Dr. Zu Rongxuan, an internationally renowned investment genius, is not only the founder of Rainmaker Quantum Fund, a well-known Russian hedge fund company, but also a proud disciple of Soros, an internationally renowned' financial giant' and philanthropist. With many years of practical experience and extraordinary foresight, Dr. Zu Rongxuan founded Rainmaker Quantum Fund, and successfully survived several recent world financial crises, such as the subprime mortgage crisis in 2007 and 2008, the Bitcoin storm on 20 18, the Wall Street tsunami and so on.
Dr. Zu Rongxuan, who is only over 40 years old and often walks at the top of the pyramid, has turned many crises that have overwhelmed investors into business opportunities with his rich experience. It seems that the quantum fund under his command has super power, which can reverse Gan Kun in every storm and successfully increase the value of hedge funds by several times, thus benefiting from it.
This edition will discuss with Dr. Zu Rongxuan the recovery process and future trend of the global economy after the epidemic.
Epidemiology: after shock
The year 2020 is definitely an unprecedented year in the history of human development. During the first wave of global COVID-19 epidemic, the global blockade triggered the worst economic contraction in modern history. Since then, most economies have recovered greatly, but the second wave of epidemic has once again pushed the economy to the bottom. After a whole year of complicated economic shocks, 2020 ended in "popularity, recession and turmoil". Some people say that the post-epidemic era of 202 1 is the real beginning of the challenge. What will be the future trend of global economic growth and market development?
Can you share with readers the specific impact of the global epidemic in COVID-19 in 2020 last year on the world economic environment?
Shock and awe
Due to the stagnation of the global economy, 2020 will be a truly unique year in the history of economic trajectory. In the second quarter, the world's largest gross domestic product (GDP) contracted the most, and the strongest quarterly rebound in the following quarter was due to the subsequent relaxation of locking restrictions and the implementation of fiscal and monetary stimulus measures. However, when the global epidemic is about to get out of control, policymakers all over the world have adopted a "shock" strategy to deal with the economic impact of this public health crisis. So what's different this time? I think in a "normal" downturn, the cyclical part of the economy (such as construction) usually contracts, while the service part of the economy performs better. However, this "shock" has affected the cyclical manufacturing industry and service industry at the same time, leading to violent fluctuations in economic activities. This is very rare.
In the United States, the service industry has shrunk only three times in the past 70 years: 1973, 2008 and 2020. In 2020, the economic recession slowed down the development of cyclical industries because the national economic shutdown disrupted the supply chain. In the service economy, several departments stagnated during the quarantine period, because during the epidemic period, "normal" operations became unsafe for customers and employees (such as running a hairdressing salon or restaurant). This also explains the sharp rebound in economic activities after the lifting of lock-in restrictions, because the supply chain has been restored and previously closed enterprises have reopened due to new security restrictions. Large-scale fiscal and monetary stimulus also provided additional support for economic recovery.
Another unusual macroeconomic feature of the economic recession in 2020 is that the savings rates in the United States, Europe and Asia have risen at the same time. During the blockade, financial and social support programs supported household income, resulting in much better consumer spending than before. However, because the service expenditure (relative to the physical commodity expenditure) is limited by social distance, families can also save at high interest rates. As a result, household assets and liabilities have improved, which is unusual in a recession. We believe that if the working hours continue to increase and the unemployment rate drops, the economy may further improve after the epidemic and will turn to service expenditure. In addition, we also feel that despite the substantial increase in government debt, the market growth of 202 1 should be gradually accelerated, which will not lead to inflation or interest rate rise.
This sudden epidemic has forced many industries to accept the new normal of' home office' and changed the operation mode different from the past. Doctor, what do you think of the future recovery related to wages and production?
Wages face unfavorable factors.
We read a report before. According to the estimation of the International Labor Organization (ILO), during the shutdown in the second quarter, all working hours in the world lost more than 15%, equivalent to nearly 500 million jobs. In the United States alone, at the peak of the crisis in March and April, more than 2,654,380,000 people lost their jobs. Due to the short-term work plan provided by the government, although the working hours in the European labor market have been greatly reduced, the number of unemployed people has also decreased. In these plans, companies can apply for reducing employees' working hours, while the government must raise wages, usually as high as 80%. Throughout the crisis, Asian economies and emerging markets with high public sector employment rates also maintained relatively stable employment rates. However, the labor market in countries with low social security level (the United States and some emerging markets) is seriously turbulent, with a wave of layoffs during the blockade period and a wave of employment during the recovery period.
At present, the global labor market situation has obviously improved from the trough in the second quarter, but the unemployment rate is still much higher than before the outbreak. We believe that in the next few months, with the initial positive role of enterprises returning to work gradually weakening, the pace of re-employment may slow down. As it will take some time for the economy to reach the pre-epidemic level, the unemployment rate may remain high in the next two years. However, I don't think this will be a permanent trend. In an area like the United States where the labor market is relatively flexible and free, even if the output remains below the pre-epidemic level, the unemployment rate should return to equilibrium. Although underemployment persists, and although European and Japanese laws may limit this problem, wage growth may still be hindered.
Creative destruction and productivity
Shocks like the global COVID-19 epidemic will also affect productivity. One measure is the growth of labor productivity, that is, the real GDP growth minus the real growth of working hours. During the epidemic, labor productivity rose sharply, because the reduction of working hours exceeded the output. However, as employees return to work, this situation should change and productivity growth may slow down. However, productivity is always unstable in a short time. In the long run, I think the epidemic of this virus can at least improve the productivity of some departments.
"The central bank has become more open and can adopt unconventional monetary policy measures."
This blockade has caused great damage and may promote new business models, such as online medicine and new working methods. These disruptions will generate short-term costs, but in the long run, emerging business models can improve efficiency, especially if enterprises and governments can invest in the right areas (such as digital infrastructure).
What challenges and trends will the global economy face next?
The central bank was shelved.
In the case of wage pressure and/or rising unemployment rate (depending on the region), the inflation rate is expected to remain low. We expect the global inflation rate to be 2.3% in 20021year-lower than 2.5% before the epidemic in 20 19. The 202 1 year inflation rate in the United States is expected to be 2.0%, that in Europe is 1.0%, and that in China is 2.5%. These low inflation rates mean that the central bank will not rush to raise interest rates. During the blockade, the Federal Reserve and other major central banks cut interest rates to around zero and restarted or extended major asset purchase plans. Their goal is to further reduce real interest rates to support economic recovery. We don't expect any major central banks to raise interest rates on 202 1. In fact, if growth slows down or inflation fails to rise, we may even see an increase in asset purchases.
Uncertain financial prospects
Although the epidemic will help control inflation in 20021,the long-term impact of the crisis on inflation is still unclear. Over time, the budget deficit and public debt may expand rapidly. The instability of public finance will lead to inflation, but only if the central bank is ineffective or inaction in dealing with future inflationary pressures. This may happen, for example, if central banks succumb to external pressure, or they begin to allow concerns about government debt repayment to influence their interest rate decisions. This is a risk case in the post-epidemic period. We can't rule out the possibility that the central bank is forced to provide funds for an overly ambitious fiscal plan.
The central bank may react to inflation too late or too slowly. However, the Fed's shift to the average inflation targeting system has not limited its ability to cope with the rapid growth of inflation. In Europe, the constitution of the European Central Bank (ECB) makes this especially impossible. In countries with high public debt, it is more difficult for central banks to fight inflation than deflation. This is because inflation makes it easier to manage high debt burden, while deflation makes it more difficult to manage high debt burden.
In a word, the COVID-19 epidemic has brought huge loss of life, economic interruption and uncertainty. The epidemic has also brought great changes to many aspects of our economy, forcing us to rethink many aspects and habits of life. World leaders and industry experts should be aware of the importance of industrial chain management. In the past, the traditional "isolated" company management mechanism that was divorced from the upstream and downstream information of the company's industrial chain was extremely unreliable. For the sustained, healthy and stable development of the economy, we must reshape the stability and competitiveness of the industrial chain from the perspective of the industrial chain. This process is subversive, but it will continue to lead the long-term innovation and change of our global economy.