The impact of the COVID-19 on the global economy and how will paper industry going?

Covid-19 is still in the stage of global spread

As of the evening of May 2, according to relevant statistics of the International Health Organization, there have been more than 3.27 million cases of new coronary pneumonia diagnosed globally, including a total of 230,000 deaths. The United States currently has the most confirmed cases of infection, with a cumulative total of more than 1.06 million cases. The total cumulative cases in Europe are more than 1.49 million cases, of which Spain, Italy and the United Kingdom have cumulative cases of 210,000, 200,000 and 170,000 cases, the three countries with the largest number of infections in Europe. The number of newly confirmed cases per day in Spain and Italy has shown a slowing trend. Brazil is the country with the largest cumulative number of confirmed cases in Latin America, reaching 85,000 cases, exceeding the current cumulative number of confirmed cases in China.

 

Faced with the spread of the new coronavirus worldwide, many countries have taken action to limit the spread through social isolation policies, such as closing educational institutions, restricting work and restricting the movement of people.

According to related reports:

  United States: As of the beginning of May, about half of the states have entered the stage of resumption of production, but with the restart of economic activity, the new coronavirus epidemic in some states has also rebounded.

  European Union: announced on May 8th that it decided to continue to restrict “non-essential travel” to Europe, which will be implemented from mid-March to June 15th.

  Italy: The government announced that it will gradually relax the control measures taken in response to the new coronavirus epidemic from May 4th, and the tourism industry is actively preparing to resume production.

  Spain: The government announced that it will relax the “foot ban”, people can go out for walks or run sports, but should take safety measures and maintain social distance. At the same time, Spain also stipulated that from May 4th, citizens who take public transportation will be required to wear masks to prevent the spread of a new round of new coronavirus.

  France: Minister of Health Veron stated on May 2 that in view of the need to prevent and control the new coronavirus epidemic, the French government plans to extend the health emergency due on May 23 for two months to July 24.

  Japan: The "Declaration of Emergency" was issued on April 7th, and the country entered a state of emergency until May 6th. After the implementation of the emergency, Japan began to restrict a variety of people-intensive cultural and entertainment activities and commercial activities, requiring the public to reduce social contact by 80%, and the proportion of corporate remote work increased to 70%. At the beginning of May, it announced the decision to extend the "Declaration of Emergency" to the end of May.

The economic outlook faces a lot of uncertainty, but China is expected to maintain positive growth

The forecast issued by the International Monetary Fund (IMF) on April 14th shows that the global economy may decline by 3% in 2020, accompanied by huge uncertainty. The IMF calls this crisis the "big blockade" because the main economic impact comes from the necessary epidemic prevention policies. The IMF chief economist said in an interview that by mid-April, more than 90 countries had sought financial assistance from the IMF, which was unprecedented in history.

 

According to estimates by the IMF and various economic research institutions, the global economic loss caused by the new coronavirus epidemic will reach or exceed the scale of 5 trillion US dollars, which is higher than the privately estimated Lehman crisis of more than 2 trillion US dollars (2008 financial crisis) . If, after the second quarter of 2020, large-scale travel restrictions still have to be implemented, and a relatively mild new coronavirus outbreak occurs in 2021, the IMF expects that the overall economic loss may double.

 

Nonetheless, the IMF predicts that the Chinese economy can still maintain positive growth and drive part of the global economic recovery. The main reason is that the duration of the peak period of the epidemic in my country is relatively short, the current economy has entered a repair process, and the risk of a second wave of the epidemic is low. At the same time, there is still plenty of room for development in areas such as urbanization, regional economy, and new infrastructure. Macro deleveraging measures in the past two years have also ensured ample room for policy easing. In response to the IMF's prediction of the Chinese economy, Mao Shengyong, spokesman for the National Bureau of Statistics of China, also said that on average in 2020 and 2021, China's average growth in the next 2 years should still be more than 5%. China is also one of the few countries in the world's major economies that is expected to grow positively.

 

In addition, governments and central banks in various countries are also constantly introducing countermeasures, in which major economies have formulated stimulus plans totaling trillions of dollars. For example, after two emergency sharp interest rate cuts, the Fed opened a new round of open quantitative easing, injecting a lot of liquidity into the market. The EU finance minister has proposed an economic support plan of about 540 billion euros. Emerging market countries face the risk of another kind of crisis due to the need for financial stimulus to expand debt.

 

According to data from Bloomberg Global Finance in early May, the US government has now passed four rounds of economic stimulus bills, with a cumulative size of more than US$2.9 trillion, equivalent to 15% of GDP. The Japanese government announced an unprecedented emergency economic response of 117.1 trillion yen, which is equivalent to 22% of its domestic GDP. The plans of the United States and Japan also include the distribution of fixed amounts of cash to every citizen or family, aimed at alleviating the unemployment crisis and promoting consumption.

Trade costs rise and prospects are not optimistic

The IMF believes that the cost of international trade in imports and exports may increase by 25% due to the impact of the epidemic. This effect applies to almost all goods and services. The cost increase ratio given here assumes that the increase in transportation and transaction costs in foreign trade is mainly driven by additional inspections, reduced business hours, closed roads, closed borders, and increased transportation costs. From the perspective of trade prospects, the World Trade Organization (WTO) released its annual outlook in early April. Due to the epidemic of the new coronavirus, the annual outlook holds that world merchandise trade will plummet by 13% to 32% in 2020. WTO economists also believe that the decline may exceed the trade decline caused by the global financial crisis of 2008-2009. In industries characterized by complex value chain links, trade may decline sharply, especially in electronics and automotive products.

 

It is also important to restore the confidence of the market in the face of the epidemic. The WTO believes that as long as policymakers can use appropriate policy combinations and effects to convince enterprises and families that the spread of the epidemic is temporary, a rapid and strong rebound may be earlier than expected. Nonetheless, the global trend towards trade protectionism may also become a new layer of impact on top of the impact of the epidemic.

 

In addition, the WTO found that in addition to restrictions on medical products, trade restrictions on certain foods have begun to appear, although the food supply is currently seen to be sufficient (for example: this year’s cereal stocks will reach the third highest level on record, wheat , Corn, rice, soybeans are sufficient to meet the expected demand). The experience of the global financial crisis has shown that food export restrictions have increased rapidly among countries, leading to greater uncertainty and higher prices. Trade restrictions can exacerbate the crisis and delay recovery, just like the Great Depression of the 1930s. On April 22, 2020, 24 WTO members, including China, the United States, the European Union, Japan, Canada, Australia, and Brazil, issued a joint statement expressing their support for maintaining the opening and circulation of agricultural and food trade chains. These members together accounted for 63% of global agricultural and agro-food exports and 55% of imports.

 

Exports affected by the global epidemic have also become the biggest source of uncertainty for China's domestic economic growth. Europe and the United States are China's main trading partners. Demand from Europe and the United States still accounts for about 34% of China's exports (2019 customs data). Judging from the export volume of various provinces in 2019, Guangdong, Jiangsu, Zhejiang, Shanghai and Shandong rank in the top five, with Guangdong exceeding US$600 billion and Shandong exceeding US$150 billion. These regions may be hit hard. The number of relevant employment in my country's foreign trade field is also close to 200 million.

Paper industry and companies in major regions of the world actively respond to the epidemic

During the development of the epidemic, the European Paper Association and the American Forest Paper Association appealed to their respective governments to exclude the paper industry from the "blockade order". Paper products, packaging and other products produced in the paper industry provide packaging for agricultural food processors and sanitary product manufacturers, which is one of the basic premises for maintaining the supply of hygienic food and other products that consumers need during the epidemic.

The top paper giants in the world, such as International Paper, Westerlock, and Stora Enso, have announced the decline in both revenue and profit in the first quarter of 2020. Demand for paper in Europe is declining because the epidemic appears to be intensifying.

Before the outbreak, many paper companies in Europe and the United States have taken various measures for the health and safety of employees and production, which has made the operation less affected. However, due to the uncertain economic prospects and the reduction in demand, many paper companies have begun to implement cost reduction measures.

"New business environment" faced by enterprises after the epidemic

NPC Partners consulting company believes that under the influence of new market changes and the current epidemic, companies in the Chinese and global paper industry need new analytical tools and strategies to cope with uncertainties and challenges. Consumer behaviors around the world are undergoing major changes. Some may return to normal conditions after the epidemic, while others may change permanently after the epidemic. Even if the offline experience and services in Europe and the United States are mature and the age structure of the population is aging, the opening of digitalization in the entire industry chain is expected to accelerate.

The layout of the supply chain may also change, from the best with the highest efficiency cost to the pursuit of the best flexibility. In terms of risk awareness and assessment, the epidemic will also change the past practices of companies and investors. Taking paper packaging as an example, the impact on the terminal is mixed. Some consumer goods packaging, medical and e-commerce packaging demand is rising, while packaging demand for clothing, shoes, catering services and other services have been hit.

Under the influence of the epidemic, consumers may become more sensitive to prices over a period of time. In the future, consumers' choices for packaging may also be affected, such as the hygienic advantages that plastic packaging may bring, and the plastic-based cost advantage that has been highlighted by the deep adjustment of oil prices since 2020.

Based on this, enterprises can still evaluate the recovery path and growth potential of different terminal packaging needs through research, and combine supply chain needs and corresponding production plans to strive for better business performance after the epidemic.