(Yicai Global) Feb. 5 -- China has a lot of firepower left to moderate the impact of the ongoing coronavirus epidemic, according to Erik Berglof, a professor of economics at the London School of Economics and Political Science.
Chinese mainland stocks bounced back today and yesterday following their biggest daily drop in four years on Feb. 3, the first trading day after the country's extended Lunar New Year holiday.
A brief upheaval in the Chinese market is entirely normal, Berglof, who is director of the LSE's Institute of Global Affairs, told Yicai Global in an exclusive interview yesterday.
Yicai Global: The spread of the 2019-nCoV epidemic has not been completely controlled. How do you think the epidemic will affect global economic growth, including the impact on the stock and commodity markets short term?
Berglof: I think the impact here is mostly through the overall impact on the global economy. China, we know, it's a bit like one-third of global growth. I think that the contribution of China will probably be less, but not dramatic. Let's say that the world growth will be maybe a few 10ths of a percentage lower because of this, and it's significant, but I don't see that completely undermining commodity markets or even the oil price, so I think there are many other things that are much more important for the oil price and many uncertainties that have greater impact on the oil price.
YG: What fiscal and financial policy tools can Chinese authorities use to fight the epidemic and promote growth?
Berglof: I think what China is doing now is ... the best response. China is really trying to address this issue in terms of affecting the economic repercussions of this. Now we see maybe it's not enough. It's coming at a difficult time for China, where there was a lot of concern about the debt situation in the economy, and there will be constraints on what China can do, but my sense is that they have a lot of firepower left to moderate the impact of the virus. My sense is that in that space, there is quite good competence and an understanding of what needs to be done.
YG: What kind of global actions do you think we need to take to cope with the new epidemic?
Berglof: First of all, I think it is a reminder that we are very closely connected, and we need to think of solving these problems together. This is a global challenge. It's an immediate challenge for China, but when it becomes a pandemic, it's a global issue, and so we need to work on these things together. You see the work that the WHO [World Health Organization] is doing it. You see that there are a lot of forces pulling in the right direction. We should really try.
Editors: Dou Shicong, Ben Armour