledgehammered in February and March. The Purchase Managers’ Index (PMI) plummeted to 35.7% in February. “It’s the lowest ever PMI index in my economics research career,” said Prof. Yao Yang, Dean of the NSD, in an exclusive interview with Caijing magazine.

 

PMI and other major statistics clearly show that the Chinese economy gives little room for optimism; neither does resumption of work. Consequently, both the supply and demand sides have taken a harsh beating.

 

For the whole year, China’s export is most likely to contract due to disruptions to supply chains and postponed or canceled orders from Europe and the US, both gripped by the pandemic. The Chinese exporters might face an additional challenge in the form of yuan appreciation, made possible by inflow of foreign capital into the Chinese stock market and widening interest spread between China and the US.

 

The US economy might have arrived at a junction for adjustments. Its expansion - for more than ten years in a row now - might cede to a financial crisis if its stock markets continue the slide under the pandemic and plunging oil prices. “Without a doubt, the US economy will have a recession. The timing depends on the duration of the pandemic,” said Prof. Yao. “If a vaccine or a specific medicine was to go into clinical tests within three months, the economy could stop declining; otherwise, the consequences would be troubling.”

 

Globally, the pandemic might still be at an early stage. Using China’s experience as yardstick, its peak is yet to come and might take two more months to reach China’s current status in pandemic fighting. That points to June. “The recession will be much more severe than I initially estimated,” said Prof. Yao.

Yao Yang: Beware of Systemic Recession

Apr 07-2020   



 

The Chinese economy was sledgehammered in February and March. The Purchase Managers’ Index (PMI) plummeted to 35.7% in February. “It’s the lowest ever PMI index in my economics research career,” said Prof. Yao Yang, Dean of the NSD, in an exclusive interview with Caijing magazine.

 

PMI and other major statistics clearly show that the Chinese economy gives little room for optimism; neither does resumption of work. Consequently, both the supply and demand sides have taken a harsh beating.

 

For the whole year, China’s export is most likely to contract due to disruptions to supply chains and postponed or canceled orders from Europe and the US, both gripped by the pandemic. The Chinese exporters might face an additional challenge in the form of yuan appreciation, made possible by inflow of foreign capital into the Chinese stock market and widening interest spread between China and the US.

 

The US economy might have arrived at a junction for adjustments. Its expansion - for more than ten years in a row now - might cede to a financial crisis if its stock markets continue the slide under the pandemic and plunging oil prices. “Without a doubt, the US economy will have a recession. The timing depends on the duration of the pandemic,” said Prof. Yao. “If a vaccine or a specific medicine was to go into clinical tests within three months, the economy could stop declining; otherwise, the consequences would be troubling.”

 

Globally, the pandemic might still be at an early stage. Using China’s experience as yardstick, its peak is yet to come and might take two more months to reach China’s current status in pandemic fighting. That points to June. “The recession will be much more severe than I initially estimated,” said Prof. Yao.