Source: Outlook
An oil refinery in Houston, USA (photo taken on April 20)
◇ This may trigger the worst economic recession since the Great Depression in the 1930s
◇ New York crude oil futures prices plummeted, turning negative for the first time in history value, bringing variables to the global energy market
◇ From a historical perspective, the duration of low oil prices is relatively short, and the available time window may be fleeting
At first glance, this is an ordinary place in the small Swiss town of Lucerne. one day. But when you walk to the famous Lion Monument, those familiar with the situation will notice that something is missing here. The small square in front of the monument was unusually empty. The tour bus parking lot and the old town were almost deserted. A shopping guide at a souvenir shop near the monument said: "What is missing are tourists, and there are a lot less."
Lucerne is one of the favorite Swiss tourist destinations for tourists. Nowadays, tourists are all but gone – not just from Lucerne, but also from Rome, Madrid, Bangkok, Singapore and Tokyo.
The outbreak of the new crown pneumonia epidemic has not only dealt a heavy blow to the tourism industry, but also many industries such as civil aviation, hotels, catering, and retail have been affected.
The confusion also spread across global supply chains. Shortages in the supply of electronic products and auto parts have led to factory shutdowns and store closures. There are also knock-on effects in other industries such as mining, energy, transportation, construction, exhibitions, and food processing.
The indirect impact may be mainly reflected in investment-it has always been particularly sensitive to changes in the international environment. Reduced investment will inevitably impact the financial market. The
virus is still spreading quietly, and the fear it brings has affected the global economy.
Economists bluntly said that the new coronavirus is the "black swan" of the world economic crisis.
Recession is within reach
htmlSince February, analysts from various countries have continued to lower their expectations for global economic growth. "Much worse than the recession from 2008 to 2009" "Economic data will show a contraction never seen in peacetime" "This is the worst year since the end of World War II"... At that time, there were waves of mourning It has become commonplace.On March 2, in its Global Economic Outlook Report, the Organization for Economic Co-operation and Development (OECD) lowered its 2020 global economic growth forecast from 2.9% before the outbreak of the COVID-19 epidemic to 1.5% to 2.4%.
Its basic judgment at the time was that the epidemic would peak in China in the first quarter, while the epidemic in other countries was mild and controllable - in this case, global economic growth in 2020 may only be better than that in November 2019 The forecast was 0.5 percentage points lower at 2.4%.
However, if the epidemic lasts longer and spreads throughout the Asia-Pacific region, Europe and North America, it will seriously weaken the global economy - growth in 2020 may drop to 1.5%.
A public health crisis has indeed spawned a global economic crisis. In order to curb the spread of the epidemic, most economies have adopted measures such as "quarantine, regional blockade, and social distancing." The economic impact of these measures has spread to the world through trade and industrial chains.
Zhang Monan, chief researcher of the Institute of American and European Studies at the China Center for International Economic Exchanges, believes that the world is falling into a "blockade paradox". The result of the blockade is that the flow of factors and external exchanges are severely restricted, and production and trade activities are slowing down, semi-stagnant or stagnant. This has worsened the already fragile global economy.
In fact, even a growth rate of 2.4% has entered the category of global economic recession - the International Monetary Fund (IMF) defines it as an economic growth rate lower than 2.5%.
Whether it is 1.5% or 2.4%, it may be an optimistic estimate.
The latest "World Economic Outlook Report" released by the IMF in April stated that if the epidemic reaches its peak in the second quarter and subsides in the second half of the year, the global economy will shrink by 3% this year. This is a significant reduction of 6.3 percentage points compared with its growth forecast of 3.3% in January this year.
The IMF warned that this is the most serious economic recession since the Great Depression in the 1930s, and it is the first time that advanced economies, emerging markets and developing economies have fallen into recession at the same time.
Today, the international community is generally pessimistic about global economic expectations. Many domestic and foreign institutions and economists believe that it has become a consensus that the global economy will fall into recession in 2020.
Two months ago, an economic forecasting agency said that if the virus spread beyond Asia, it would cost global economic output more than $1 trillion. The World Bank once estimated that a severe influenza could cause global economic losses of US$3 trillion. The IMF estimates that the epidemic will cause losses to global GDP of approximately US$9 trillion in 2020 and 2021.
9 trillion US dollars, approximately half the output of the United States, the world's largest economy, in the past half year.
Many U.S. think tanks and investment banks believe that the U.S. economy will fall into a deep contraction in the next six months. The extent and duration of the recession will largely depend on the U.S. government's response to the epidemic.
At the same time, most economists are worried that the global economy will fall into a vicious cycle: some countries have just embarked on the track of recovery, but they are hit by the impact of the epidemic and the decline in demand caused by the economic downturn in other countries, and thus return to recession, which will in turn affect other countries.
Some economists believe that demand may be suppressed for a long time due to lingering concerns about the second wave of the epidemic. It is likely that some economies will take years to return to their previous levels, or even longer. The epidemic may also trigger structural flaws in the economy and lead to a long-term recession.
Fragile Finance
In the United States, Apple was the first major company to announce that it would not be able to meet its first-quarter revenue expectations due to the outbreak. This caused a lot of concern in the stock market. Subsequently, the stock prices of global technology companies collectively plummeted.
Analysts from the BlackRock think tank in the United States wrote: "Financial fragility is rising." Zhang Monan believes that a greater financial crisis is brewing.
html In March, the U.S. stock index triggered the circuit breaker mechanism four times in a row within 10 days. From the introduction of the circuit breaker mechanism in October 1988 until the outbreak of this epidemic, the U.S. stock market had only experienced one circuit breaker. The Dow Jones also set a record for the fastest fall into a technical bear market in history. Feng Weijiang, a researcher at the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, said that other regions were not immune. On March 11, stock markets in at least 11 countries around the world were shut down, covering three continents: Asia, Europe and the United States.After the collective collapse of global financial markets, the Federal Reserve urgently launched a combination of a 100 basis point interest rate cut and a US$700 billion quantitative easing plan. Countries followed suit, but this did not boost market confidence, and global financial markets continued to fluctuate greatly.
Goldman Sachs predicts that the decline in U.S. stocks is far from over. It is expected that the S&P 500 Index may fall 41% from its highest point to around 2,000 points. As the U.S. economy slips into recession, the U.S. stock market may end its decade-long bull market. Industrial Bank estimates that global stock markets could lose 10% of their market value.
The bond market has also seen significant turmoil. Feng Weijiang pointed out that although the epidemic in the United States is severe, due to the huge market size and the unique hegemony of the US dollar, its national debt is regarded as a global safe asset and has become a haven for capital hedging. Therefore, it has shown a situation of rising prices and falling yields. Some emerging economies with a large influx of foreign capital are facing a sell-off of government bonds and rising yields.
Some economists believe that the probability of a systemic financial crisis in the world is increasing.
Countries with "twin deficits" in fiscal and international balance of payments face greater risks. The first potential risk is the national debt of southern European countries. The ten-year government bond yields of countries such as Italy and Greece are low, and there is a huge risk of large-scale short selling of their government bonds in the market. The second potential risk is emerging economies. "Twin-deficit" countries such as India, Brazil, and South Africa are facing a new wave of capital outflows. If a debt crisis occurs, it will trigger a new global financial crisis.
In addition, as many countries have adopted measures such as "closing down countries and cities" to prevent the epidemic, large-scale shutdowns of enterprises will damage their payment capabilities, which may lead to a sudden increase in bank non-performing assets and a concentrated outbreak of credit risks.
Losers of the plunge in oil prices
The epidemic of the new coronavirus means that countries have to press the pause button on economic operations, which directly leads to a decline in global oil demand.
“Refineries in many places now lose money on every barrel of oil they process."In early April, the European Bank for Reconstruction and Development's chief commodities analyst Bijner Schierlepp told the media that on the one hand this is because oil consumption has been greatly reduced, and on the other hand it is because onshore and offshore storage space is rapidly running out. , Refineries must pay people to transport the oil away. “For oil-producing countries, local oil prices or oil well prices will soon become zero or even negative. "
On April 20, the price of crude oil futures in New York plummeted and turned negative for the first time in history, which means that if physical delivery is carried out, the seller not only does not charge fees, but also "pays back" to the buyer.
In the past more than a month, due to the epidemic, , weakening demand and the "price war" among oil-producing countries, the international oil price fluctuated and fell. While impacting the financial market, it also brought variables to the global energy market structure.
In this storm, the first ones to bear the brunt are those with high costs. Oil producers. On April 1, U.S. shale oil and gas giant Whiting Petroleum Company filed for bankruptcy protection in a Texas court, involving US$3.6 billion in debt and US$7.3 billion in assets, becoming the first large listed company to file for bankruptcy as oil prices plummeted. .
This incident has revealed the dilemma of shale oil and gas companies. According to estimates from the U.S. Energy Information Administration, the production costs of most U.S. oil and gas companies are above US$48/barrel. Based on current oil prices, the majority of U.S. No oil and gas company will be profitable.
“I’m telling you, we are on the verge of collapse of an industry that we have worked so hard to build over the last three or four years to create the world’s number one oil and gas producer. . "Former Secretary of the U.S. Department of Energy Rick Perry believes that without the shale oil and gas industry, the United States will return to 1974 - a situation when U.S. energy was controlled by others. He warned that the national security of the United States is at stake.
Recently, After repeated mediation and consultations by relevant parties, OPEC and non-OPEC oil-producing countries finally reached the largest oil production reduction agreement in history. However, because the production reduction was less than expected, the recovery in oil prices was not obvious, said the Office of the Investment Director of UBS Wealth Management. , WTI crude oil futures prices are expected to remain around US$20 per barrel by the end of June, which is still far from the cost of nearly US$50 per barrel for most US shale oil and gas companies.
Some analysts believe that "OPEC+. This "symbolic" production cut will not only fail to substantially boost oil prices and alleviate the crisis of US shale oil and gas companies, but will also increase the risk of long-term downturn in international energy prices.
In the next 10 years, the international energy landscape will be reshuffled In particular, it will bring about whether oil can continue to be priced in US dollars, as well as a series of issues such as the survival of OPEC, the adjustment of member states, and the weakening of US control. In fact, many countries have already carried out de-dollarization in the field of energy trading.
The UK's Oxford Economics recently released a report stating that the plunge in oil prices "will have a major negative impact on the U.S. economy." The shale oil and gas industry supported by the United States will collapse due to the oil price war, and the United States will become the center of the oil price war. The biggest loser.
Opportunities in crisis
Domestic scholars analyze that in the face of great changes, China needs to be alert to the risks brought by the global economic recession.
First, it needs to be alert to the supply chain risks, shrinking external demand and "anti-globalization" caused by the epidemic.
Zhang Monan pointed out that the world has suffered three major shocks in the past century, including the Great Depression in the 1930s and the economic recession caused by the international financial crisis in 2008. The impact is mainly concentrated on the demand side, but the epidemic has impacted both supply and demand at the same time, and its impact is more complex and lasting.
The rise of "decoupling" and "anti-globalization" means that some countries will "look inward." , take back the industrial chain, and even set up trade barriers and technical barriers, and use other means to suppress China. Therefore, China must be vigilant that mid- and low-end manufacturing industries may be affected, and the foreign trade situation may change. The existing products are made in China. The central global industrial structure and global economic cooperation may be damaged.
Second, we must be wary of systemic risks in the financial market caused by the rapid influx of hot money.
The current effectiveness of China's epidemic prevention and control and the wave of global interest rate cuts will attract further inflows of active funds pursuing excess returns and allocation funds for the purpose of risk diversification and hedging. However, the epidemic will eventually pass, and the global economy will gradually come out of the trough. Therefore, we need to be particularly vigilant. Once hot money is withdrawn, the risks in the domestic stock market will increase accordingly.
analysis also believes that global economic turmoil may be a crisis or an opportunity for China.
First, the oversupply situation in the international crude oil market and low oil prices are beneficial to China's economic recovery.
The sharp drop in international oil prices and the resulting drop in global commodity prices will reduce the operating costs of the domestic economy and serve as a hedge against prices.
On the other hand, from the perspective of development trends, it is less likely that international oil prices will continue to fall sharply in the future. As various alternative energy sources are unable to have a disruptive impact on the global energy market in the short term, oil production costs will become the bottom line for international oil price fluctuations in the near to medium term, and they may gradually rise back to pre-epidemic levels in the next 2 to 4 months. , a "weak balance" may be achieved around $45/barrel in the near to medium term. From a historical perspective, the duration of oil prices at low points is relatively short, and the available time window may be fleeting.
Second, the RMB may become the most stable high-yield safe-haven currency, and the internationalization of the RMB will usher in new opportunities.
experts believe that China's strong macroeconomic fundamentals and the enhanced expectations for macroeconomic stabilization after the resumption of work and production will form a strong support for the RMB exchange rate, and it will appreciate slightly throughout the year. The safe-haven properties of the RMB are expected to be further exerted, and the arbitrage value is obvious in the context of the Federal Reserve's interest rate cuts and the widening of long-term interest rate differentials between China and the United States, which will be conducive to the attraction of RMB assets to overseas investors and the internationalization of the RMB.
Third, the world is optimistic about China's stock market, and the advantages of China's financial assets may further emerge.
When global stock markets generally fell into a "bear market", A-shares showed relatively independent trends. This resilience reflects the relative advantages of China's stock market in responding to the global liquidity crisis and also makes international institutions continue to be optimistic about the prospects of A-shares. . Recently, international investment banks such as UBS, Morgan Stanley, and JPMorgan Chase have increased their positions in Chinese stocks. At the same time, Chinese bonds have also been more recognized by the international community as a safe asset. As the financial market further opens up in an orderly manner, foreign bond holdings are expected to further increase in the future.
Domestic think tank believes that as the global epidemic continues to spread and foreign investment and consumer demand decline, China needs to further expand domestic demand and stabilize total demand. At the same time, it must accelerate transformation and upgrading to cultivate and form new drivers of economic development. (Reporter from "Lookout" News Weekly)
