CCDC Analysis on the Economic Impact of the Novel Coronavirus Outbreak and the Policy Response

Executive Summary

The peak of the novel coronavirus (COVID-19, previously named as 2019-nCoV) outbreak is yet to be determined. It is estimated that the COVID-19 outbreak will take a toll on macro-economy and financial markets in the first two quarters of 2020, through the channels such as structural impairment of the secondary and tertiary industries, dent to consumption, investment postponement, and export supply disruption, as well as higher CPI and structural impact on PPI. In financial markets, the risk of equity markets is expected to further manifest itself, the long-term yields of the bond market will further shift downward, and RMB exchange rate may experience larger fluctuations in the near term. The ultimate economic consequences of the epidemic, however, will depend on how long it will last.

Active macro policies are needed to respond to current situation, focusing on ensuring the Six Stabilities --- stability of employment, the financial sector, foreign trade, foreign and domestic investments, and expectations. China needs to implement countercyclical fiscal and monetary policies, carry out credit policies well targeted for supporting the growth of private small and micro business, appropriately expand government fiscal spending, maintain a reasonable and adequate liquidity level in the short term, ensure access to finance in hard-hit regions and industries, and calibrate social policies to support employment and people's well-being. We believe China will win the battle against the outbreak and secure a decisive victory in building a moderately prosperous society in all respects.

During the course, macro policies shall remain flexible, avoiding pushing too hard while leaving adequate leeway so as to give confidence to market players. Meanwhile, epidemic prevention should avoid over-reacting and the production should be resumed in a precise and orderly manner.

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