BOC Research Institute released the 2020Q2 Economic and Financial Outlook (the "Report") in Beijing on March 30, 2020. The Report reviews the global and China's economic and financial performance as well as the global banking performance in 2020Q1. It also provides an outlook on the economic and financial situations and the global banking trends in 2020Q2.
As for the global economic and financial developments, the Report notes the drastic turbulence and liquidity crisis in global financial markets amid the COVID-19 pandemic, which has dealt an overwhelming blow to manufacturing, services, consumer sentiments and social governance in 2020. Whether the situation will evolve into financial and economic crises mainly depends on the pandemic developments and effectiveness of containment measures taken, whether the COVID-19 outbreak will give rise to debt defaults among businesses and sovereign debt crisis, and whether the oil price slump or geopolitical conflicts will trigger fiscal and capital flow crisis across emerging markets. Generally, the more severe and the longer the pandemic is, the heavier the drag on macro-economic growth. The spreads of the virus will inevitably send a ripple of shock to economic growth across regions. The world economy is very likely to sink into a recession in 2020.
As for China's economic and financial situation, the Report expects the Chinese GDP to finish 2019Q1 with a rarely seen contraction as the economy is suffering the heaviest headwinds, since China's launch of reform and opening-up, from the unexpected COVID-19 outbreak seen worldwide that has caused commodity price slumps and financial market turmoil. Looking into the Q2, the Chinese economy will remain under pressure from within and outside as the overseas outbreaks might send their ripples to China. GDP is expected to restore positive growth (at around 3%) in Q2. China's economy is experiencing unprecedented challenges posed by both structural factors (shift from old to new growth drivers and restructuring of global industry chain and value chain) and cyclical factors (the COVID-19 pandemic, commodity price slumps and financial market turmoil). The Report suggests special responses at special times, saying that the macro-policy maker should take strong actions resolutely to make adjustments and give top priority to stabilizing employment, supporting SMEs and ensuring basic living standards.
As for the global banking developments, the Report confirms the overall solid performance across the global banking sector in 2019, yet expecting higher market risk from financial market turbulence in 2020, a year with rising downside pressure on the global economy amid the COVID-19 pandemic and a shrinking interest rate spread for banks due to central banks' relaxing policies. The global banking sector is expected to see marked slowdown in expansion with gloomy profit prospects in 2020H1, with the credit risk escalating in regions hit hard by the virus. Despite the low probability of systemic banking crisis, special attention should be paid to the risks among small and medium-sized banks. China's banking industry showed solid growth in 2019, but will find the NPL ratio on the rise and profit growth on the decline in 2020H1 due to the COVID-19 outbreak, albeit with a stable risk mitigation ability. Commercial banks should pay particular attention to the NPL risk of key industries and specific customers, strengthen asset quality management, actively explore new business opportunities in the outbreak, create "contactless" business models and diversify the income avenues.
