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TEXTILE VIEW #132: Our footprint 4
Published December 2020
These are unusual times, so we have taken an unusual approach to our Publisher’s View.
We cannot tell you when or how the pandemic will end, but we can look at the new
economic and social landscape it will leave behind. We ask the big questions that Covid-19 has thrust upon us and
which we will have to answer if we are to thrive in what will be the “nouveau normal”.
In mid-October, data from the National Bureau of Statistics showed that China’s economy had expanded 4.9% year-onyear in the third quarter as industrial growth powered the country’s recovery from the coronavirus pandemic. The expansion in gross domestic product
represented a sharp turnround from a historic decline at the start of the year.
The recovery in the world’s secondlargest economy missed expectations but was well ahead of a 3.2% increase in the second quarter and has been stoked by a state-backed industrial boom. It now shows signs of extending to consumption at a time when global growth remains under severe pressure. Industrial production in China leapt 6.9% in September its highest level this year and the same rate as in December 2019, before the coronavirus outbreak. Exports continued to rise over the summer. China was first into the pandemic and
it is certainly the first out. In fact, China is likely to be the sole major economy to register positive growth this year. The IMF announced in March that it expects global growth to be negative in 2020, but Yi Gang, China’s central bank governor, said in October that that the country’s full-year growth figure was likely to come in at 2%. Exports have continued to rise, adding 10% in September. So, what does
this say about the future?
By early spring 2020, the whole world was in a mess together. But as the recovery started, gaps started opening up that threatened to change the perceived economic order. By the end of next year, according to forecasts by the OECD, the US economy will be the same size as in 2019; China’s will be 10% larger; and those of Europe and Japan could fall to below pandemic level. A great deal of this differentiation stems directly from the spread of Covid-19. China has all but stopped the spread, but Europe and the US are battling a
debilitating second wave. However, according to the Economist, there are structural differences that also play a part. China’s economy, although modernising, is still essentially industrial based, where adaptations of work-site conditions and the implementation of
automation and digitalisation make social distancing less of a problem than the West’s service-geared economies. Then, of course, there have been differences in economic response. China concentrated on corporate and infrastructure investment, rather than supporting household incomes. America has injected more stimulus than Europe, including spending worth 12% of GDP and a 1.5 percentage point cut in short term interest rates, but questions arise over it renewing that stimulus package.
Europe tried to maintain the status quo with subsidies for short-work schemes, suspended bankruptcy rules and state aid that might have been wasted on zombie firms that should have been allowed to fail. Then there are differing public attitudes to governance it is generally accepted that an Asian populace is more likely to follow government orders and recommendations than, say, the
independent-minded Dutch. There’s no doubt that the status quo is being challenged. As more business moves online and into the digital sphere (NB this year’s boom in technology stocks and China’s latest five-year plan, which again emphasises Xi Jinping’s
model of high-tech state capitalism), those companies that have the greatest access to data and the most up-to-date technology will win. Low interest rates will keep asset prices maintaining the gap between Wall Street and Main Street. The pandemic will leave economies less globalised and supply chains more automated as production is reshored.
The one area that remains a born survivor, no matter what, seems to be the stock market. Despite global uncertainty and record unemployment, the gap between Main Street and Wall Street remains unexplainably big. It is often said that the market rights itself
but that doesn’t seem to be the case here. The rationale behind this very irrational bull market is that the stock market is forward-looking, with investors betting on what the market will look like in 12 to 18 months; that much of Wall Street’s success in the last five years has been built around tech companies and these, of course, have continued to be star performers during the pandemic; that
with governments printing money to finance furlough schemes, investors are steering clear of cash and bonds, which are steadily losing value as stocks become the main default; that low interest rates keep assets high; and that everyone wants to be in position when news of a genuine vaccine hits the market.
