BOC Research Institute released the 2020Q3 Economic and Financial Outlook (the “Report”) in Beijing on June 30, 2020. The Report reviews the global and China’s economic and financial performance as well as the global banking performance in 2020H1. It also provides an outlook on the economic and financial situations and the global banking trends in 2020H2.
In terms of global economy and finance, the Report notes that 2020Q2 saw the world economy diving into a deep recession amid the COVID-19 pandemic, far worse than the 2008 global financial crisis. The global financial markets have found the liquidity risk subdued but the debt default risk on the rise, showing a possibility of another turmoil. COVID-19 will accelerate de-globalization and change the driving factors for global industry chain adjustments, which tend to become more regional. Developed economies will maintain an easy monetary policy overall, but the potential monetization of fiscal deficits deserves our vigilance. The emerging market economies have been hit hard by the pandemic, worsening their debt fragility and making a debt crisis more likely.
As for China’s economic and financial situation, the Report notes that the Chinese economy suffered the heaviest headwinds, since China’s launch of reform and opening-up, from the COVID-19 outbreak and global economic slowdown. GDP fell YoY by 6.8% in Q1. With a decisive victory secured in COVID-19 containment in Q2, China has reopened the economy progressively and launched policies to maintain security in six areas, seeing a recovery of the national economy on all fronts. GDP is projected to grow at around 2.8% in Q2. Looking forward to H2, we expect the Chinese economy to further recover and improve. However, there will still be some potential risks such as COVID-19 resurgence, greater difficulties in business operations and rising risks in local government bonds. GDP is expected to grow by about 5.2% in Q3, and by around 2.5% in annual terms. In the future, China will accelerate its push to create a new development pattern where domestic and foreign market can boost each other. It will give a bigger weight to the domestic market and speed up the “two-wheeled” drive by both domestic and foreign markets, thereby promoting steady and sustained growth of the Chinese economy.
As for the development of global banking industry, the Report notes that 2020H1 witnessed shrinking financial service demand in the real economy amid the global pandemic. Credit risk further escalated and low interest rates resulted in narrowing interest margin, posing challenges to banks’ operation and management. Global banking industry is expected to see its financial results weaken sharply in 2020, coupled by further deterioration in asset quality and rising pressure on capital replenishment. Banks in some high-risk regions may face new difficulties. To cope with the protracted pandemic and new challenges , regulators around the globe have implemented a series of counter-cyclical policies. Global banks are recalibrating their business strategies by adopting more prudent risk management mechanisms, taking various measures to ensure capital and liquidity adequacy and rebalancing their regional presence and business portfolio, in a bid to further sharpen the edge in diversification and pursue long-term stable growth.
