Coronavirus has put the world economy on the brink of crisis, and it may be the most serious for a century. Hopes for a rapid recovery of the planet are shrinking with each passing day, and the bill for treatment is escalating. The virus has already cost the world tens of billions of dollars, and this is just the beginning, warn the economists. About it writes BBC.
If prior to closing Europe and the United States on quarantine and the collapse of financial and commodity markets, experts cautiously predicted a slowdown in growth of wealth in the world, now most agree that the world will become poorer.
They warn that the looming economic downturn can be more devastating to the welfare of the planet than the financial collapse a decade ago, because this time the problem is wider and deeper.
Last time stalled banking system launched the Central banks by printing money. The current crisis has undermined the entire economy: manufacturing and the services sector, and demand — and therefore need targeted interventions that will have to chip everyone.
“This time another problem — the disruptions in the real economy. And cannot be resolved exclusively by Central banks,” says Rupert Harrison of the world’s largest investment Fund BlackRock.
“Crisis management tools, developed since the crises of the world financial system and the Euro zone, designed to combat problems of quite different properties. This time it’s different” — agree with economists, warned in an open letter that the coronavirus threatens not only the European economy but also its unity.
The authorities of all countries of the world will have to spend hundreds of billions of dollars of taxpayers ‘ money to eliminate it as a cause of the crisis is to stop the epidemic, and the consequences — to support the affected people and businesses. This can cause problems: we have to act quickly, decisively, and expensive, and preferably in coordination with its neighbors, which politicians of many countries is difficult.
How much and what will have to spend
Some countries have already declared that will allocate money to fight the crisis. Other politicians are traded. Amounts in any case only preliminary, but they already exceeded $100 billion.
This is clearly not enough.
EU countries will have to spend for the year of about $350 billion on liquidation of consequences of a month of quarantine, estimated by one group of economists.
What will this money go? Three main things: support of health, people and business.
The first will allow to cope with the epidemic, the second is to support demand in the economy and social stability, the third is to revive the supply of goods and services.
The state will need as people who have lost earnings because of the quarantine, and the companies that have lost their workforce, suppliers and customers. It can be in the form of budget subsidies, tax breaks and monetary compensation.
Social expenditures in many countries will grow if the government will loosen policy at a time of crisis, for example, increase unemployment benefits and extend the circle having the right on these and other benefits, such as paid sick leave.
Business has sounded the alarm from the screams for help it is clear that we are talking not only about loss of profits. Millions of people will lose their jobs, thousands of companies will go bankrupt. Authorities are facing a difficult choice: to support the business now or later to support the unemployed, and even in conditions when the Treasury has less money because of reduced tax revenues.
Now at the forefront of tourism and aviation. World Council for tourism and travel has warned that the pandemic could deprive the industry 50 million jobs and reduce the market of tourist services in the quarter this year.
Only in Spain in February, the occupancy rate of hotels fell by 20-30% compared to last year. Even before the full lockdown Madrid hotels lost every fourth lodger, and Barcelona — every fifth.
The airline has sharply reduced the transport of passengers, first in Asia and then in the United States and Europe. They do not skimp on the epithets, talking about the worst crisis in the history of civil aviation and has already asked about a billion in aid from governments, although most of the ban on flights has not yet entered into force.
Under threat the whole sphere of services: from restaurants and studios to universities and taxis. Great sport has lost billions of dollars in revenue from broadcast and ticket sales. In the queue for subsidies even lined up oil and gas companies, discouraged by the collapse in demand and oil prices.
And this is only the beginning
The package of budget assistance in the United States only passed the lower house of Congress, and its volume is known only approximately: just more than $10 billion but less than $50 billion, which stuttered the President of the United States Donald trump.
The EU promised to allocate about 40 billion euros. The victim more than any other Italy — up to 25 billion euros. Switzerland and South Korea by $10 billion, Egypt — $6 billion France, Australia, New Zealand and Japan pledged to do “everything possible” to support the economy by the Treasury. China launched a massive stimulus programme of production through tax breaks and preferential loans.
And this despite the fact that none of these countries have not yet faced the full consequences of the crisis. And they are serious, economist Mohamed El-Erian, who worked in senior positions in the IMF and in the administration of Barack Obama, as well as in the investment Fund Pimco and Allianz insurance company.
“In the near future the world will face economic problems that are more serious and bigger of everything that has ever gone through the majority of the population in developed countries,” he shared his insights after several weeks of conversations with economists, doctors and scientists specializing in behavioral models.
“We live in a global economy that is configured on the growing interconnectedness. But suddenly the health required social fragmentation, division and isolation. This is contrary to everything that underpins economic growth, prosperity and financial stability,” he described El-Erian prerequisites for the deepening crisis.
How we will become poorer
Until the advent of the coronavirus economists expect global growth of about three percent in 2020. Now they want a recession and differ only in the estimates of its duration: it all depends on how the pandemic will evolve.
If at year-end economy will not grow, the world will lose about $4 trillion. It’s more than the GDP of Germany, Europe’s largest economy, and two-and-a-half times Russia’s GDP.
Of the three leading global economies — the US, EU and China — the two still look to increase wealth, albeit less than expected, and one — the European Union is being prepared to tighten the belt.
European officials in early March said that the new estimates suggest a decline for the year by about 1%.
The US economy, the largest in the world, while the path to growth, but also in the United States economists are gradually beginning to revise forecasts. In the March survey, University of Chicago, they were a little less pessimistic than the European counterparts: 62% see the probability of a major recession in the world because of the coronavirus against 82% of European economists, mostly locked up at home in quarantine.
As the US, China and EU account for two thirds of economic activity in the world, recession in Europe and the significant slowdown in China would be enough to brake the world economy. And if we add the threat of commodity-dependent countries from falling prices for oil and metals, the picture is depressing.
The scale of the problems in the West is not yet reflected in the statistics, but it can be roughly judged by leading indicators from China, which in February froze the activity in industry and the service sector. The decline was more substantial than in the beginning of the previous crisis ten years ago.