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Best of the Web - Apr '20

Executive Summary

The global economy continued to be impacted by the overreaching of the Covid-19 outbreak, and the responses of governments to combat the spread of the disease while attempting to mitigate the economic damage of lockdowns.

What will 2020 look like for the global economy?

As Covid-19 continued to ravage the world, infecting more than 3 mn people and killing more than 200,000 by end April, analysts became far more pessimistic about their expectations for the global economy.

Much worse than 2008: Many analysts across the world are now expecting the economic fallout this year to be worse than what was seen in 2008 during the global financial crisis, with a global recession well exceeding the 0.5% contraction seen in 2008. The IMF even expects that this will be the worst year since the Great Depression, with massive hits on to the global economy.

No country is safe: Unlike in previous slowdowns, where the emerging and developing world escaped outright contractions, analysts are beginning to see contractions across the emerging world too. Even China and India, stalwarts of the emerging growth story, could see their growth rates fall to lower than 1% according to the IMF.

Recovery is dependent on containment: Despite the terrible economic situation in 2020, many analysts still feel that a strong recovery is on the cards in 2021. However, most stress that this is entirely dependent on the virus being contained soon, along with strong coordinated stimulus measures by governments, and that without this, a recovery could extend well into 2021 or even beyond.

How will the economic damage of lockdowns be managed?

Starting to reopen: Most European countries are starting to see the curves of their outbreaks start to flatten and are hence looking at reopening their economies. Combined with record fiscal stimulus measures in the developed world, such gradual reopening could mitigate the damage from lockdowns. However, some analysts warn that record levels of unemployment (notably in the US), could mean that far more support would be needed to return to normal.

Developing world hit more: While the developed world is banking on strong fiscal and monetary measures to support their attempts to return to normalcy, developing countries have less leeway in this regard. Running high fiscal deficits could reduce their credibility in international financial markets and increase monetary supply could severely impact their exchange rates, limiting their policy options.

A second wave could be disastrous: If reopening of economies causes a second wave of infections, as seen in places like Hokkaido in Japan, more lockdowns would be on the plate, and possibly being required for even longer. Some analysts believe that if this were to happen, the impacts on consumer and business sentiment could be much worse than right now.

How have commodities been performing?

Oil prices seesawed, but were lower:

Oil prices seesawed this month, but remained materially lower than in previous months, as low demand rocked energy markets. Prices fell from US$ 27.39 per barrel on March 25th to US$ 22.74 per barrel on March 31st, before a limited supply cut arrangement between Saudi Arabia and Russia raised prices to US$ 34.11 by April 3rd. However, as demand continued to plummet, prices fell to 20 year lows of US$ 19.33 per barrel by April 21st, with some US contracts even falling to negative numbers.

Gold prices moved higher again:

While equity markets recovered off record stimulus from the US Federal Reserve, the price of gold stabilised somewhat, and resumed an upward trajectory with demand for safe haven assets rising. Prices rose from lows of US% 1,591.40 per ounce on April 1st to highs of US$1,768.90 by April 14th, before stabilizing at mid-1,700 levels.


Top 5

Coronavirus 'Great Lockdown' will shrink global economy by 3% in 2020: IMF The IMF expects the world to mark the biggest decline in economic activity since the Great Depression of the 1930s where the economy is expected to shrink by 3% in 2020. Further, a longer pandemic in 2020 and a second outbreak in 2021 could also delay the current expected levels of economic recovery.

The risk of a US double-dip depression is real

Experts warn that attempts to accelerate the restarting of the US economy may result in a second wave of COVID-19 cases. With much of the rest of the world also focused on mitigating the pandemic, the best course of action may be to aim for a U-shaped recovery.

Will the Coronavirus Cause Emerging Markets to be Left Behind?

Market analysts forecast that EM countries may witness a late peak in COVID-19 cases, adding to strapped healthcare systems and fiscal constraints. This may result in EMs being left behind as the rest of the world embarks on a path to recovery in the medium term.

The IMF says its forecast for the COVID-19 recession might now be too optimistic

The IMF sees GDP per capita shrinking across 170 nations due to the coronavirus pandemic, but the projection "may actually be a more optimistic picture than reality produces." The IMF noted that even a short-lived outbreak would drag the world into a 3% GDP contraction. A resurgence of COVID-19 in 2021 could leave economies struggling for years to come Read more -

Coronavirus could cause more countries to default on their debt, economist says An increasing number of countries could default on their debt in the coming 12-18 months as governments globally increase spending to limit the economic damage from the coronavirus pandemic says economists.

Compiled by: Chayu Damsinghe

Disclaimer: This information has been compiled from sources believed to be reliable but Frontier Research Private Limited does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment as of the date of the material and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The recipient of this report must make their own independent decision regarding any securities or financial instruments mentioned herein. Securities or financial instruments mentioned herein may not be suitable to all investors.


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