The International Monetary Fund expects GDP to decline in 170 countries due to the “Corona” epidemic, and that estimates “may be a more optimistic picture than reality produces”… If the epidemic does not last long, the world will know a 3% contraction, but if the pandemic returns in 2021 The global economy may bear the consequences for many years, according to fund director Kristalina Georgieva, who did not rule out that the recession was worse than what the world knew in 2008, but worse than the Great Depression of 1920-1921.
This is not surprising, as the global economic wheel spins hard, and we hear about major companies approaching bankruptcy and calling on governments (similar to the German airline Lufthansa recently). Rather, what deepens the crisis even more, is the fact that “Coffid-19” struck him at a time when the economy was not kicking the garment of prosperity, but rather defaults on more than one level due to the global political atmosphere, disputes over environmental dangers, and various trade wars, the most important of which, of course, was its comfort. On the American-Chinese “front”.
And the American-Turkish economist Nouriel Roubini pointed out that the effective governments did not better deal with the causes of the 2008-2009 financial crisis, so she addressed the results and neglected the causes of imbalances and dangers. Instead of dealing with the structural problems exposed by the financial meltdown and the ensuing recession, it removed or delayed the problem, which made the occurrence of a new crisis imperative.
Roubini enumerates factors that will lead to the crisis that he considers to be coming, even if the post-pandemic economy witnessed some recovery. At the forefront of these reasons is the spending of billions in money to deal with the consequences of the health disaster, as many of the countries concerned have been heavily indebted since before the deadly virus, to the point that some of them are unable to pay them or reduce the deficits in their public finances. Here the public debt will mate with the debts of the private sector at the level of institutions (bankruptcy, default, lack of liquidity …) and individuals (unemployment, declining income, non-payment of loans …). So where do these countries, for example, bear the costs of growing unemployment and raising funds to help the unemployed?
Here it is worth noting the negative effects of trade globalization that deepens the crisis of rich countries, because poor and even middle countries are no longer able to partially and sometimes completely import, which leads to the accumulation of goods that were intended for export in industrialized countries. We have heard about a decrease in inflation in Germany, for example, and it is not positive for anything if the decline in prices reaches the level of deflation due to the decline in exports in parallel with the decrease in domestic consumer spending.
You can certainly continue to describe the problem and its comprehensive implications for all economic sectors, but it is worth paying attention to the fact that states and governments are inevitably looking for ways to solve it, especially as the matter requires deep planning and a long breath. There is no doubt that attention is directed to the countries with large economies and the capabilities considered to be a pioneer in touching the exit path. What is the current reality of the four major economies economically?
The number one damage to the US economy is evidenced by the number one: 30 million people have filled out forms to help the unemployed, that is, about a sixth of the workforce in the United States.
In parallel, economic output fell about 5% in the first three months of 2020, in the largest decline since 2008. Most analysts expect the decline to be much worse in the second quarter, some even indicating that the unemployment rate may reach 40% From the workforce, which is a heavy burden for any country, even if it has the number one economy in the world.
The federal authorities were quick to move to contain the problem, so the Federal Reserve (Central Bank) confirmed that it would do everything possible to support the economy and provide liquidity. He cut interest rates to near zero, lowered the banks’ cash requirements to zero as well, and bought about $ 2 trillion of treasury bonds and securities backed by mortgages, and provided emergency loans to various institutions.
In addition, the Congress passed legislation with an emergency package worth $ 2 trillion, which includes $ 1,200 aid for individuals, corporate loans, and an increase in unemployment benefits …
The healthy storm came from China in December 2019, and when it was windy, the authorities closed the country and halted the economy. Stone and insulation weeks in dozens of cities have led to a sharp drop in factory production, retail sales, construction work and so on. In general, GDP fell by almost 7% in the first quarter of 2020, the first Chinese economic downturn in more than four decades.
However, after the success of the isolation and divergence measures in containing the epidemic, China rushed to launch the economy last April. However, Beijing’s top authority appears less inclined to lead the global economic recovery than it did after the 2008-2009 financial crisis when it spent a lot on a stimulus package worth more than half a trillion dollars. In the years that followed, China almost doubled its government debt to about 60% of GDP, and therefore many analysts believe it cannot afford to spend strongly again. The proof of this is that the Chinese central bank has been satisfied with relatively modest measures so far, most notably the reduction of banks’ cash reserves requirements, which will allow them to lend to troubled companies $ 80 billion. The central bank also announced that it will cut interest rates in the coming months.
The direction China will take is not known until it discloses the economic growth it is targeting this year. If it is ambitious up to 6%, this means that it will spend a lot on the stimulus package, but if it sets a more modest number closer to 2.5 or 3%, then this means that it will not Spend more than you currently do. It should be noted that achieving the stated goal of doubling gross domestic product between 2010 and 2020 obliges the world’s second largest economy to achieve growth of at least 5.6% this year.
Japan is the third largest economy in the world. It is an economy primarily export-oriented, and experts expect it to shrink about 3% this year, in what will be its worst performance since 2008. The deep impact of the epidemic comes after the economic slowdown caused by the sales tax increase last fall.
The government of Shinzo Abe has responded with a massive $ 1 trillion relief package to help the country’s economy during one of its most difficult phases in recent decades.
The Japanese central bank announced in late April its willingness to buy an unlimited number of government debt and double its purchases of corporate debt. However, the bank’s options seem limited after keeping interest rates close to zero for years, meaning that it cannot stimulate the economy by cutting interest.
The German economy is moving towards deflation at a “steady pace” for the first time since 2009, with a rate of up to 10%, knowing that the Angela Merkel government expected a contraction of just over 6%, which in any case will be the worst performance of the economy in decades.
Berlin has taken bold measures to confront the crisis, abandoning the “doctrine” of firm commitment to balanced budgets, known as the “Schwarze-Noll” or “Black Zero”. The government has allocated 350 billion euros – just under 10% of its gross domestic product – to support the largest economy in the euro zone and the fourth in the world. The money will be spent to save troubled companies by lending them and the possibility of buying stakes in them.
Merkel did not hesitate to say that the government would “do whatever is necessary” to save the economy, abandoning caution that it did not abandon about the European Union partners when it stood firmly in the face of the idea of ”Corona bonds”, so that they would not be borrowed by it and Germany would be the guarantor that bears any. Default on payment.
It seems clear from the conditions of the first four economies in the globe that the virus is stronger than it, and that all it does is deal in a reactive manner with the emergency situation, without being able to see the far horizons and plan for long or even medium terms. It also seems clear that there is a great possibility that the feeling of “economic nationalism” that will drive governments to strengthen their borders and close their economies … and in which it will deserve another characteristic of another world, which may be worth another research, may increase in the climate of “war” that was spread by “Covid-19”.