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The pandemic and the Economy
The COVID-19 pandemic spread rapidly around the world in the past week. The number of confirmed cases worldwide surged from 500 000 to over 600 000 in just two days, with the United States and Europe facing the most serious situations. As COVID-19 is highly infectious and some patients are asymptomatic, prevention of the disease is particularly difficult. The accelerated spread of the virus has dealt a severe blow to human life, the global economy, trade, supply chains, production and consumption. The worldwide economy is on the brink of the recession threat. Some market analysts are of the views that the current economic turmoil would be more severe than the global financial tsunami in 2008, while some even compared it with the Great Depression during the 1930s.
The very weak economic data released of late has deepened the market’s anxiety on recession. For example, initial jobless claims in the United States released last week soared by over ten times from a week earlier to a record high of 3.28 million, equivalent to five times of the historical high (around 700 000) in 1982. Domestically, the retail sales statistics to be released will continue to show a sharp decline. Judging from the current situation, it is expected that the epidemic would still be very difficult to tackle in the second quarter of the year. Therefore, the economies of Hong Kong, Asia Pacific region and even the global economy will be very weak in the coming days. While many people have already felt the pain at present, the market will inevitably experience even greater shock alongside the release of relevant data down the road. A worldwide economic contraction in the first half of the year seems to be a foregone conclusion.
In the context of economic globalisation, whether it is on disease prevention, anti-epidemic work as well as how to stabilise the economy effectively in the face of the epidemic, it is a must for the whole world to be united and work together to achieve success.
In the just-concluded special G20 summit, countries not only focused on enhancing the exchanges and sharing of information and experience in preventing and fighting the epidemic, but also particularly proposed economic stimulus measures worth over US$5 trillion to counteract the economic and social impacts of the epidemic, with a view to stabilising the economy and restoring global growth. Specifically, the rescue package in the United States alone amounts to US$2 trillion, equivalent to about 10% of its GDP. The Mainland authorities will also promote more proactive fiscal policies, and consider increasing local government special bond issuance quota, appropriately raising the fiscal deficit and issuing special sovereign bonds etc.
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| Six types of premises are required to be closed with effect from 28 March at 6pm for a period of 14 days. |
While minimising people contacts could effectively prevents the virus from spreading, it also brings commercial activities to a frozen state. Yet, if social contacts are not blocked completely to deter the spread of the virus now, once the spread accelerates, it would not only endanger public health and safety, but also lead to market panic which would intensify the hit to the economy and business prospects.
The past few global market turbulences were mostly triggered by financial turmoil, which subsequently dealt a blow to the real economy. The severe situation we are facing this time is different. In response to the rapid spread of the epidemic, countries have adopted stringent measures to reduce people contacts, restrict international and domestic travel, and even resort to city lockdowns. These measures would take a heavy toll on consumption, reduce demand for goods and services, and disrupt production, trade and supply chains etc. In other words, for this time the epidemic has hard hit the real economy, weighing on the financial sector subsequently. Judging from the current situation, it may be a bit unrealistic to expect the epidemic to disappear quickly. At present, we should focus on how to minimise the disruptions and impacts on the real economy under the premise of preventing and fighting the virus.
Taking the above into consideration, the Government has put in place new anti-epidemic measures, including prohibiting any group gathering of more than 4 persons in any public place, limiting the number of diners at restaurants, closing premises such as cinemas and fitness centres for a period of 14 days. Prevention and control of the epidemic remains our top priority, which requires public cooperation and observance of the relevant regulations. The sooner the epidemic is kept under control, the sooner the normal lives of citizens and business activities could resume, leading to improvement in business confidence, the economy and the employment market.
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| The catering business is required to step up anti-epidemic efforts in accordance with new regulations with effect from 28 March at 6pm for a period of 14 days. |
In the face of the difficult tasks of fighting the epidemic on one hand and stabilising the economy at the same time, there is no past experience for reference all around the world and we can only move on step by step. Under the premise of curbing the further deterioration of the epidemic and avoiding the collapse of the medical system, it is the general public’s expectations for the government to maintain certain public services and economic activities while supporting different industries and employees who are under tremendous pressure.
We understand that these stringent anti-epidemic measures would add to the challenges faced by small and medium enterprises, which are under increased pressure of staff layoff and winding up. The Government has pledged that continual support will be provided to industries hard hit by the epidemic or affected by anti-epidemic measures, with particular support to employees. The Government encourages employers to ride out the difficult times with employees together. We are looking into different measures, including a second round of “Anti-epidemic Fund” for providing relief to industries and employees facing immense challenges.
The anti-epidemic efforts and work to stabilise the economy this time is full of challenges. Our society should be prepared for such challenges which may entangle us for a certain period of time. As advised by some local health experts, the pandemic may persist for quite some time before it subsides, and even vaccines could be developed successfully, they could only be deployed from mid-2021 the earliest. In other words, a rapid rebound in the local economy similar to that following the SARS epidemic in 2003 may not be seen this time. Nevertheless, no matter how difficult the road ahead is, we can surf through this testing time with bravery, strength and positivity.
March 29, 2020
