The association of COVID-19 nexus on China's economy: A financial crisis or a health crisis?

Abstract

This paper analyses the interaction between the novel coronavirus pandemic (COVID-19), unemployment rate, stock market, consumer confidence index (CCI), and economic policy uncertainty (EPU) index in China within a time-frequency framework. We compare the changes in economic indicators during the global financial crisis (GFC) and study the different impacts of the two events on China’s economy. An unprecedented impact of COVID-19 shocks on the unemployment rate, CCI, EPU index, and stock market volatility over the low frequency bands is uncovered by applying the coherence wavelet method to China monthly data. The COVID-19 effect on the stock market volatility and the EPU index is substantially higher than on the unemployment rate and the CCI. On the contrary, the GFC’s impact on the unemployment rate is much greater than that on the EPU index and CCI. Additionally, the impact of the GFC on the economy is more cyclical in the long-term, while the COVID-19 pandemic is a short-term shock with a relatively short oscillation cycle. This study concludes that the economic impact of COVID-19 will not spread into a financial crisis for China and believe that the COVID-19 pandemic is more of a health event than an economic crisis for Chinese economy.