Event: the epidemic situation in China has not improved significantly since April. Among them, it has been more than 10 days since Shanghai was fully sealed off on March 28. Given that Shanghai is a logistics center in China, we reported on March 24, “what is the impact of the current epidemic on the economy?” From the perspective of logistics, this paper further analyzes the impact of the current epidemic on the economy, and updates the calculation of the impact range.
Core view: Based on the three dimensions of total volume, industry and region, the epidemic mainly has a direct impact on supply and demand. The logistics in the petrochemical and electronic industry chain slowed down the most, and the logistics in the northeast and Yangtze River Delta fell the most. On the whole, the impact of poor logistics on the economy under the epidemic situation is limited, especially the risk of production interruption caused by poor logistics is small, but the follow-up depends on the duration of the epidemic. Updated estimates show that the current epidemic will drag down consumption in March, industrial added value in March and GDP in the first quarter by about 3.3, 2 and 1 percentage points.
1. The current round of epidemic has lasted for more than months. If the comprehensive closure and control in Shanghai continues to the middle and late April or even longer, the impact on the economy will be further improved. We also need to pay attention to the spillover impact of poor logistics. Since March, the current round of epidemic has lasted more than one month and is still not under control. Among them, Jilin and Shanghai are the most serious, especially Shanghai’s economic impact is the largest; As of April 6, 3557 local cases and 107000 asymptomatic infections have been confirmed in this round in Shanghai. Sealing and control management has been implemented in most areas of the city. According to our previous report, “what is the impact of the current epidemic on the economy?” It is estimated that compared with partial closure, the impact on consumption in the current month and GDP in the current quarter increased by about 27 and 3 percentage points respectively. Given that the national proportion of Shanghai social zero and GDP is about 4%, it means that the impact of Shanghai epidemic on the national social zero and industrial added value in April and GDP in the second quarter may increase by nearly 1, 0.3 and 0.1 percentage points respectively. In addition, considering that Shanghai is China’s logistics center, indirect impacts such as logistics slowdown and even supply chain interruption caused by epidemic prevention and control need to be closely tracked.
2. From the perspective of the total amount, the economic sub items fell comprehensively, mainly due to the direct impact of the epidemic on supply and demand, and the impact of poor logistics is relatively limited. Logistics (and personnel flow) is the basis for the normal operation of economy and society. Poor logistics will constitute direct constraints (such as insufficient supply of raw materials, accumulated inventory of finished products, etc.) and also have indirect effects (increasing economic operation costs, affecting expectations, etc.). As a service industry, logistics itself is also directly affected by the economy. Therefore, logistics indicators can better track the economic trend:
Logistics, GDP and consumption: since 2020, the year-on-year growth trend of 100 cities’ congestion index and 10 cities’ subway passenger volume is close to that of GDP and social zero. In March, the congestion index fell sharply to – 4.7% (7.1% in February) year-on-year, and the subway passenger volume fell to – 25.9% (13.9% in February). It points to that the probability of GDP in the first quarter will fall below 5%, and social zero may also fall to negative value in March.
Logistics and industrial production: in March, the coal consumption of power generation in the eight coastal provinces increased by an average of 1.2% (5.9% from January to February), pointing to a significant decline in industrial production in March; However, considering that the daily transportation volume and power coal inventory of Datong Qinhuangdao line were still high in March, the power generation of power plant was not significantly affected, and the decline of coal consumption was mainly due to the decline of demand; In addition, the delivery time of PMI suppliers fell to a low level in March, but the raw material inventory index is still at an average level, pointing to that the overall industrial enterprises have sufficient raw materials and poor logistics in the short term, which has not significantly restricted production.
Logistics and Investment: the cement delivery rate fell to – 35% year-on-year in March (4.9% in February), and fixed investment such as infrastructure was also affected by the epidemic. According to the Centennial construction survey [1], the cement delivery rate continued to decline in April. The production constraints, project delays and other factors caused by the epidemic accounted for about 50%, and the capital problems accounted for about 30%, while the factors of strengthened traffic control and tight raw material procurement accounted for only 10%. It points out that the impact of the epidemic on investment is mainly a direct impact on supply and demand, and the impact of poor logistics is relatively limited.
Logistics and export: in March, the container throughput of the eight major ports fell to – 1.7% year-on-year (4.4% in February). The CCFI container freight rate index also continued to decline, and the export to China also fell. According to Shanghai International Port (Group) Co.Ltd(600018) announcement [2], since March 28, the average waiting time of container ships in Shanghai port is less than 24 hours, the average waiting time of container ships is less than 10, and there is no congestion of container ships. Overall, the decline in exports may be mainly due to weak external demand and limited supply, and the short-term impact of logistics may be limited.
Logistics and inflation: the prices of key vegetables and fruits in March were stronger than those in the same period of previous years, and further increased in the first week of April, which should be related to the closure and control of the epidemic situation, the hoarding of domestic materials, the obstruction of road transportation, the restriction of supply and other factors in some areas. According to the historical average price, the impact of vegetable and fruit prices on CPI in March is about 0.7 percentage points.
3. From the perspective of industry, the logistics of petrochemical and electronic industry chain slows down the most, and the risk of production interruption in the short term is small. On the one hand, from the PMI distribution index, the decline of non-metallic mineral products, petroleum processing, electronics and instruments, chemical fiber, textile and chemical industries in March was more than 9 points, of which the decline of logistics in the petrochemical industry chain was generally large, mainly due to the serious epidemic situation in the northeast and Yangtze River Delta and Pearl River Delta in the upper and middle reaches of the petrochemical industry since March; The slowdown of logistics in the electronic industry should be related to the epidemic in Shenzhen; The non-metallic products industry fell more, mainly due to the high base in February. On the other hand, from the raw material inventory index, compared with Q4 last year, only the automobile industry fell by about 10 points in Q1 this year, while the decline in other industries such as petrochemical and electronics was relatively small, which also pointed to the abundant supply of raw materials in the short term, and there was no risk of production interruption.
4. From a regional perspective, the logistics in the northeast and Yangtze River Delta decreased the most, and Guangdong controlled the spread of the epidemic at a small economic cost. As of April 9, the Shanghai vehicle freight index has dropped to 16.8% of the 2019 average, significantly lower than 41.9% and 84.3% of Beijing and Guangzhou; In March, the PMI of non manufacturing suppliers in Northeast China and Yangtze River Delta decreased by 8.1 and 6.8 points respectively, which was significantly higher than the national average of 5 points, which was consistent with the distribution of this round of epidemic. In addition, if the decline of freight index from March to April is used to represent the degree of economic damage and the newly diagnosed number is used to represent the severity of the epidemic, it is found that the epidemic situation is relatively mild in Liaoning and Heilongjiang in the northeast, Beijing and Hebei in the north, Jiangsu and Jiangxi in the East, but the epidemic prevention and control is still relatively strict; Although the epidemic situation in Guangdong was relatively serious, the impact on the economy was small, and the spread of the epidemic was controlled at a small economic cost.
5. Generally speaking, the impact of the current epidemic on the economy is mainly the impact on supply and demand, and the impact of poor logistics is relatively limited. According to our updated estimates (see the attached table for details), the current epidemic will drag down consumption in March, industrial added value in March and GDP in the first quarter by about 3.3, 2.1 and 1 percentage points. Tip again: the end of the policy has come, the end of the economy has not come, and the end of the market will take time. In the short term, after the “high opening” of the economy from January to February, there is a high probability of “low going” from March to April. We pay attention to four trends: real estate is expected to be further substantially relaxed, interest rates may still be reduced in April, the evolution of the conflict between Russia and Ukraine, and changes in the rhythm of the Fed’s interest rate increase and contraction.
Risk tip: the epidemic situation worsened more than expected, and the policy implementation was less than expected.
