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Thursday, April 02, 2020
Key Things to Look Out for in the Future Global Economy
He Jun

As the COVID-19 pandemic ravages the global economy, no economic orders are spared from its grasp either. Under the presence of a globalized economy, even if China happens to be the first country to emerge victorious from the harrowing experience, demand will still unquestionably decline, seeing as the rest of the world is still hard at battle against the virus. Therefore, factories are shutting down and supply chains are experiencing disruption. All these are hampering China's efficiency in resuming production, which will ultimately affect the country’s post-pandemic economic recovery plans too.

With the pandemic still posing a large threat to the whole world, prospects regarding global economy and capital markets largely remains grim. It is predicted that the whole world will face tremendous pressure in their battle against the pandemic and will be forced to bear the losses resulting from economic slowdown in the next few months or even longer. At its core, as previously discovered in one of ANBOUND’s analysis, the world is currently facing an economic crisis and if things were to persist, it will lead to the deterioration of the real economy, translating into a financial crisis.

How should the world proceed with the global economy from here on? How should it deal with the economic crisis that will ensue in the process? These are the questions whose answers many governments, businesses and investors are eager to find out. The answer to the two question above? Direction and countermeasures. However, to properly understand what we’re talking about, we must first have an objective and accurate judgment of the world economy in order to grasp the changes in the situation.

What are some of the key things we should keep an eye out for in the global economy in the future? Based on recent researches and findings, Chief Researcher of ANBOUND Chan Kung believes here are some important points which serves as possible indicators or a glimpse into the economy’s future worth paying attention to:

1. The COVID-19 outbreak: Perhaps the most important indicator the requires the utmost attention when observing the world economy at the time being. The current pandemic trends in various countries worldwide are tied to their coping strategies, crisis levels, countermeasure policies, the duration of the pandemic’s effect on the economy and the degree to which the supply chain is affected. Additionally, the confidence in the capital market and its performance is too dependent on the state of the pandemic.

2. Commodity prices (particularly, oil and agricultural products): The price of commodities not only reflects the current state of the global economy, it also affects macroeconomics, industrial development and coping policies. Take international oil prices for an example, the suspension of economic activities caused by the impact of the pandemic has significantly weakened energy demand, leading to an unexpected fall in oil prices. Low oil prices not only hit the oil industry and related industrial chains hard, but also significantly affects energy investment. Agricultural product prices are another key indicator. Though the Food and Agriculture Organization (FAO) of the United Nations meant well, the recent warning it issued has intensified the behavior of "food hoarding" in the international food market and even led to fluctuations in China's domestic food market.

3. Unemployment rates: Unemployment rates not only play an important role in the macroeconomy, it is also an important social indicator linked to politics and votes. Unemployment rates are closely linked to consumption and directly affects consumers' income expectations, payment ability, as well as the level of consumption growth. In light of the pandemic, the United States has launched a US $ 2.2 trillion rescue bill, and latest statistics have shown that the number of applicants for unemployment assistance has exceeded 6 million as of last week, a very negative sign for the U.S. economy. Likewise, the effect that unemployment has on China is equally serious. China’s recent foreign trade is badly affected, with many orders disappearing. The number of foreign trade employment directly affected is estimated to be as high as 20 million.

4. Finance: In response to the pandemic, governments in various countries have launched large-scale financial rescue plans, which will out their financial capabilities to the test. In the United States, the fiscal deficits of the federal and state governments are increasing, but fiscal expansion will still face certain constraints, as it is related to the government debt default problems. Fiscal pressure is a major issue in China. With a huge governmental body in the country, the central and local governments are to bear the responsibilities of governing the country, manage the society and develop the economy, all of which cannot be realized without strong financial capabilities.

5. Small businesses: Small business, in this context refers to the economic activities of small and micro enterprises. It is an important ecological environment in which the enterprises feed on and is a crucial element that makes up the market. A considerable part of the economic activity in the world is derived from small businesses, and it can’t be stressed enough that businesses ran by large multinational companies are only part of the world economy. Plus, small businesses are also a critical source of customers in the service industry. In essence, the performance and survival of small businesses are windows to understanding a country’s economy.

6. U.S. Treasury Securities: The 10-year U.S. Treasury yield is the most representative "benchmark" indicator of the U.S. bond market. Its changes often affect the flow of huge amounts of money. It not only acts as a key indicator for observing the U.S. economic, but is also the focus of Federal Reserve policy operations as well.

7. The COVID-19 death toll in various countries: The number of confirmed Covid-19 cases in various countries has soared through the roof and the data no longer serves as an effective warning to people. Instead, the focus now lies in the number of deaths in various countries, which in turn reflects the level of the severity and treatment in each country as well as the possibility of mitigating it in the future. To date, the cumulative death toll in Italy has exceeded 13,000, Spain – 10,000, the United States - 5000, France - >4,000, and China at >3,300. These are strong indicators to assess the pandemic.

8. Logistics and supply: Logistics is not only related to all industries and market, but to the society and people's way of life too. For the industry, logistics is the basic channel for supply chain operation. For consumer-related activities and the market, whether the logistics is functioning normally is directly linked to the lives and social stability of millions of people. And as of now, the state of the market, be it in its rigidity or state of urgency, largely depends on how operational logistics happens to be.

Final analysis conclusion:

The Covid-19 pandemic has triggered a global economic crisis and brought about a systemic adjustment to the world economy. In order to keep track of the changes in the global economy, one must focus on these key indicators as so to arrive at objective judgments, which allow countries to make rational decisions and devise informed responses to the situation concerning global economy.

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