"The Shock from COVID-19 Differs from the 2008 Financial Crisis... Unprecedented Policies Needed"

Housing Finance Research Institute "Limited Room for Interest Rate Cuts and Difficult Policy Coordination"
Need for Stability in Chinese Economy... Urgent Proactive Policies to Minimize COVID-19 Ripple Effects

[Asia Economy Reporter Kwon Haeyoung] It has been argued that the shock caused by the spread of the novel coronavirus infection (COVID-19) could transition into a global recession, necessitating unprecedented preemptive policy responses from governments worldwide.

On the 22nd, the Korea Housing Finance Institute stated in its report titled 'Diagnosis of the Possibility of a Global Recession Triggered by the Novel Coronavirus' that "the COVID shock originated in some developing countries such as China, which is significantly different from the 2008 financial crisis that occurred simultaneously in major advanced countries."

The Housing Finance Institute analyzed, "The Chinese economy, which mitigated the global economic shock in 2008, is generally sluggish, and the current global economic situation is structurally vulnerable due to delayed normalization of major countries' monetary policies and excessive debt caused by side effects of unconventional policies. The future occurrence of a global recession depends on how the extent of COVID-19 spread and these structural factors will affect resilience after the COVID-induced shock."

It particularly emphasized the need for stability in the increasingly uncertain Chinese economy. According to Nomura Securities, China's economic growth rate for the first quarter of 2020 is expected to record a historic first negative growth of -4.4% year-on-year. Amid the Chinese government's slowing growth, the US-China trade dispute, and increasing financial difficulties and defaults among Chinese companies, the economy has rapidly deteriorated due to COVID-19. Although the infection rate within China is gradually stabilizing, a resurgence could lead to prolonged supply contraction caused by factory shutdowns and demand depression. Given that China accounts for 15% of the world's total production as the 'world's factory,' there is also concern about the possibility of supply chain collapse.

The Housing Finance Institute pointed out, "Due to factory closures and restrictions on population movement caused by COVID-19, China's current factory operating rate has fallen to 50-60%, resulting in a massive reduction in production volume. While the economic downturn impact from the supply side may be temporary, a greater risk is if such supply shocks combine with the current market situation to cause a decline in aggregate demand."

It also forecasted that the rapid increase in global debt due to quantitative easing and other measures could reduce economic recovery resilience.

The Housing Finance Institute stated, "Since monetary policy normalization has not been achieved since 2008, there is limited room for interest rate cuts and policy coordination is difficult. Recognizing the vulnerability of global economic fundamentals, unprecedented preemptive policy management is urgently needed to minimize the ripple effects of the COVID shock."

This content was produced with the assistance of AI translation services.