Global economy 2020

Written by  //  March 28, 2020  //  Global economy  //  No comments

26-28 March
IMF declares global recession and doubles the size if its financial war chest
(Euro News) The IMF Managing Director gave her verdict after a meeting on Friday of its Financial Committee that represents 189 countries. That meeting followed another the day before with G20 leaders.
“We do project recovery in 2021,” Kristalina Georgieva said. “In fact, there may be a sizeable rebound, but only if we succeed with containing the virus everywhere and prevent liquidity problems from becoming a solvency issue.”
Although essential goods and services are still operating economic activity has basically fallen off a cliff.
The number of requests by countries seeking help from the IMF has been rising rapidly. Fifty low-income and 31 middle-income countries have approached the Fund for emergency financing so far.
G20 leaders to inject $5 trillion into global economy in fight against coronavirus
(Reuters) – Leaders of the Group of 20 major economies pledged on Thursday to inject over $5 trillion into the global economy to limit job and income losses from the coronavirus and “do whatever it takes to overcome the pandemic.”
Showing more unity than at any time since the G20 was created during the 2008-2009 financial crisis, the leaders said they committed during a videoconference summit to implement and fund all necessary health measures needed to stop the virus’ spread.
“The G20 is committed to do whatever it takes to overcome the pandemic,” along with the World Health Organization and other international institutions, they said.
Their statement contained the most conciliatory G20 language on trade in years, pledging to ensure the flow of vital medical supplies and other goods across borders and to resolve supply chain disruptions.
But it stopped well short of calling for an end to export bans that many countries have enacted on medical supplies, with the G20 leaders saying their responses should be coordinated to avoid “unnecessary interference.”
‘World Leaders Seem in Denial’: Demands for Radical Global Action on Coronavirus as Virtual G20 Summit Ends With Vague Promises
(Common Dreams) Leaders of the world’s largest economies expressed confidence after a virtual G20 summit Thursday that they “will overcome” the global coronavirus pandemic, but critics said optimistic statements and vague promises will do nothing to stem the disease outbreak in the absence of immediate, coordinated, and sweeping action.
In a joint statement (pdf) following the summit, G20 leaders said they are committed to “presenting a united front against this common threat,” even as leaders of member nations like U.S. President Donald Trump and Brazilian President Jair Bolsonaro continue to downplay the deadly virus pandemic and urge their citizens to return to work against the advice of public health experts.
Just after the event concluded, Johns Hopkins University announced that there are now more than half a million confirmed coronavirus cases worldwide.

16 March
The COVID-19 Debt Deluge
Jayati Ghosh
How long the COVID-19 crisis will last, and what its immediate economic costs will be, is anyone’s guess. But even if the pandemic’s economic impact is contained, it may have already set the stage for a debt meltdown long in the making, starting in many of the Asian emerging and developing economies on the front lines of the outbreak.
(Project Syndicate) [T]he COVID-19 crisis could have many severe economic effects, possibly pushing the global economy into recession. Supply chains are being disrupted, factories are being closed, entire regions are being locked down, and a growing number of workers are struggling to secure their livelihoods. These developments will all lead to mounting economic losses. A world economy already suffering from insufficient demand – owing to rising wealth and income inequality – is now vulnerable to a massive supply-side shock.Another potential consequence of the pandemic is less recognized but potentially more important: increased financial fragility, implying the potential for a debt crisis and even a broader financial collapse. After COVID-19 is contained and policies are implemented to ease the situation, supply chains will be restored and people will return to work with the hopes of recovering at least some of their lost incomes. But that real economic recovery could be derailed by unresolved financial and debt crises.
Today’s financial fragility far predates the COVID-19 “black swan.” Given the massive in both developed and developing countries since the 2008 financial crisis, it has long been clear that even a minor event – some “known unknown” – could have far-reaching destabilizing effects. Yet, until recently, rising asset prices – owing to a long period of extraordinarily loose monetary policies in advanced economies – disguised mounting debt levels. As the recent scare in global equity markets indicates, asset bubbles cannot last forever. By contrast, in the absence of active public pressure or state intervention to facilitate their resolution, debts do not deflate on their own.A recent analysis by the United Nations Conference on Trade and Development shows how sustained debts could pose a larger problem for the global economy and financial system.

13 March
Trump’s Global Recession
By Anders Aslund
As long as US President Donald Trump remains in office, it is difficult to envisage any credible international effort to resolve the financial crisis caused by the COVID-19 pandemic. As a result, there is now every reason to expect a long and severe global recession.
(Project Syndicate) The dearth of international clout extends beyond the US. The leaders of the European Union, the European Central Bank, and the International Monetary Fund are all new in their jobs. German Chancellor Angela Merkel is a politically weakened lame-duck leader, French President Emmanuel Macron’s international standing has slipped, and the United Kingdom’s prime minister, Boris Johnson, is preoccupied with Brexit.
Needless to say, the COVID-19 pandemic is the greatest challenge facing the global economy since 2008. And, so far, world leaders have shown that, this time, they are not up to the task of meeting it. Unless that changes very quickly, there is every reason to expect a long and severe global recession, with profound implications for developed and developing countries alike.
The Economist: All governments will struggle to cope with the spread of covid-19, which was officially declared a pandemic this week by the World Health Organisation. Some will struggle more than others. Our cover leader argues that how well countries will fare depends on three factors. One is their attitude to uncertainty: China, having imposed a brutal quarantine, is already claiming victory, perhaps prematurely; democracies are watching to see whether Italy’s largely self-policed lockdown slows the disease’s advance. Second, universal health systems, such as Britain’s, should find it easier to mobilise resources than fragmented, private ones, such as America’s, that have to worry about who pays what. Third is trust: Iran’s government is widely suspected of covering up deaths and cases. We also examine the anatomy of the virus that causes covid-19 and how it hijacks the cells of those infected. And on our Graphic Detail page we track, using mobile-phone data, how foot traffic has fallen in affected cities. Rome’s central station was 69% less busy than normal at 9am on March 6th—before the official lockdown.

9 March
The world economy essentially just got a one-two punch to the face. The coronavirus is a serious health crisis that’s morphing into an economic crisis as people stay home, cancel trips and stop spending on about everything except hand sanitizer and toilet paper. On top of that, Saudi Arabia basically launched an oil price war on Sunday. The world has a glut of oil right now and the Saudis decided not to scale back production after Russia flooded the market with extra oil. So oil prices plunged 30 percent Sunday, the largest one-time drop since the 1991 Gulf War. Oil is now trading around $30 a barrel, a price most energy companies outside Saudi Arabia can’t survive on, including many in the United States.Coronavirus Is Imploding Global Financial Markets
Several news organizations have been running a quote from Vital Knowledge founder Adam Crisafulli, who said Sunday that the oil-price crash “has become a bigger problem for markets than the coronavirus,” but this claim does not make a lot of sense to me. First of all, the oil-price crash is the coronavirus: It is a knock-on effect from the sharp drop in consumer demand for oil due to virus-related disruptions. Second, from a U.S. perspective, the effect of cratering oil prices is decidedly mixed: It’s bad for firms in the oil industry and for regions where oil extraction is a major industry (Exxon was down 14 percent just after the open Monday), but it’s good for businesses and consumers that rely on petroleum products, which will get cheaper.

28 February
Solidarity Now
Joseph E. Stiglitz
After decades of shaping global and national economic policies according to the dictates of neoliberal ideology, public sectors are starved, climate change is accelerating, inequality is on the rise, and democracies are confronting near-unprecedented crises. The only way forward is to leave behind the defunct economic nostrums of the past.
(Project Syndicate) The capitalist system itself is undergoing yet another , and many countries are facing various trials of their own. The United States is in the grips of an opioid crisis, a childhood diabetes crisis, and a political crisis. China, already struggling to maintain growth in the context of a broader trade and technology war with US President Donald Trump’s administration, is beset by a coronavirus epidemic that threatens to become a pandemic. Argentina is , and mass demonstrations are roiling countries worldwide.
Looming in the background is a deeper ethical crisis that is evident pretty much everywhere. Business leaders, myopically , have displayed remarkable moral turpitude. The financial sector has been marked by predatory lending, market manipulation, and abusive consumer-credit practices. Automakers have been caught gaming environmental regulations. The food and beverage industry is knowingly contributing to childhood obesity . Pharmaceutical companies are pushing addictive drugs even as they claim otherwise (while into desperately needed new antibiotics).
Or consider Facebook, one of the world’s largest communication and media companies. Last year, the company’s leaders made no apologies for knowingly permitting targeted disinformation campaigns and acts of political subterfuge on their platform, regardless of the consequences for democracy. The company now epitomizes the dangers of a privately controlled monopolistic surveillance economy.
… Over the past few years, I have been developing a vision of “” that aspires to strike a better balance between markets and other institutions. Needless to say, this would represent a significant departure from the unfettered, lightly regulated system we have now. Progressive capitalism recognizes that for most firms, the easiest way to maximize profits is to amass market power, crush competitors, block would-be challengers, exploit others’ vulnerabilities, and secure rents, including through undue political influence. As we have seen repeatedly in recent decades – from Enron to Purdue Pharma to Volkswagen – contributing to society tends to come last. That is why we need regulation. The Ten Commandments were a simple set of regulations for a relatively simple society. Today, we need complex regulations for a highly complex modern global economy.

20 February
Coronavirus poses risks to fragile recovery in global economy: IMF
(Reuters) – The coronavirus epidemic has already disrupted economic growth in China and a further spread to other countries could derail a “highly fragile” projected recovery in the global economy in 2020, the International Monetary Fund warned on Wednesday.
In a note for G20 finance ministers and central bankers, the global lender mapped out many risks facing the global economy, including the disease and a renewed spike in U.S.-China trade tensions, as well as climate-related disasters.
IMF Managing Director Kristalina Georgieva said the outbreak was a stark reminder of how unforeseen events could threaten a fragile recovery, and urged G20 policymakers to work to reduce other uncertainties linked to trade, climate change and inequality.
Global implications of a US-led currency war
In 2019, President Trump called on the U.S. Federal Reserve to cut interest rates to depreciate the U.S. dollar, which, according to the IMF, is overvalued by between 6 and 12 percent. …
Such a policy would likely result in a larger U.S. trade deficit, would only temporarily devalue the real effective exchange rate and would only temporarily support the U.S. economy. The policy would boost the trade balances of most U.S. trading partners, depreciate China’s exchange rate and boost China’s GDP. Given the policy would make the overvalued exchange rates of many economies even more overvalued, the paper explores what would happen if U.S. trading partners were to retaliate by devaluing their currencies. It shows that this makes it harder for the U.S. to achieve its objectives and forces a more severe adjustment for economies that presently have undervalued exchange rates. Download paper

19 February
Finding Solid Footing for the Global Economy
(IMF blog) As the Group of Twenty industrialized and emerging market economies (G-20) finance ministers and central bank governors gather in Riyadh this week, they face an uncertain economic landscape.

17 February
Nouriel Rubini: The White Swans of 2020
Financial markets remain blissfully in denial of the many predictable global crises that could come to a head this year, particularly in the months before the US presidential election. In addition to the increasingly obvious risks associated with climate change, at least four countries want to destabilize the US from within.
Beyond the usual economic and policy risks that most financial analysts worry about, a number of potentially seismic white swans are visible on the horizon this year. Any of them could trigger severe economic, financial, political, and geopolitical disturbances unlike anything since the 2008 crisis.
…open aggression is not really an option at this point, given the asymmetry of conventional power. China’s immediate response to US containment efforts will likely take the form of cyberwarfare. There are several obvious targets. Chinese hackers (and their Russian, North Korean, and Iranian counterparts) could interfere in the US election by flooding Americans with misinformation and deep fakes. With the US electorate already so polarized, it is not difficult to imagine armed partisans taking to the streets to challenge the results, leading to serious violence and chaos.Revisionist powers could also attack the US and Western financial systems – including the Society for Worldwide Interbank Financial Telecommunication (SWIFT) platform. Already, European Central Bank President Christine Lagarde has warned that a cyberattack on European financial markets could cost $645 billion. And security officials have expressed similar concerns about the US, where an even wider range of telecommunication infrastructure is potentially vulnerable.

15 February
The new coronavirus could have a lasting impact on global supply chains
Multinationals have failed to take seriously the risk of disruption
(The Economist) [C]onsider Apple. Such is the American tech titan’s reliance on the Chinese mainland for parts and assembly that United Airlines typically shuttles some 50 of its executives between California and China each day. But not at the moment. United and other carriers have suspended flights to and from China. A lack of workers meant that after the end of the lunar new-year holiday Foxconn, which makes most of Apple’s iPhones in China, could not get its assembly plants back to full capacity this week. Analysts reckon that the virus could lead to Apple shipping 5-10% fewer iPhones this quarter and could scupper its plans to ramp up production of its popular AirPods.
As covid-19 spreads, its effect on business is amplified. … The Singapore Air Show earned the city-state some $250m in 2018, but far less this week owing to cancellations by 70 companies including Lockheed Martin. The Mobile World Congress, a giant telecoms conference due to take place in Barcelona this month, has been cancelled after companies from Vodafone and BT to Facebook and Amazon pulled out. It is increasingly clear that the virus could damage global supply chains, costing the world’s economy dearly. …the bosses of [multinationals] have done little to prepare for shocks such as that inflicted by the outbreak of the new coronavirus. …big multinationals have left themselves dangerously exposed to supply-chain risk owing to strategies designed to bring down their costs. …giant firms are much more reliant on Chinese factories today than they were at the time of the SARS outbreak in 2003. China now accounts for 16% of global GDP, up from 4% back then. Its share of all exports in textiles and apparel is now 40% of the global total.
Mainland suppliers no longer simply assemble products; they make many of the parts that go into them as well.
…the regions worst affected by covid-19 and the subsequent government lockdowns are particularly important to several global industries. The electronics industry is most at risk, according to Llamasoft, a supply-chain analytics firm, because of its relatively thin inventories and its lack of alternative sources for parts.

4 February
Africa Is the Last Frontier for Global Growth
If Africa sustains and accelerates structural reforms over the next half-century, some believe that the continent can emulate China’s rapid rise of the last 50 years. But success is far from guaranteed, even as the consequences of failure would be grave – and global.
Africa today accounts for around 17% of the world’s population, but only about 3% of global GDP. These statistics not only attest to a failure to tap the continent’s developmental potential, but also highlight the tremendous opportunities and risks ahead. As long as Africa continues to lag economically, it will be a source of global instability and extremism. But if it rises, it could be one of the major sources of growth for the world.

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