The global pandemic of the new crown pneumonia epidemic will have a huge impact on the world economy in 2020, and there are obvious regional differences due to different levels of impact. In the face of the epidemic, governments or economies of all countries have adopted unprecedented response measures and have produced varying degrees of effects. While the global economy is experiencing a fragile and unbalanced recovery, the problems of low growth, low interest rates, low inflation and high debt, high asset prices and high income gaps that have emerged after the financial crisis have further intensified. The uncertainty contained in the evolution of the epidemic, the resilience and policy trends of major economies and their spillover effects, global and regional economic governance, and the development trend of competition and cooperation between major powers, to a considerable extent, determine the fundamentals of the world economy in 2021.
The global economy under the influence of the new crown pneumonia epidemic
The huge impact of the epidemic on the world economy is mainly manifested in the following aspects.
First, the economic growth rate of each economy has fallen sharply. The International Monetary Fund (IMF) pointed out in the World Economic Outlook report released in October 2020 that the global economic growth rate in 2020 is expected to be -4.4%, which is the lowest growth rate since World War II. Years ago, there was a huge gap in the forecast value of economic growth in 2020 (3.0%). At the same time, the impact of the new crown pneumonia epidemic on various economies is not consistent. The overall economic growth rate of advanced economies is -5.8%, of which the US economic growth rate is -4.3%, and the euro zone economic growth rate is -8.3%; emerging markets and The economic growth rate of developing economies is -3.3%, of which the economic growth rate of Russia is -4.1%, and the economic growth rate of Brazil is -5.8%. At present, the economy of the Asia-Pacific region has begun to recover, but the speed of recovery varies among countries. As the rapid economic contraction in the major emerging markets in the region exceeded expectations, such as India’s contraction by more than 10% this year, the IMF lowered its 2020 Asia-Pacific economic growth forecast by 0.6 percentage points to -2.2%.  Globally, economic growth in the second quarter of 2020 will be hit hardest by the epidemic. However, since the second quarter of the second quarter, China has begun to recover strongly, becoming the only country in the major economies that maintains positive growth, with an expected growth rate of 1.9%.  In the third quarter, due to the suppression of the spread of the epidemic and the rapid adoption of large-scale relief policies by governments of various countries, the economies of many countries have also begun to rebound, but the IMF is still relatively pessimistic about the economic performance of the whole year. As a new wave of the epidemic began to spread rapidly in many countries, the economic recovery of the world, especially the advanced economies, slowed down in the fourth quarter. The European Central Bank predicted in mid-December that the euro zone would return to negative growth in the fourth quarter.
The second is falling prices and rising unemployment. In January 2020, the US Consumer Price Index (CPI) was 2.5%. In May, it fell to 0.1% year-on-year and rose to 1.2% in November. The situation in Europe and Japan is similar to that in the United States. The Eurozone Harmonized Consumer Price Index (HICP) increased by 0.8% year-on-year in October 2019, dropped to -0.2% in August 2020, and -0.3% in September and October, indicating that deflation has already occurred in the Eurozone. Japan is on the verge of deflation. Inflation in major emerging economies has also followed the same trajectory. Among them, China’s CPI fell by 0.5 percentage points from November 2019 to November 2020; even Argentina, which has suffered severe inflation for many years, has its CPI from September 2019. The monthly 50.5% fell to 36.6% in September 2020.  Compared with price level fluctuations, the unemployment rate of the world’s major economies fluctuates more widely. The unemployment rate in the United States was only 3.5% in February 2020. It jumped to 14.7% in April and then fell to 6.9% in November. The unemployment rate fluctuations in the Eurozone and Japan are similar to those in the United States. Among the major emerging economies, Russia’s unemployment rate rose by 1.9 percentage points from September 2019 to September 2020, reaching 6.4%. China’s unemployment rate rose from 5.2% in December 2019 to 6.2% in February 2020, and then dropped to 5.2% in November as the epidemic was controlled and the economy recovered.  The impacts on different industries and groups in different countries are quite different. Among them, low-income people, youth and women have been the most affected, and the situation of the poor has further deteriorated. According to estimates by the Economic Commission for Latin America and the Caribbean, the extremely poor population in Latin America will increase by 16 million in 2020 to 83 million. 
The third is the decrease in trade and cross-border investment and the price changes of bulk commodities. According to the “2020 Trade and Development Report” released by the United Nations Conference on Trade and Development (UNCTAD) in September 2020, global merchandise trade in 2020 will drop by one-fifth compared with the previous year, and global foreign direct investment will shrink by 40% compared with the previous year. In terms of the utilization of foreign capital, China’s actual utilization of foreign capital from January to November 2020 bucked the trend and increased by 6.3% year-on-year (4.1% in US dollars), outperforming the major economies.  In addition to the impact of the epidemic, the unilateral and protectionist policies pursued by some countries have also continued to negatively affect trade and investment. In 2020, the average tariff rate of Chinese products exported to the United States was as high as 19.3%. Only in December, the U.S. Department of Commerce listed 77 entities, including Chinese companies, in the so-called “actions that violate U.S. national security or foreign policy interests.” “Entity List”. Similar to the situation where economic growth stopped falling and rebounded, commodity prices experienced a roller coaster-like rise in 2020. In November 2019, the price of Brent oil was $63/barrel. In April 2020, it fell to $19/barrel, and then oscillated to $49/barrel in mid-December. The price of iron ore among mineral products soared in the second half of the year, and the main contract price hit a record high since the listing of iron ore futures in 2013.  Although food prices in bulk commodities have not experienced the ups and downs during the financial crisis, they have also fallen first and then rise. The Food Price Index (FFPI) of the Food and Agriculture Organization of the United Nations in January 2020 was 102.5, which fell to the lowest point of 91.0 in May, and then climbed all the way to 105.0 in November. Among them, grain prices are relatively stable. The indexes in January, May, and November were 100.5, 97.5 and 114.4, respectively, the latter being the highest since 2014. 
In March 2020, the U.S. stock market experienced four circuit breakers, and the financial panic spread rapidly. Then the central banks of major economies such as the United States immediately launched super-intensified conventional, especially unconventional loose monetary policies to rescue the market. The picture shows a trader working at the New York Stock Exchange on March 18, 2020. On the same day, the New York stock market experienced the fourth blowout of the month.
Fourth, asset prices in developed economies have stopped falling and rebounded, the US dollar has fallen, and the debts of various countries have expanded rapidly. In March 2020, the U.S. stock market experienced four circuit breakers, and the financial panic spread rapidly. Then the central banks of major economies such as the United States immediately launched super-intensified conventional, especially unconventional loose monetary policies to rescue the market. With the injection of massive liquidity, U.S. stock prices have fluctuated and climbed all the way, hitting record highs in succession, and the difference between high and low points within a year is about 2/3. Although the prices did not return to the beginning of the year, the major European indexes also rebounded significantly over the same period, and entered a period of high oscillations just like the US stock market. In stark contrast to the recovery of asset prices is the reverse movement of the US dollar index. At the beginning of the outbreak, the U.S. dollar index rose briefly and then went all the way down. It fell below 90 on December 17, the lowest point since April 2018. The decline of the US dollar index was accompanied by a sharp rise in the price of gold and a breakthrough of the US$2,000 per ounce mark. Although it fell back later, it was still hovering at historical highs. In addition, in the face of sudden epidemics, various countries have adopted various emergency measures, so that the proportion of global government debt in gross domestic product (GDP) has increased from 83.3% in 2019 to 96.4% in 2020. Among them, the ratio of government debt to GDP in developed economies rose from 105% in 2019 to 126% in 2020. The US’s aggressive fiscal bailout policy pushed the 2020 budget deficit to US$3.13 trillion, equivalent to 15.3% of GDP, the highest since the end of World War II. As of early December, the balance of US Treasury bonds reached 27.4 trillion US dollars, which is about 130% of GDP.  According to data from the International Finance Association, global corporate debt and household debt are also rising. When added to government debt, global debt will reach US$277 trillion by the end of 2020, which is 365% of GDP, setting a new record . 
Major economies adopt different policies to deal with the impact of the epidemic
In response to the impact of the epidemic, governments of various countries have adopted different forms of temporary fiscal and monetary policies. In terms of fiscal policy, take the United States as an example. In March 2020, Congress passed the New Crown Aid, Relief and Economic Security Act (CARES ACT) totaling US$2 trillion.  As the second wave of epidemics began to raging in North America and Europe in the fourth quarter of 2020, it is inevitable for economies to further increase their rescue efforts. In late December, the U.S. Senate and House of Representatives successively passed a 900 billion U.S. dollar COVID-19 assistance bill and a 1.4 trillion U.S. dollar government appropriation bill, which is mainly used for cash distribution and unemployment, small businesses, primary and secondary schools, child care, transportation, Relief in areas such as family rent. In the EU, the finance ministers of EU member states reached an agreement on a 540 billion euro package of anti-epidemic relief measures in early April. On December 10, the EU heads of state finally approved the long-discussed and constantly adjusted 1.85 trillion euro budget and stimulus plan at the EU summit.  This agreement not only provided a source of funding for the 750 billion euros (approximately US$909 billion) anti-epidemic aid fund in the form of joint debt, but also paved the way for the implementation of the EU’s 1.1 trillion euros 7-year budget for 2021-2027. Leveled the road. China announced the issuance of 1 trillion yuan in special anti-epidemic treasury bonds in May. Although the international community has many opinions on the timing, scale, implementation and long-term impact of relevant national relief policies, overall, the financial relief policies adopted by various economies have played a direct role in maintaining the operation of economic and social life. And a significant effect.
In terms of monetary policy, in the first 11 months of 2020, the central banks of the world’s economies cut interest rates 205 times, and the central banks of major advanced economies continue to maintain ultra-low interest rates. For example, the US federal funds rate is maintained in the range of 0% to 0.25%.  In addition to cutting interest rates and maintaining low interest rates, conventional monetary policy also includes pegging inflation targets. At the end of August 2020, at the annual meeting of global central banks in Kansas City, the United States, the Federal Reserve announced that it would update its long-term goals and monetary policy strategy statement, and amended its commitment to achieve an inflation rate near the “symmetrical 2% target”. Seek to achieve the long-term goal of “average inflation rate of 2%”.  The implementation of the average inflation target system means that the Fed can use the “balance” of future inflation to compensate for the “balance” in the past. In the limited room for interest rate cuts, by increasing the tolerance for inflation, it provides additional space for monetary policy to cope with gradual changes. Increased risk of deflation. However, whether this new monetary policy framework can achieve the expected results is still questionable, and it may even bring some side effects.
First of all, compared with the original framework, this adjustment neither introduces new monetary policy tools nor directly adjusts interest rates, but strives to achieve policy goals by guiding inflation expectations. Since the start of the last economic expansion cycle, the US inflation rate has been below the Fed’s 2% inflation target for most of the time. This also reduces the market’s confidence in the Fed’s future inflation expectations and its ability to control inflation to a certain extent. Second, although the Fed clearly introduced the concept of an average inflation target in this statement, it did not disclose the specific calculation formula of the target system and other relevant details. This means that the Fed can subjectively select a specific period for estimation, and “technically” adjust the average inflation level in line with the Fed’s expectations, so that the originally clear Taylor rule is replaced by a new subjectively adjustable rule. This approach has increased the unpredictability of the Fed’s policies, reduced the transparency of monetary policy operations under the new framework, and will eventually weaken the Fed’s credibility. Third, in order to release sufficient liquidity to the market, the Fed’s asset purchases will be further expanded to include corporate bonds and commercial paper after the epidemic, and its behavior will inevitably exceed the scope of the “lender of last resort”. At the same time, in order to ensure the funds needed for financial assistance, the Fed needs to purchase national debt on a large scale on the one hand, and reduce the cost of debt by maintaining low interest rates on the other. In this way, monetary policy is deeply tied to fiscal policy, which weakens the independence of the Fed’s monetary policy and its ability to regulate and control the market, making it difficult to achieve its goal of restoring the endogenous growth of the US economy.
Since the 2008 international financial crisis, the implementation of conventional monetary policies in major developed economies such as the United States, Europe and Japan has been extremely narrow. During the period of response to the impact of the epidemic, they have mainly relied on quantitative easing, control of the yield curve, negative and zero interest rates, targeted lending by large banks and Unconventional monetary policies such as the so-called “helicopter money”.  In the face of the most violent exogenous shock since the end of World War II, the Federal Reserve announced the implementation of an unlimited and indefinite quantitative easing policy, at least at the current rate, to continue to increase its holdings of treasury bonds, institutional mortgage-backed bonds and other junk bonds. The above measures have caused the Fed’s balance sheet to rise rapidly from US$4.2 trillion in the week of January 6, 2020 to US$7.1 trillion at the end of June. At this rate, the Fed’s assets and liabilities will expand to $10 trillion by the end of 2021.  At the same time, under the influence of the European Central Bank, the Bank of England and the Bank of Japan to further expand the scale of quantitative easing, more emerging markets will follow suit and control the target bond yield to around zero to supplement the quantitative easing policy. Lower borrowing costs as countries issue more bonds. At present, with the Fed, the Bank of England and other nominal interest rates at or close to 0%, it is not impossible for the central banks of relevant countries to return to negative interest rate policies. The European side chose to make targeted loans to major banks. The ECB’s targeted long-term refinancing operation has provided banks with loans of approximately 1.5 trillion euros at an interest rate of -1%. Countries that do not accept negative interest rates may adopt this targeted lending route in the future. In addition, there are some unconventional policies in the pipeline, such as the use of the theoretical middle ground where monetary policy and fiscal policy are intermingled, and relevant industry insiders have proposed that as long as low inflation and low interest rates enable the central bank to keep borrowing costs low, the government can take advantage of medical care. , Education and infrastructure let go of spending without worrying about debt levels, this proposal may promote the introduction of more economic stimulus measures.
The impact of unconventional policies of major economies on the future world economy
While various unconventional policies adopted by major economies in the world have produced positive effects, they have also brought uncertainty to the long-term global economic growth. From a global perspective, although the recovery of the real economy and loose monetary policy will support asset prices to a certain extent, the disconnection between the prices of risky assets and the deterioration of economic prospects and credit quality still exists. The Bloomberg Barclays Global Composite Index shows that on December 10, 2020, the total amount of global negative-yield bonds reached 18.04 trillion U.S. dollars, a record high. This value accounted for 27% of global investment-grade bonds, approaching August 2018. 30% of a peak value.  According to a survey of institutional investors by Natixis Investment Managers, more than half of the respondents believe that the number of negative yield bonds will increase in 2021.  The direct reason for this situation is that the number of bonds issued by governments and companies has increased sharply, and investors’ demand for the highest-rated bonds is booming. It is foreseeable that, in order to seek the highest possible rate of return, many investors will take the risk of buying large amounts of risky assets. The popularity of the US stock market has been fully reflected in the sharp rise in the price-to-earnings ratio. The price-earnings ratios of the Dow Jones Industrials, S&P 500 and Nasdaq have risen from 22, 24, and 33 at the beginning of the year to 29, 35, and 69 on November 16.  In the same period, the price-earnings ratios of other major countries also rose to varying degrees. At the same time, the impact of the epidemic and the super-loose monetary policy have greatly pushed up US real estate prices. The Case-Shiller 20-city composite house price index rose from 219 in February 2020 to 233 in October. In October, U.S. housing sales hit the highest point since 2006.  The economic contraction and the rapid rise in asset prices mean that the global capital market will experience huge fluctuations in the next year and it is not a small probability event. Large fluctuations in the capital markets of major economies will inevitably produce negative spillover effects on other countries and regions, and thus stimulate negative feedback.
Under the impact of the epidemic, the accelerated adjustment of global supply chains has become an important issue at the level of the world economy. According to the August 2020 report of the McKinsey Global Institute, global companies may transfer a quarter of their global product production to new countries in the next five years, including more than half of pharmaceutical and apparel production, and the total price of goods affected Between 2.9 trillion and 4.6 trillion U.S. dollars, about 16% to 26% of global merchandise exports in 2018.  The global supply chain has become a hot topic of common concern among industry, government and academia in 2020. At the enterprise level, the main factors such as technological progress and proliferation, the digitization of production, and the reduction of labor arbitrage space are the dual factors of trade tensions with major economies, the near-paralysis of the multilateral trading system, the frequent occurrence of climate and natural disasters, and frequent cyber attacks. Under pressure, the high concentration of key trade products allows companies to reassess and invest in more flexible supply chains to obtain greater profits. At the national level, some countries plan to introduce a series of policies aimed at increasing the self-sufficiency rate or localization rate, encouraging the return of manufacturing industries or diversifying the supply chain. Although the center of discussion and the main “decoupling” of the supply chain is China, China’s exports and the amount of foreign investment attracted in 2020 are both at historical highs under China’s efforts to successfully control the epidemic and take the lead in resuming work.
The conclusion of the “Regional Comprehensive Economic Partnership Agreement” (RCEP) will enable the world’s largest free trade zone to be formally established in November 2020, which will greatly enhance the level of regional trade and investment liberalization and facilitation, and significantly enhance regional attractiveness and competitiveness. The picture shows the Pasir Panjang Container Terminal in Singapore taken on August 17, 2020.
In addition, the “abnormal” changes in the US dollar exchange rate in the global economy in 2020 are particularly worthy of attention. In the past, when there was an economic recession or a financial crisis, people usually instinctively increased their holdings of safe assets to protect themselves. In most cases, dollar assets have played the role of global security assets. The 2008 international financial crisis perfectly demonstrated the role of the US dollar as a reserve currency. After the crisis broke out, investment in US bonds by overseas investors and US funds increased sharply, and the appreciation of the US dollar and rising bond prices made investors profitable. From the end of 2007 to the beginning of 2009, the total amount of US assets purchased overseas was equivalent to 13% of US GDP. One of the results was to enable the US to raise funds from the global market at a lower price. However, the global recession triggered by the impact of the epidemic presents a different picture to the world: From March to September 2020, the total amount of US debt held by foreign central banks decreased by 155.2 billion U.S. dollars. The Fed, not international investors and the United States Funds have become the main purchasers of US Treasury bonds, so that the price of US bonds has continued to fall after a sharp drop in March 2020, and the dollar index has also fallen significantly. The reason for this “abnormal” is not only the unlimited and indefinite injection of unprecedented liquidity into the economy by the United States, but also the declining position of the United States in the world economic structure. Since the 21st century, the share of US national debt in global GDP has continued to rise, while the share of US economic output in global GDP has been declining. This situation is similar to the “Triffin Dilemma” faced by the Bretton Woods system in the 1960s: on the one hand, the dollar and gold maintain a fixed ratio and freely convertible; on the other hand, there is a huge amount of dollars circulating outside the United States. The collapse of the Bretton Woods system in the early 1970s may be a precursor to the future trend of the US dollar.
Outlook for the world economy in 2021
Whether the new crown pneumonia epidemic can be successfully controlled will directly affect the global economic trend in 2021. The positive news is that vaccines developed by the United States, Europe and China should be able to achieve mass vaccination in the first quarter of 2021, and there should be more than 70% certainty that the epidemic will be effectively controlled or evolve into common flu in the second half of the year. Historically, the outbreak of major infectious diseases lasted for about two years, and they came and went without a trace. This may be seen as a reason to remain optimistic. At the same time, policymakers in major economies will continue the fiscal bailout policy and the super-loose monetary policy closely tied to it, and they have made full theoretical preparations for this. The negative news is that a new, more contagious mutant virus appeared in the United Kingdom in December 2020, so that London began to “close the city.” Accordingly, the European Central Bank has lowered its 2021 Eurozone GDP growth forecast by 1.1 percentage points to 3.9%.  In 2021, the world economy will largely recover in ups and downs. Major developed economies are likely to shrink again in the first quarter, and then accelerate the pace of recovery in the second and third quarters. The global recovery will be transformed from a V-shaped to a poor In the W-shaped rule, factors such as employment, prices, trade, capital and foreign exchange markets, and commodity prices will also change accordingly with the development of the epidemic. Relatively speaking, it is difficult to determine the extent of the recovery of the world economy and the constraints of non-epidemic disturbances to recovery. It is worth noting that the “Regional Comprehensive Economic Partnership Agreement” (RCEP) reached the world’s largest free trade zone in November 2020. At the same time, the IMF’s “External Sector Report” assesses the currency and imbalances of the world’s 30 largest economies and shows that in 2019, the global current account net balance as a proportion of GDP has continuously dropped to 2.9%, highlighting the continuous increase in the balance of the world economy. Among them, China’s current account surplus in 2020 is about 1.3%, which is in line with its economic fundamentals.  Based on the above judgments, the global economic growth rate in 2021 may reach 4.5% based on purchasing power parity.
Even if the epidemic is effectively controlled or the current virus evolves into a common virus, the world economic recovery in 2021 will still be disturbed by various non-epidemic factors. The world’s authoritative financial analysis agency Standard & Poor’s published a report in mid-November 2020 that, compared with 2009, although the overall situation of the global banking industry is healthier, it still holds “negative” on one-third of the world’s banks. Looking ahead, 2021 may be the most difficult year for the global banking industry since the 2008 international financial crisis. The report pointed out that the global banking industry will face the following risks in the short and medium term: First, the credit ratings of banks that are under continuous pressure may decline before the new crown pneumonia epidemic is fully controlled; Second, governments will gradually end their assistance to the departments affected by the epidemic. Short-term assistance may increase corporate and household debt and make it difficult for them to finance in normal periods; third, the continued growth of corporate debt and more defaults will put banks’ asset quality and profitability under tremendous pressure; fourth, potential problems in the real estate market will increase And the seriousness is underestimated, such as longer payment periods and mortgage periods, renegotiation of bank mortgage agreements, ultra-low interest rates, and financial distress caused by the intensification of the epidemic, which cover up asset quality problems.
In addition to micro-level risks, the risks inherent in global capital markets and foreign exchange markets cannot be underestimated. Although the probability that the stock market and the real estate market will fluctuate sharply by more than 20% is more than 1/3, since the correlation between asset prices and the real economy is no longer what it used to be, the influence of capital market fluctuations needs to be discounted. Even more worrying is the trend of the US dollar exchange rate. Although there are so many variables that affect the rise and fall of the U.S. dollar exchange rate, it is difficult to make accurate judgments. However, in the next two years, the United States seems to have no suspense to continue its existing monetary policy. In a sense, the Fed has no choice but to take a lot of liquidity. The possibility of a fall is very high, and some countries other than the United States may also experience serious currency crises. At the same time, it does not rule out the possibility that individual emerging economies and developing countries will trigger a chain sovereign debt crisis due to defaults. In terms of global and regional economic governance, the cooperation and competition between major economies will continue to strengthen around the reform of the World Trade Organization, and the prospects for reform are unpredictable. On December 30, the leaders of China and the EU jointly announced the completion of the China-EU investment agreement negotiations as scheduled, and the gradual implementation of RCEP, at least from the perspective of trade and investment, the dawn of the world economic recovery will be brighter.