Macro communication and Thinking: if the closure continues, how big will the economic impact be?
At the beginning of this year, the epidemic situation became more and more serious. Although the economic data in the first two months of the year performed well, will the outbreak drag the economic growth into the quagmire of negative growth again? We need to make a careful assessment.
Urban experience varies, and some are difficult to replace the whole country. Many studies judge the impact of this round of epidemic on economic growth based on the sealing and control experience of some cities since the epidemic. However, we found that due to the influence of factors such as the spread time of the epidemic, regional industrial structure and specific sealing and control measures, the impact of local epidemic on urban economic growth in the past was often very different. For example, from the two typical cases of Yangzhou and Xi’an, the performance of consumption, investment and export is completely different. In addition, judging the national economic trend based on some cities is inevitably biased.
The flow of logistics and people is blocked, and the transportation reflects the economy. The key to the impact of the epidemic on the economy is that prevention and control measures hinder the flow of people and goods. We found that the changes of traffic flow after covid-19 epidemic reflected the economic recovery better, especially in areas such as consumption, which were significantly affected by the epidemic. For example, according to the 100 cities congestion index released by Gaode, the year-on-year growth rate change is basically consistent with the year-on-year change of national social zero growth rate.
The drag in March is OK and is expected to stand at 5%. In March, the year-on-year growth rate of hundred cities congestion index turned negative. According to its corresponding relationship with social zero, we expect that the same ratio of social zero in March is about 1.3%, and the drag of national epidemic prevention and control on social zero in March is about 2-2.5 percentage points. Based on this, we judge that the impact of the epidemic at the beginning of the year on quarterly economic growth is about 0.6 percentage points. According to the economic growth trend at the beginning of the year, the GDP growth rate in the first quarter is expected to remain above 5%.
Q2 has the maximum pressure, and the impact may exceed 1%. In fact, the pressure of the epidemic on economic growth may be more reflected in April. If the epidemic can not be effectively alleviated in April and the existing prevention and control measures continue to be maintained, the social zero growth rate may fall back to the negative growth range, which will decline by more than 6 percentage points in a single month compared with the trend in the first two months of this year, corresponding to dragging down the quarterly economic growth by about 1-1.5 percentage points. Considering the changes in investment and exports, the actual impact may be stronger. The reading of economic growth in the second quarter of this year is likely to hit a new low since the recovery of the epidemic in 2021.
Restoring residents’ income is the key to stabilizing the economy. Epidemic prevention and control will indeed increase the downward pressure on the economy, but this problem is not completely unsolved. The United States is not “completely flat” against the epidemic. However, since last year, the interference of the spread of the epidemic in the United States on economic recovery has indeed weakened, mainly because financial subsidies to residents ensure the resilience of demand. The income loss of Chinese residents under the impact of the epidemic is not small. Efforts to improve residents’ income and expectations are the key to stabilizing the economy under the epidemic.
One week scan:
Epidemic situation: the epidemic pressure in China has not decreased, and many countries have relaxed epidemic prevention control. As of April 3rd, Chinese mainland and Hong Kong, Macao and Taiwan had over 11 thousand cases and 23 thousand cases newly diagnosed in a week. At present, the newly confirmed cases in China are mainly concentrated in Shanghai and Jilin. The epidemic situation in Shanghai is characterized by regional aggregation and city wide distribution, and the epidemic situation is severe and complex. In the last week, about 10.06 million new confirmed cases of covid-19 pneumonia were recorded worldwide, a decrease of 13.16% compared with the previous week. France’s new diagnosis went up against the trend, and the inflection point of the epidemic in South Korea began to appear. There were 19.8 million new cases of pneumonia in the world last week, a decrease of about 1.28% compared with that in the world. New deaths in Germany pick up and may peak in South Korea. Many countries reported cases of infection with the new variant Xe strain of Omicron, and many countries relaxed epidemic control. The global vaccination rate of booster injection exceeds 20%, and the United States approves some people to receive the second booster injection.
Overseas: US non farm employment continued to improve and manufacturing PMI hit a record low. Biden submitted a budget plan of $5.8 trillion for the new fiscal year, proposing three goals: reducing the deficit, strengthening security outside China and promoting investment in the United States. The Federal Reserve is still Hawking this week, and the yields of many long-term and short-term treasury bonds have been upside down recently. High inflation may accelerate the pace of interest rate hikes in Europe. Many ECB officials said that the tightening policy is appropriate. Bank of Japan governor Haruhiko Kuroda said the Bank of Japan must continue to implement stimulus measures. “Ruble breath” or shake the hegemony of the dollar, and the United States releases its strategic oil reserves. Us non farm employment continues to improve, or support the pace of interest rate hikes. Non farm hourly wage rose year-on-year and month on month, and the hourly wage level by industry increased significantly year-on-year. Transportation and storage industry dragged down the growth of non-agricultural employment. The unemployment rate in the United States is close to the pre epidemic level, and the labor participation rate is rising. Us PCE hit a 40 year high year-on-year. The US ism manufacturing PMI index hit a new low since September 2020.
Prices: Shenzhen Agricultural Products Group Co.Ltd(000061) wholesale prices rose and international oil prices fell. Last week, the Shenzhen Agricultural Products Group Co.Ltd(000061) wholesale price index of the Ministry of agriculture rose month on month, pork prices fell slightly, and the average prices of 28 key monitored vegetables and 7 key monitored fruits both rose. Last week, the average price of Brent crude oil and WTI crude oil fell month on month, the average price of China Shipbuilding Industry Group Power Co.Ltd(600482) coal fell slightly, and the average price of rebar continued to rise.
Liquidity: the issuing interest rate of certificates of deposit fell, and the US dollar index fell. Last week, the interest rate of short-end funds was divided. The weekly average of dr001 decreased by 32.9bp month on month, and the weekly average of dr007 increased by 0.8bp month on month; The weekly average of 3-month Shibor interest rate goes up, and the weekly average of 3-month certificate of deposit issuance interest rate goes down. The interest rate of bills rose, and the weekly average of 1-month, 6-month and 1-year rediscount interest rate of state-owned shares and silver bills rebounded. Last week, the central bank conducted a total of 620 billion yuan of reverse repurchase and 5 billion yuan of central bill swap in the open market. Last week, a total of 190 billion yuan of reverse repurchase and 5 billion yuan of central bill swap expired in the open market of the central bank; This week, 610 billion yuan of reverse repo will expire in the central bank’s open market. Last week, the US dollar index fell and the RMB rose slightly.
Performance of major categories of assets: Hong Kong stocks rebounded and treasury bond yields fell. Last week, the major indexes of Hong Kong stocks rose, and A-Shares also rebounded. Except for the Dow Jones, the other indexes of US stocks rose, and the Japanese stock market led the global decline. The top three sectors in which Chinese stocks rose last week were real estate, building materials and banking. Last week, the weekly average yield of 10-year Treasury bonds decreased by 3.5bp, and the weekly average yield of 10-year CDB bonds decreased by 3.1bp.
Risk tip: policy changes, economic recovery is less than expected.
