by Lo Fung

It is an undeniable fact that the Wuhan pandemic had severed the world economy. Economists and analysts had compared its impact with the Great Depression, predicting a recession of 8 to 10 years, with an unemployment rate exceeding 25%. Yet recent economic figures seemed to reflect a less dire situation. For example in the U.S., worst hit by the pandemic, the unemployment rate in May was 13.3%, a 1.4% drop from 14.7% in April. Non-farm payrolls had greatly increased by 2.5 million, showing the fastest growth since 1939, much better than the estimated decrease of 7 million.

Countries Rescue their Markets Promptly

U.S. stocks rose rapidly upon the good news, with the Dow Jones jumping 829 points last Friday, a 3.2% increase. Main European stock exchanges also went up a remarkable 3%. Market performance reflected that the economy seemed to be recovering faster than the pandemic.

The market’s anticipation for recovery was not unjustifiable, considering the Wuhan virus had brought economic impacts that are different from previous financial crises. First, the recession was not caused by systemic issues of the financial system, nor was it caused by bursting asset bubble leading to mass bankruptcy. The economic impact of the Wuhan pandemic was mainly due to government lockdowns, calling daily commercial activities to a halt, thus inflating the number of temporary unemployment. As the U.S. and European governments gradually loosened restrictions in May, businesses reopened. In other words, commercial activities resumed, taking suspended employees back in office, causing jobs growth to pick up and unemployment rate to drop.

The recovery of the world economy was also due to prompt bailout measures imposed by governments and central banks around the world. In as early as March, the U.S. Federal Reserve had launched extensive qualitative easing measures by purchasing corporate bonds, ensuring revolving funds for enterprises to prevent bartering or preemptive layoffs. Other central banks in Europe and Japan had resorted to printing currency, so that society had sufficient capital to alleviate the impact of sudden economic stop.

Besides, governments and their congress had passed their rescue plans swiftly. The U.S. plans amounted to as much as 3 trillions U.S. dollars (around 10% of GDP). And the budget of the U.K. rescue plan even exceeded 10% of GDP. While the amount is a future headache to compensate, putting cash in the hands of consumers could at least preserve consumption, to avoid too steep a drop for the economy. Upon prompt and comprehensive measures by great powers, all was not lost in the world economy. Instead, the world economy would rise from rock bottom earlier than expected.

More importantly, with sufficient capital and interest rate turning negative, capital entering speculation had increased dramatically, pushing market turnover and creating a short-term inflation in stocks. The bounce back of the U.S. and the Hong Kong markets from the bottom are examples of this kind of capital market.

Nevertheless, improved figures and market rebound did not mean the economy is turning around. The road to recovery is still long and uncertain, one must not be overwhelmed by temporary success. The fundamental problem was that the pandemic had yet passed, with confirmed cases still on the rise. Although commercial activities resumed, most countries still restricted crowds, businesses are still far from operating normally. Moreover, a vaccine has yet to be developed, and there is no effective treatment for those who are infected by the Wuhan virus. Personnel and business exchange between cities and countries would still be impractical, and it is expected that the heavily blown airline, travel and hotel industries would not recover even half of their revenue in near future.

Under such circumstances, the world economy and unemployment might have hit bottom, but the road to recovery will still be long and painful. The unemployment rate will remain high, the U.S. unemployment rate will hover around 10% in the coming year , for example. It will not be easy for general consumption and economic activities, especially after the effects of rescue plans wear off.

Hong Kong Dragged By the National Security Law

While the world economy is far from real recovery, Hong Kong is in a situation even harder to overcome. With Beijing’s push on the national security law that triggered U.S. sanctions, local and foreign capital outflow, and the possibility of social upheaval, the economic outlook is gloomy. Therefore, do not be blinded by seemingly positive market news, and do not be fooled by Carrie Lam’s lies. The massive destruction brought by the pandemic and the national security law has just begun.

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