On the evening of April 19, "BOAO IFENG NIGHT 2021", jointly organized by finance.ifeng.com, the PBC School of Finance (PBCSF), Tsinghua University and the National Institute of Financial Research (NIFR) was held at the Boao Forum for China. Officials, scholars, entrepreneurs and media professionals joined and shared their insights on "New Situation and New Opportunities: China's Economy Towards A New Journey" at the session.

Zhu Min, chair of the NIFR, Tsinghua University and former deputy managing director of the International Monetary Fund (IMF), talked about the global economy and finance from three aspects: strong recovery of the global economy, unbalanced recovery among countries, and potential inflation risks behind the economic recovery.

According to Zhu Min, the United States’ current economy is overheating. Due to the strong stimulus plan of USD 1.9 trillion, the US economy has witnessed a super-strong growth this year, with an expected growth rate of 6-7%. However, the calculation model shows that the USA's potential economic growth rate is only 2.5%-2.6%, so from the end of the second quarter, or the third quarter of this year, the US economy will have exceeded the potential growth by more than three percent, in which case, the USA's economic overheating is unavoidable.

"If there aren't other stimulus plans following the USD 1.9 trillion plan, an economic recession may be predicted," said Zhu Min. The reason is that the suspension of fiscal incentives threatens to cause a decline in the total demand, which will further trigger an economic recession. Apparently, continuous stimulus plans have been initiated when the USD 1.9 trillion plan was not in place. Recently, Biden has proposed another USD 2 trillion infrastructure plan and the availability of follow-up plans is also possible.

Zhu Min has mentioned that inflation may occur after economic overheat, especially in inflationary expectations. 

"It remains unknown to us how the Federal Reserve will respond to the sword of inflation which is now hanging over the global economy and finance. The overheated economy drives the surging of inflation, which imposes great uncertainties on the global economy and market. This is an issue that the world should pay special attention to today," he said.

Although various parties in the USA have not reached an agreement on inflation, Zhu Min believes that rising structural inflation is inevitable.

He said that the US expenditure on health care accounts for 20% of its total GDP. Last year, the demand for health care was greatly boosted due to COVID-19. This year this demand will even increase in an explosive way, causing the rise in health care prices. With the robust development of high-tech industries, recruitment conditions in these industries have led to a rise in wages. Young people will see a 50% increase in their wages after they find new jobs in high-tech companies. There is also a high probability of the rise in prices of commodities. Even though the USA has imposed a strong driving force, commodity suppliers are still affected by the pandemic, so the total supply is unbalanced. The superposition of these factors will basically cause the structural inflation.

 "I am not sure if this structural inflation or transitional inflation will develop into comprehensive inflation. Though I cannot come to a conclusion for this question, the potential risks do exist." said Zhu Min.

 (Source: finance.ifeng.com)