Recently, major international agencies have lowered their global economic growth forecasts for 2022. On May 20, 2022, the United Nations released World Economic Situation and Prospects as of Mid-2022, lowering its global economic growth forecast for this year to 3.1% from 4.0% it made at the beginning of the year. Coincidentally, 18 days later on June 7, the World Bank slashed its global economic growth forecast from 4.1% it made in January to 2.9% in its latest Global Economic Prospects report. The global economy made a strong recovery in 2021. Since the beginning of this year, many countries in the world have started to relax their Covid control measures, and people's lives have also gradually returned to normal. However, the prospects of global economic recovery against this background are not considered optimistic by many, mainly for the following reasons: 1. the inappropriate adjustment of stimulus policies to cope with the pandemic has led to an imbalance between domestic supply and demand in some countries, while driving up inflation; 2. the Russia-Ukraine conflict and other emergencies have harmed the fragile global supply chain again, hindering the recovery of global production and supply and further increasing inflationary pressure; and 3. many places in China have been affected by the Omicron virus, which has had a significant impact on the Chinese economy as a ballast of the global economy in the past two years. In particular, the impact of the current round of Covid resurgence on Shanghai, which is China's economic center, has attracted much attention. In response to the downward adjustment, Europe and the United States fall into a dilemma. The United States is faced with the difficult problem of how to coordinate interest rate hikes to curb inflation and avoid falling into recession. More and more people believe that there is a high probability of stagflation hitting the United States. European countries are deeply affected by rising energy prices brought about by the Russia-Ukraine conflict. At the same time, the issue of policy coordination among EU countries is becoming more prominent at present. Therefore, China's economic performance in the remaining two quarters of 2022 will play a vital role in supporting the stability of the global economic situation this year.

This role can be inferred from the situation in 2020. At that time, the impact of the Covid-19 pandemic started to appear at the beginning of 2020. After the pandemic broke out, China quickly took effective prevention and control measures nationwide, and brought the pandemic under control in a very short period of time. As a result, the impact of the pandemic on China's economy in 2020 was mainly concentrated in the first quarter, which registered a rare decline of 6.8%. However, such decline quickly narrowed to 1.6% in the second quarter, and positive growth resumed in the third quarter. Eventually, China achieved a positive growth of 2.3% in the whole year. Compared with the situation of other countries in the world, China's economic growth was undoubtedly unique. Among the 16 countries with a GDP of over US$1 trillion that year, China was the only country that achieved positive economic growth, and all the other 15 countries without exception experienced negative growth. This year, the impact of the pandemic on China's economic growth mainly occurred in the second quarter and was also concentrated in some regions. It did not spread to the whole country. Therefore, it can be expected that China's economy will rebound in the third quarter. In fact, the correction of some economic metrics was already reflected in the economic data just released in May: 1. according to the data released by the National Bureau of Statistics, China's manufacturing purchasing managers' index, non-manufacturing business activity index and comprehensive PMI output index in May rebounded to 49.6%, 47.8% and 48.4% respectively, which were 2.2%, 5.9% and 5.7% higher than those of the previous month respectively; 2. in terms of financing, data from the People's Bank of China showed an increase of RMB2.79 trillion in social financing in May, representing a year-on-year rise of RMB839.9 billion; and 3. as for foreign trade, according to figures released by the General Administration of Customs, compared with the year-on-year growth of 0.1% in April 2022, China's total import and export value reached RMB3.45 trillion in May, up by 9.6% year on year, of which exports increased by 15.3% and imports rose by 2.8%. These indicate that the impact of the pandemic on the economy is still temporary, and the fundamentals of China's economy have not changed significantly. As the current resurgence in Covid infections is gradually brought under control nationwide, China's economic performance metrics are expected to continue to improve in June, which will ease the impact on the overall economy in the second quarter.

As far as the current round of Covid resurgence is concerned, its impact on Shanghai has attracted much attention from all walks of life. Although it mainly occurred in April and May, the economic impact was already reflected in Shanghai's economic data in March 2022 because some districts and industries were placed in lockdown in middle and late March for the reason of the pandemic. For example, the added value of industries above designated size in the city increased by 11.9% year on year from January to February, but fell by 10.9% in March; the total retail sales of social consumer goods increased by 3.7% year on year from January to February, but declined by 18.9% in March. Affected by the upgraded lockdown policy against the pandemic in April and May, the above economic metrics are expected to decline further in the second quarter of this year. However, similar to China's overall economic situation, despite the impact of the pandemic, Shanghai's economic fundamentals will continue the previous trend. This was reflected in the excellent performance of some economic metrics in Shanghai from January to February before the Covid resurgence broke out. For example, Shanghai's added value of industries above designated size significantly outgrew the national average of 7.5%. On the other hand, in terms of metrics reflecting high-quality development and industrial structural optimization, Shanghai's emerging strategic industries maintained a growth rate much higher than that of the overall industrial sector. The total output value of 9 industrial strategic emerging industries in the city increased by 13.7% year on year in the first quarter, 8.9% higher than that of industries above designated size. The Covid resurgence interrupted Shanghai's good economic start this year, but such temporary impact is not enough to affect the long-term trend.

How will Shanghai's economy return to the pre-pandemic growth track? This will no doubt depend on the extent to which market entities can fast restore their economic activities, which in turn will depend on the extent of support that the policy environment can provide. On April 16, 2022, the Shanghai Municipal Commission of Economy and Informatization issued Guidelines for Industrial Enterprises in Shanghai to Resume Work and Production and Carry out Epidemic Prevention and Control Work (First Edition) and released a "white list" of the first batch of key enterprises allowed to resume work and production, marking the start of large-scale work and production resumption in the city. Subsequently, more enterprises were successively added to the list. On May 29, 2022, the Shanghai Municipal Government issued the Action Plan of Shanghai Municipality for Accelerating Economic Recovery and Revitalization, which includes 50 policy measures in 8 major aspects, including consumption, investment, foreign capital and foreign trade. These measures include inclusive relief and support policies for various micro market entities, as well as safeguard factor supply and macro incentive policies. The previous "white list" system was also abolished on June 1, 2022. Apart from the package plan, Shanghai has also intensively introduced various special policies. For example, the Circular on Implementing Special Support Measures for Talented Minds to Boost Work and Production Resumption issued on June 7 further relaxed the requirements for talented minds to settle in Shanghai, so as to attract talents from around the world to work in the city. To improve the expectations of all walks of life on Shanghai's economy and boost the confidence of foreign-funded enterprises, the Shanghai Municipal Government announced on June 13, 2022 that the Fifth China International Import Expo will be held as scheduled. Currently, over 76% of the planned exhibition floorspace has been booked by exhibitors, and more than 260 of Fortune 500 companies and industry leaders have signed up for the expo.

In the Global Economic Prospects report mentioned at the beginning of this article, the World Bank lowered the expected economic growth rate of developed countries this year to 2.6%, a decline of nearly 50% from their economic growth rate last year (which was 5.1%). The World Bank also lowered its growth forecast for emerging markets and developing economies to 3.4%, whose economic growth was 6.6% last year. In response to such sharp downward adjustment of economic growth forecasts and in light of the above analysis, we expect that China will once again shoulder the important task of stabilizing global economic growth. For its part, Shanghai will also once again play a positive role as China's economic powerhouse after the orderly resumption of work and production is completed in the city.



Author: Zhan Yubo, Research Professor, Institute of Economics, Shanghai Academy of Social Sciences