Tagged: global

IMF says the global economy is recovering

The global financial stability report released by the International Monetary Fund (IMF) on the 6th local time said that the loose monetary policy during the epidemic period made the financial system perform soundly, but it may lead to the increase of financial vulnerability. Therefore, it is necessary to guard against the risk of financial vulnerability in the process of economic recovery.

 

The report said that with the support of ultra loose monetary policy, the global financial system was stable during the period of COVID-19. The significant relaxation of the financing environment provides support for the recovery of the real economy and helps to curb the risk of financial stability, but at the same time, it may lead to high market valuation. If the rising financial vulnerability is not solved, it may become a structural legacy.

 

The report points out that since the third quarter of 2020, under the expectation of rapid economic recovery and continued policy support, the stock markets of many countries have risen sharply, and the valuation has deviated significantly from the economic fundamentals. The recent sharp rise in the interest rate of US Treasury bonds to a certain extent reflects the increased confidence of investors in the economic prospects. However, if the interest rate continues to rise rapidly, it may lead to the re pricing of market risks and the sudden tightening of the financing environment, thus affecting market confidence and endangering macro financial stability.

 

The report also said that the economic recovery process of developed and emerging economies is expected to be differentiated, especially when the policy makers of developed economies start to promote the return of policies to normal, and there is a significant risk of tightening the financing environment of emerging economies. If the financing environment becomes unfavorable, it may lead to large-scale capital outflow, which will pose a major challenge to some emerging economies with huge financing demand.

 

According to the report, continuous policy support is essential to achieve sustainable and inclusive economic recovery. IMF suggests that policy makers should take action as soon as possible to tighten some macro policy tools to deal with a series of serious vulnerability problems.

 

The global financial stability report is usually released during the IMF’s annual spring and autumn meetings, and is updated in the current year and at the beginning of the next year. Affected by the epidemic, this year’s IMF and World Bank spring meeting was held online from April 5 to 11.

The era of global economic water release

1. The cooperation model of the global division of labor determines the large-scale release of foreign countries in response to the impact of the epidemic, which is likely to cause domestic imported inflation. This is an external variable that we cannot ignore.

2. Under the background that the new open economic system is gradually taking shape, the domestic economic policy connectivity between China and its major trading partners will become stronger and stronger. Affected by the “trilemma”, it is difficult for China’s monetary policy to survive alone.

3. In a mature financial market, equity investment is undoubtedly one of the best safe-haven assets. At present, we need to lower our expectations of real estate investment returns, while continuing to pay attention to the opportunities and risks of the Chinese stock market.

The era of global economic water release

1. What is imported inflation?

In economics, constant and general price increases are defined as inflation. Since the birth of banknotes, inflation has followed suit. In human history, the serious impact of several large-scale inflations is thought-provoking. Therefore, governments of all countries, without exception, have regarded “maintaining the stability of price levels” as one of the main goals of macroeconomic policies.

In the research on the causes of inflation, imported inflation has gradually attracted the attention of economists. This is mainly because since the middle and late last century, Western developed countries began to transfer the lower value-added links in their manufacturing industries to developing countries in consideration of the comparative advantage of production factors, thus forming a production process covering the world. The so-called global value chain (GVC).

This mode of production has made the global economy increasingly close. In the book “The World Is Flat” by the American economist Thomas Friedman, there is a vivid description of this phenomenon, that is, in the global industrial chain, A multinational company may be headquartered in New York, with a factory on the coast of China, and a listing in Hong Kong, China. Because only in this way, can the cost of production factors required by the enterprise’s production links be optimized.

The increasingly close connection of the global real economy has also made the flow of financial capital in various countries closer. As a result, closely related global financial markets have been formed. Once a country experiences a financial crisis, it will inevitably bring an inevitable impact on its main trading partners and even the global market.

A typical fact is that during the US subprime mortgage crisis in 2008, the Chinese government issued a “four trillion” stimulus policy.

The so-called imported inflation, that is, the international transmission of inflation, refers to the increase in domestic prices caused by the input of external inflation in an open economic system.

Speaking of this, some people may say that since globalization has such a big risk, can’t we not engage in globalization? It is true that there are indeed different voices in the international academic community when it comes to dealing with the impact of globalization. However, this kind of doubt mainly lies in the damage to the interests of developing countries and the uneven distribution of interests within developed countries.

As the world’s largest developing country, it “opens the door for construction” and “utilizes foreign capital is not out of date.” The report of the 19th National Congress of the Communist Party of China clearly pointed out that it is necessary to build a new and open economic system of a higher level. It is the best answer to this question.

2. In the era of global water release, China’s monetary policy is difficult to survive alone

Trade links are the basis of international capital flows, which determine the inseparable financial links between trading partner countries.

At present, China has long been the world’s second largest economy, and has been the world’s largest manufacturing exporter for many years. The latest news from the General Administration of Customs shows that from the perspective of trade volume in 2020, my country’s top five trading partners are ASEAN, the European Union, the United States, Japan and South Korea in order.

With the formal signing of the Regional Comprehensive Economic Partnership Agreement (RCEP) and the completion of negotiations on the China-EU Comprehensive Investment Agreement (CAI), China will have closer ties with the outside world.

The World Bank’s “Global Value Chain Development Report (2017)” shows that under the global production division model, if measured by trade volume, the world has now formed three regional global production centers of China, Germany and the United States.

Therefore, in the post-epidemic era, the monetary policies of the United States, Japan, and Germany are particularly worthy of our attention.

As far as the United States is concerned, in order to effectively respond to the impact of the epidemic, under the promotion of the new US President Biden, the US House of Representatives voted on the 27th local time to pass the US$1.9 trillion economic stimulus plan. Although the plan still has different disputes between the two parties in the United States, mainstream public opinion shows that the implementation of a large-scale post-epidemic economic stimulus plan will be a high probability event.

Looking at Germany again, in order to support the companies and individuals affected during the epidemic, the German ruling coalition has passed an economic stimulus plan with a total amount of up to 130 billion euros.

As far as Japan is concerned, in order to effectively alleviate the economic impact of the epidemic, the Japanese government has launched a third round of economic stimulus plan with a planned total investment of up to 73.6 trillion yen.

In this round of the epidemic, the Chinese government responded quickly and forcefully. On the one hand, it controlled the epidemic, ensured the safety of the people, and handed over an answer that was satisfied with the people and attracted the attention of the world, which can be recorded in history. On the other hand, through a flexible, accurate, reasonable and moderate monetary policy, it has contributed positively to the resumption of work in the early stage of epidemic prevention and control.

However, in the international environment of global flooding, China’s monetary policy has become increasingly difficult to be alone. The central bank’s M2 data shows that since January 2020, the money supply has continued to rise.

Figure 1 China’s central bank money supply (January 2020-January 2021)

Data source: Wind

In the context of an increasingly open economic system, it will become increasingly obvious that the Chinese government’s monetary policy is restricted by the “trilemma”, which brings new and greater challenges to the monetary policy.

3. 2020 may have become the starting point for many asset prices in the next few years

There is no doubt that under the conditions of limited capital account opening, the Central Bank of China has sufficient policy reserves and tools to hedge the negative impact of the epidemic.

However, looking at a longer period of time, the economic stimulus plans launched by various countries in response to the impact of the epidemic will greatly affect the major prices of global assets and will to a large extent become a new round of asset pricing. The base year.

Especially, in the era of global water release, large amounts of foreign exchange reserves cannot avoid the risk of devaluation. For example, the State Administration of Foreign Exchange announced that it will orderly abolish the annual limit on foreign exchange purchases and payments. The signal released is not unobvious.

For us personally, how to start the battle to defend our wealth?

One is to lower expectations for real estate investment. The golden age of buying real estate with your eyes closed and waiting for appreciation is undoubtedly gone. The value of future real estate investment lies in the core areas of core cities, ranging from apartment types, community environment and properties, to education, medical care, transportation and commercial facilities, which will be the core factors that determine the value of real estate investment. “Do not speculate on housing and housing” and don’t try to challenge the central government’s determination to regulate and control real estate.

The second is to attach importance to the opportunities and risks of equity investment. After a year of high light, the risks in the stock and fund markets have become apparent. For ordinary investors, if they do not want to be a leek, it is particularly important to study the basic investment knowledge. Choose a good investment target, master the basic position building skills, save your strength, and be a friend of time. Perhaps the most sure way to fight against an uncertain future.

Finally, talk about an extravagant hope about the freedom of wealth. In those years when housing prices in Beijing were soaring, there was a popular saying among many people, “What were you thinking when the house price in Beijing was 2,000 yuan?” Perhaps some years later, someone might ask, “When the Chinese stock market was 3,000, you were What are you doing?”

how to reduce the uncertainty faced by the global supply chain?

Under the epidemic situation, the global supply chain has appeared the trend of localization, industrial diversification and informatization. The global supply chain crisis coexists. Although it has been seriously impacted by the epidemic situation, a new round of scientific and technological innovation and industrial reform is also leading the global supply chain to accelerate the restructuring

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Picture / pixabay
Sun yingni, reporter of Finance and Economics
Editor: Wang Yanchun
At present, the novel coronavirus pneumonia spread worldwide, and trade protectionism and anti globalization have risen. This has caused serious impact on the global supply chain, and the uncertainties and uncertainties have increased significantly. Facing the future, where should the global industrial chain supply chain go?
On November 13, at the 2020 annual meeting of China development high level forum, domestic and foreign guests made suggestions and suggestions on how to develop the global supply chain in the post epidemic era during the discussion on the topic of “post epidemic era: where to go for global supply chain”.
Accelerating the restructuring of global supply chain
Experts at the meeting believe that the global supply chain under the epidemic situation has appeared the trend of localization, industrial diversification and informatization, and the global supply chain crisis coexists. Although it has been seriously impacted by the epidemic situation, a new round of scientific and technological innovation and industrial reform is also leading the global supply chain to accelerate reconstruction.
Wu Fulin, President of the Export Import Bank of China, said that at present, more than 500000 new cases are newly diagnosed in the world every day, and the epidemic area covers the supply chain of the whole industry chain from raw material supply to high-end production.
Wu Fulin believes that there may be three major trends in the global supply chain under the epidemic situation, which requires high attention. One is limited globalization, close regionalization and full localization, and the industrial chain distance is shortened or even deformed. Second, the industrial chain tends to be diversified, decentralized and diversified. In order to reduce the risk of over reliance on single market channels, products and technologies, people do not put eggs in one basket and have a stronger sense of backup. Third, more information, digital and intelligent. Information technology can improve the operation efficiency of the supply chain, and digital technology is very important to enhance the resilience of the supply chain under the epidemic situation. In such a situation, the international community should strengthen cooperation to promote the orderly operation of the global supply chain.
Novel coronavirus pneumonia and the Sino US trade policy differences have led many American businesses to see their supply chains vulnerable, said Professor Nobel, a professor at Columbia University and an economist at the Nobel prize in economics. “Some pharmaceutical companies have also had to close down due to a shortage of parts for a few weeks,” it said
Edmund Phelps said that some companies that had previously outsourced parts production were now forced to think that they had to make them themselves, and even though doing so would greatly increase costs, they felt they could not afford the uncertainty of relying on foreign companies to provide parts.
At the same time, American manufacturing companies are now under new political pressure. “Enterprises used to rely on overseas supply of some key components, but now they have to rely on domestic supply. This can raise the wages of American workers and restore the participation of male labor force.” Said Edmund Phelps.
Sanjay Mehrotra, President and CEO of Meguiar technology, said that this year, we have seen the challenges facing the global economy, but China’s “double 11” has a large number of users participating, and there are a large number of transactions every second on the cloud platform. Cloud platform, artificial intelligence, 5g and other technologies make it possible to have a huge transaction volume, and these technologies also promote the development of various industries At the same time, it also brings new opportunities for the global supply chain.
“In 2020, all this will become very important. The availability of technology will make it easier for people to connect and analyze data, which will enable enterprises to strengthen their innovation ability, improve their productivity and make decisions faster and better.” Sanjay Mehrotra said that technology has enabled a lot of progress. 5g networks are constantly being launched, and artificial intelligence platforms are constantly evolving. This means that we have more opportunities to further realize digitization and connectivity. In the whole manufacturing value chain, we can realize the connection of point-to-point intelligent devices.
Sanjay Mehrotra stressed that the future of the supply chain must be restructured in order to improve productivity and bring more flexibility and agility.