Crisis and Opportunities: New Finance and New Economy in the New Situation

   IMF Vice President Zhang Tao delivered a speech entitled “Crisis and Opportunities: New Finance and New Economy in New Situation” at the 2nd Bund Finance Summit. The following is the main content:

   Dear Hello everyone!

   I am very happy to participate in this summit online, gather together in Shanghai, and speak on behalf of the International Monetary Fund. Shanghai is a vibrant city and a city that symbolizes technological progress and innovation. This is especially important at a very difficult time in today’s global economy. It reminds us that as long as we are in the same boat, we have the ability to build a better tomorrow together.

   Below, I will mainly talk about four themes: Global and Asia-Pacific economic outlook; Asia-Pacific region’s experience in responding to the epidemic; challenges brought by the epidemic; building smarter, greener and more inclusive new Opportunities and policy orientation.

  [1. Global and Asia-Pacific Economic Outlook]

   Let’s first look at the global economic outlook.

   The global economy is recovering, but the full recovery process may be long, bumpy and full of uncertainty. We have hope for the future, because virus testing continues to increase, treatment methods continue to improve, and vaccine trials are advancing at an unprecedented speed. Recent data shows that many economies have begun to recover, and the speed is faster than previously expected.

   We expect the global economy to shrink by 4.4% in 2020 and grow by 5.2% in 2021. This is better than our previous forecast in June 2020. The second-quarter GDP data of advanced economies improved, so their economic growth rate was revised up by 2.3 percentage points. In addition, China’s economic growth in the second quarter turned from negative to positive, which was better than expected in June. As a result, China’s full-year economic growth forecast for 2020 has been revised up by 0.9%. China’s third-quarter data has just been released, and there are signs that its economic recovery is accelerating. However, for many other emerging markets and developing economies, the future economic outlook is still full of uncertainties.

   Globally, countries have launched large-scale fiscal, monetary and regulatory response measures, the scale and speed of which are unprecedented. These measures strongly supported the disposable income of residents, guaranteed corporate cash flow, and strengthened the bank’s credit supply. These measures worked together to avoid the recurrence of the international financial crisis of 2008-2009 on a global scale.

   Next, let me talk about the outlook for the Asia-Pacific region. An outstanding feature of the Asia-Pacific region is that the recovery speeds of countries are uneven.

  Many countries successfully contained the first round of the epidemic. However, in some countries, the epidemic broke out again, or partially reappeared. There are even a few countries that are still working hard to flatten the infection curve.

   As far as the entire Asia-Pacific region is concerned, the economic growth rate has dropped by 0.6 percentage points from June. We expect the overall economy of the region to shrink by 2.2% in 2020-this is also the worst recession in people’s memory. Before the outbreak, we predicted in October last year that the Asia-Pacific economy would grow by 5.1% in 2020. Obviously, the Asia-Pacific economy will experience a very serious output loss and it will take several years to recover.

   The outlook for China’s economy will buck the trend. China’s annual economic growth in 2020 is expected to reach 1.9%, while the forecast value in June is only 1.0%. China is the second largest economy in the world; it is also the main trading partner of the region, and its regional trade volume has accounted for more than 20% of the total trade volume in the region. The recovery of China’s economy will provide a strong impetus for the growth of the Asia-Pacific economy, and it will also make positive contributions to the economic recovery of other parts of the world.

   Looking to the future, the global economy is facing extremely high uncertainty. On the bright side, the progress of vaccine development may be faster than expected. The Asia-Pacific region has unique advantages in this regard. China and India are major producers of vaccines or medicines in the world.

   On the other hand, there may be more downside risks in the future: for example, the epidemic may break out again; the progress of treatment and vaccine development may be slower than expected; people may not have access to vaccines and medicines. Equality; economic recovery may be weaker than expected; the community may require further social distancing, or may face another lockdown. Once financial sentiment deteriorates, it may also trigger a sharp drop in new credit or make existing debt unable to extend.

  [2. Experience in the Asia-Pacific region]

   Second, I would like to introduce the experience of responding to the epidemic in the Asia-Pacific region. There are mainly the following two aspects.

   First, when the infection rate is still low, an early public health response is essential to flatten the infection curve. In this regard, the Asia-Pacific region has done a lot better than other regions. This may benefit from the experience accumulated in dealing with other infectious diseases in the Asia-Pacific region in previous years.

  Second, there is often a positive correlation between the relaxation of prevention and control measures after the epidemic is under control, and better economic recovery performance. In this regard, the Asia-Pacific region is generally doing better. Most countries in the region restarted the economy when the number of new cases fell to a very low level, thus laying the foundation for a strong economic recovery.

   In the long run, whether countries can take measures other than strict blockades to control the epidemic will be the key to the resilience of the recovery.

  [3. Medium- and long-term challenges]

   Third, regarding the medium- and long-term challenges.

   Before the outbreak, the Asia-Pacific region was already facing some major challenges, including: an aging population, slowing productivity growth, high corporate and household debt, increasing income inequality, and so on. We believe that the new crown epidemic will make it more difficult to deal with some of these challenges.

   For example, the economic contraction has led to the deterioration of corporate and household leverage, resulting in an increase in bank non-performing loan ratios, and ultimately affecting the scale and quality of credit supply. The balance sheet of the public sector has also deteriorated, weakening the authorities’ ability to absorb risks and support economic growth. The epidemic may also increase income inequality. Our research found that with the outbreak of the epidemic, income inequality may further increase in the medium to long term.

  [4. Opportunities to build a better future]

   Fourth, about opportunities. At present, the world is facing a major transitional moment to build a better future. While working hard to fight the epidemic, achieving smarter, greener, and more inclusive economic growth is becoming a new global consensus. The Asia-Pacific region should seize this opportunity.

   I think the following two key areas can be considered.

   One is digitization and automation. In this regard, the Asia-Pacific region has already ranked among the top in the world.

  Digitalization makes it possible to work from home, allowing more companies to continue to operate during the epidemic. During the outbreak of the epidemic and the implementation of the lockdown, distance learning enabled teachers and students to continue to attend classes, and digital methods helped residents and families secure their livelihoods. Digital methods also assist the public sector in providing key services, such as providing cash transfer payments to informal employees.

  The Asia-Pacific region is also a leader in the use and production of industrial robots. For example, in 2018, this region already had nearly two-thirds of the industrial robots in use in the world. More than 40% of the world’s new robots are assembled in China.

  One of the highlights of the recovery after the epidemic is that countries now have the opportunity to accelerate the promotion of new technologies, increase productivity and increase economic growth.

   The second is green recovery.

   The massive investment demand after the epidemic has provided us with new opportunities. Supporting the green economy will help improve the environment and promote growth and employment in the next few years.

   In this regard, many countries in the Asia-Pacific are making leaps and bounds. For example, in recent years, China has been a global leader in using renewable energy and popularizing electric vehicles.

   China also recently made a commitment to achieve carbon neutrality by 2060, which we welcome. We also encourage other countries to propose higher emission reduction targets to the 26th Session of the Conference of the Parties to the United Nations Framework Convention on Climate Change next year. Our research shows that increasing carbon pricing, promoting green infrastructure investment, and implementing renewable energy subsidies can all help people protect the environment while promoting economic recovery and growth.

  [V. Policy Recommendations]

  The last question, how should we seize opportunities and respond to challenges? I think the following policy orientations are particularly critical.

   First, the Asia-Pacific region should continue to work hard to control the epidemic.

   Second, when the output gap is prominent and inflation is low, supportive monetary and financial policies should continue to be adopted, while reducing the vulnerability of enterprises and the financial sector. We must provide more targeted financial support to the most vulnerable groups, including strengthening the construction of health facilities and social security systems. Structural reforms such as the labor market should be promoted to reduce the long-term trauma of the epidemic and curb the increase in income inequality, thereby increasing long-term productivity.

   Third, vigorously promote digital construction, and make greater efforts in mitigation and adaptation to climate change, and strive to achieve intelligent and green recovery.

   Of course, countries also need to carry out in-depth international cooperation and strengthen coordinated actions in medical, vaccine, trade, and investment.

  [Conclusion]

   In short, the global economic recession seems to be a little bit slower than people had expected earlier. Nevertheless, economic recovery will still be a long, bumpy and uncertain process. Before the recovery is consolidated, the continuity and flexibility of macroeconomic support policies should be fully maintained. It is particularly important that the decision-making vision must be based on the present to ensure the revival of vitality, but also have a long-term perspective to achieve resilient growth.

   Let us seize the opportunity to embark on a more inclusive, smarter and greener economic recovery path.

   Finally, I wish this Bund Summit a complete success, thank you!

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