Page 25 - bne Magazine Apri20

bne April 2020 Cover Story I 25
Worldwide, a recession appears of 5.4% this year that will have knock possibly starting a global debt crisis,
effects round the world.
Europe, where the number of infections continues to grow rapidly and lockdowns are pervasive, will see some of the worst recessions in the developed world on the order of 4.5% contractions or worse, according to IHS. Italy alone faces a decline of 6% or more.
“The peak GDP contractions expected in the second quarter of 2020 will far exceed those at the height of the global financial crisis,” says Nariman Behravesh, Chief Economist at IHS Markit.
Most of these numbers remain guesswork. And most assume the virus will pass through the global populations relatively quickly so the end of the first wave will finished by the autumn. But
inevitable after the coronavirus
(COVID-19) swept through countries one after the other. The
immediate problem each government is facing is to contain the spread of the virus, or at least to slow it down to “flatten the curve” so that national health institutions can cope with the more serious cases.
But then what? By the end of March the virus was in retreat in China, at full force in countries like Italy and Spain, but only starting to take off in the rest of Europe and America.
Each country has had a different response and with analysts now saying the coronavirus pandemic coupled with the crash in oil prices will lead
to a deeper recession than in 2008, countries are trying to get prepared.
Just how bad it will get remains anyone’s guess. In the last week of March economists from the likes of IHS Markit, the Institute of International Finance (IIF), Capital Economics and a score of investment banks began to bring out new 2020 forecasts. Emerging European economies were expected to fall by 1%-2% said many of these predictions after a heavy crash in the second quarter but a recovery beginning in the third or fourth quarter. Most of these assume
the virus burns out sometime over the summer, but all of them point out that the risks are heavily on the downside.
“We don't even want to call ours a forecast, as that implies too much certainty. At
this point the story is changing every day and we simply have no clear idea of what will happen next,” said Charlie Robinson, chief economist at Renaissance Capital.
IHS Markit believes the COVID-19 recession will be deeper than the one following the global financial crisis in 2008-09. Real world GDP should plunge 2.8% in 2020 compared with a drop of 1.7% in 2009. Many key economies will see double-digit declines (at annualized rates) in the second quarter, with the contraction continuing into the third quarter. One of the worst hit will be
the US that will see a GDP contraction
which would do as much damage over again as the virus is clearly going to do.
Early warnings of debt and financial crises have already appeared in some countries. Belarus warned at the end
of March that it may default on some
of its debt to International Financial Institutions (IFIs) this year. Ukraine’s central bank was forced to burn through $2bn to deal with panic buying of dollars in the third week of the month and Interpipe, one of the biggest concerns
in the country has also announced it is forcing a restructuring of its bonds on investors.
“It will likely take two to three years
for most economies to return to their pre-pandemic levels of output. More troubling is the likelihood that, because
“The peak GDP contractions expected in the second quarter of 2020 will far exceed those at the height of the global financial crisis”
bigger risks lie ahead. With most of the economies of the world heavily indebted following the 2008 crisis governments have less firepower to cope this time round. The US Federal Reserve bank has already cut interest rates to zero in the US right at the start of the exponential growth of the epidemic to no effect. Defaults and bankruptcies threaten
to oscillate with the public health catastrophe and amplify the problems,
of the negative effects of the uncertainty associated with the virus on capital spending, the path of potential GDP will be lower than before. This happened in the wake of the global financial crisis,” says Behravesh.
Things are still moving fast.
bne IntelliNews surveys what each country has done to date.
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