Posted on April 2, 2020 · Posted in Blog, General, Personal

The Covid-19 pandemic will cause a global financial crisis in 2020 that could be worse than the one triggered by the global recession of 2008-09 with the likelihood that the world economic output could recover in 2021.
The extraordinary fiscal policies already taken by many countries to boost the economy, healthcare systems and protect affected companies and workers and also the steps taken by central banks to ease monetary policies will definitely help cushion the impact of a hard landing. However, more action is certainly needed especially on the fiscal front to mitigate any further serious damage to the economy.
The economic impact is and will be severe but if the virus is contained quicker, then the stronger the economic recovery will be. As it stands, more than 80 countries have already requested for financial help from the International Monetary Fund ( IMF ) and IMF is ready and able to deploy all of its 1 trillion US dollars in lending capacity to avert a major global financial crisis.
Advanced countries are generally in a better shape to deal with this crisis, but most emerging markets and low income countries face significant challenges especially those with massive capital outflows. It has been reported that foreign investors have already removed more than 83 billion US dollars from emerging markets since the start of this crisis; the largest capital outflow ever recorded.
Every business will inevitably be impacted, with short term effects and to a lesser extent, longer term consequences. Travel and movement restrictions and quarantines affecting billions of people have left factories short of labour and parts, disrupting in-time supply chains and triggering sales warnings in almost every industry worldwide. Commodity prices have slumped in response to a fall in consumption of raw materials and the producers are cutting back output. The mobility and work disruptions have led to a marked decline in world consumption, squeezing multinational companies in almost every sector.
The Government is right in appealing to the private sector not to retrench their employees or to cut their salaries because of the current lockdown. The collapse of businesses will mean millions of workers losing their jobs, and then struggle to put food on the table and keep a roof over their heads. Besides causing undue suffering to the employees, job and salary cuts would impede a quick recovery for the businesses. A reduced consumption capacity and confidence will only further worsen the damage to the economy. Somehow, the Government has to help businesses to pay their workers when there is no production or sales. Businesses in order to survive and to continue paying their workers will need immediate soft loans at minimal interest rates with deferred repayments terms.
Global stock markets showed signs of weakness as stimulus packages announced by the governments and central banks around the world failed to cheer up the markets. Stocks continue to fall, at times free fall, due to the rising number of new infected Covid-19 cases worldwide and due to the worsening of the global economies. All sectoral indices of the stock market showed signs of weakness as investors’ sentiments remain jittery due to the subdued business activities.
Recession will certainly do serious damage to the banks due to the substantial increase in non-performing loans, declines in the value of other investments held by the banks and a marked reduction in new business revenues. To make things even worse, the situation can spiral downwards as the damage to the banks cuts into credit availability,  which exacerbates a recession which forces the banks to cut back even further.
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