Written by: Irina Poghosyan
Major economists and financial market analysts believe that the world is waiting for another economic crisis. It, as many experts predict, will come this year during the continuing lockdowns and isolations. Starting from 2019, the world has faced disasters and catastrophes, with the majority of which was not possible to predict.
The line of events includes but not limited to Brexit, US-China trade war, Australia’s fires, China-Europe trade war, oil price instabilities and Russian currency depreciation. Many scholars believe that the consequence of the above-mentioned factors will surpass the crisis of 2008-2009 in duration and power.
Back in October 2019, IMF Governor announced a record slowdown in the global economy. The World Bank forecasts show the same trend. The economies tried to understand the causes and possible consequences of the new crisis and the toughest forecast was a sharp fall in oil prices, which eventually happened recently. In 2020, the world will face another economic shock as well, as the International Monetary Fund released. The trigger will be a sharp slowdown in the global economy, along with huge public debts. Major investment banks claim that the situation on the stock markets is very similar to 2008.
The current economic slowdown mainly consists of the following points. The major one is the increase in customs duties by the US and China during the trade war, and later on the slowdown in global GDP growth to 0.8%. Financial markets will suffer as well in terms of a sharp drop in demand and prices for hydrocarbons, and “bubbles” on the largest stock markets.
The IMF representative, Kristalina Georgieva, in a program speech announced a record slowdown in the global economy while pointing out some serious numbers, “corporate debt with the risk of default will rise to $19 trillion, or almost 40% of the total debt in the eight leading economies. This exceeds the levels observed during the financial crisis.” Additionally, she reported the consequences of US-China trade war, mentioning that there are no gainers in a war, everyone loses. Cumulatively the loss can be approximated over $700 billion USD in 2020.
At the end of the financial year 2019, the growth rate of the world economy has been accounted to be the lowest since the financial crisis of 2008, the Organization for Economic Cooperation and Development (OECD) recorded. This is another indicator that the economic downturn is not far off.
The report of the United Nations Conference on Trade and Development (UNCTAD) highlights that one of the main threats to the global economy is an unprecedented level of debt. Based on the Monetary Fund’s warnings, record debts can turn into the next economic crisis which will be the most destructive in history. The IMF estimates that the debt burden of developed economies has peaked since World War II. In developed countries, the volume of liabilities increased by 1.6 trillion to 177 trillion dollars. For example, Japan’s debt is 175 percent of GDP, and Singapore’s is 108 percent. However, in these countries, liabilities are converted into national currency and almost entirely owned by domestic investors, so the debt is relatively immune to credit rating downgrades from foreign investors and international rating agencies.
The current rapid rise of the US economy is fraught with a stock market crash, on a scale comparable to the great depression of the 30s of the last centuries. Major indicators of the US economy came from the trade war, as well as the current pandemic situation all over the world (Cruse, 2020). Additionally, the UK is facing an economic change back from the beginning of the Brexit agreement. The loss of the UK economy after leaving the European Union has been estimated by various experts. The most common estimated was the drop of level of 3% to 9% of GDP (Bloomberg LP, 2020). As from each uncertain situation, the industry, agriculture and the financial sector are particularly at risk. At the same time, companies have already changed their British registration to an Irish or other European country.
Recently, the market experienced a slow economic growth in the UK economy (Barnes, 2020). This will lead to higher interest income trends and slow rental growth, especially in sectors that depend on European Union relations, such as office space rentals in London. The London office property market did suffer, but to a lesser extent than expected (Merrick, 2020). However, the renting agencies are experiencing a low turnover due to the Coronavirus.
People are not willing to move or relocate themselves as it might directly affect the well being of them and their family. However, the demand might shift towards the private housing market sector, if the prices will fall, which will gradually become a more attractive alternative for both buyers and institutional investors focused on current income, as well as increasing the cost of capital (Bloomberg LP, 2020). The major gainers in this situation are commodity market players. The supermarkets such as Sainsbury’s, Waitrose, M&S and Tesco are experiencing high demand and low stock availability, thus decreased supply.
My personal investigation leads to the idea that the economic and financial consequences will only fully manifest themselves in a few months or years. For now, it is not possible to fully assess the economic consequences of the current unpredicted situation happening all over the world. However, it is clear that not a single economy can survive while being in a lockdown for more than 3-4 months, hence, my predictions conclude that the ongoing situation will likely to be adjusted by the end of the coming month.
Other noticeable factors can indicate the improvement of the situation, such as the prices of the face masks. If the prices in the market start decreasing, then the trend and the shock will be going down.
Additionally, the financial indicator is the stock price of the company, which is working on vaccination. With the increase of stock prices, the chances of improvement of the situation increases as well. As soon as the uncertainty subsides, the economic situation will start to improve.
The main driving forces of the economy will continue to support the growth rate. Increasing imbalances in capital markets and tightening credit standards have created significant opportunities for investors with strong balance sheets who specialize in real estate and construction and have access to capital.
References and Bibliography
Mayes, J. (2019). Bloomberg – Are you a robot? [online] Bloomberg.com. Available at: https://www.bloomberg.com/brexit [Accessed 6 May 2019].
Bosotti, A. (2020). Brexit lifeline: Boris given chance to bypass extension pledge to delay EU trade talks. [online] Express.co.uk. Available at: https://www.express.co.uk/news/uk/1263995/Boris-Johnson-news-extension-Brexit-trade-negotiation-EU-UK-latest [Accessed 2 Apr. 2020].
Boffey, D. (2015). Brexit | The Guardian. [online] the Guardian. Available at: https://www.theguardian.com/politics/eu-referendum.
Barnes, P. (2019). Brexit: What happens now? BBC News. [online] 30 Jan. Available at: https://www.bbc.co.uk/news/uk-politics-46393399.
Merrick, R. (2020). Brexit will make it harder to fight future pandemics, Jeremy Hunt warns. [online] The Independent. Available at: https://www.independent.co.uk/news/uk/politics/coronavirus-uk-brexit-pandemic-news-jeremy-hunt-a9438556.html [Accessed 2 Apr. 2020].
Cruse, E. (2020). PM “should extend Brexit transition period in wake of virus outbreak.” [online] Evening Standard. Available at: https://www.standard.co.uk/news/politics/boris-johnson-post-brexit-trade-deal-coronavirus-a4401761.html [Accessed 2 Apr. 2020].