Virus fallout: Economists see global recovery in 6-9 months

The global economy, which is in the grip of a recession as the coronavirus pandemic ravages mankind with unbridled ferocity, stands a chance to get into recovery mode in six to nine months if mass testing is rolled out urgently and governments across the world guarantee to support demand and provide financial stimulus, economists said.
Nigel Green, the CEO and founder of deVere Group, one of the world's largest independent financial advisory and services organisations, is one among a few economists who share this optimism.
His forecast of a conditional recovery comes as global stocks held steady on Tuesday, after rallying on tentative indicators the Chinese economy - the world's second-largest - is stabilising following coronavirus lockdowns being lifted.
However, they retreated on Wednesday as the pandemic worsens in the U.S. - the world's largest economy.
Green's upbeat prediction comes in the wake of UN's latest trade report on Tuesday, forecasting that the world economy will go into recession this year with a predicted loss of global income in trillions of dollars. The IMF and other global institutions had also foreseen the bleak state of the world economy as the world went into a standstill under the assault of the pandemic.
Economist Nouriel Roubini, warning that failure to rein in the pandemic risks a worse downturn than the Great Depression, said the best-case scenario is a return to growth in the fourth quarter of this year. "The hardest-hit countries must conduct mass virus - testing, enforce quarantines, lock-downs, and roll out antivirals and other therapies on a massive scale. Central banks must continue to throw the kitchen sink of unconventional measures at the crisis and governments must engage in massive fiscal stimulus."
"No-one knows for sure the full of extent of the impact of the public health emergency on the world economy - but a significant downturn is, unfortunately, almost inevitable," said Green.
"However, the signs from countries where lockdown restrictions are now being eased suggest that the economic downturn could be relatively short-lived if certain factors come into play sooner rather than later.
"Indeed, I believe that the global economy is likely to be headed for recovery from a coronavirus-triggered downturn within six months - but only if mass testing is rolled out now and governments guarantee to support demand," said Green.
"If mass testing is carried out stringently and immediately, we could be looking at recovery signs within six months. If there's a failure to do this, we could be looking at much longer downturn.
Most major economies have been rolling out stupendous economic stimulus packages and quantitative easing measures to contain the economic impact.
In the Gulf, the UAE unveiled a Dh127 billion stimulus package while Saudi Arabia announced 120 billion riyals support. The US allocated $2 trillion, Germany 750 billion euro, South Korea $9.8 billion, Bank of England $379 billion in business loan guarantees; $23 billion in tax cuts, bond purchase of $228, European Central Bank $128 billion, France $49 billion, Brazil $30 billion, India $22.5 billion, Canada $214 billion, as well as hundreds of billion dollars by China and Japan. The IMF pledged $1 trillion in loans, while the World Bank and the International Finance Corporation has pitched in $14 billion to help nations facing the pandemic assault.
On Tuesday, the United Nations said six billion people living in developing economies hit by the pandemic will urgently need a $2.5 trillion rescue package to boost their resilience to further hardship.
The IMF chief Kristalina Georgieva, who expects a recovery in 2021, said the length and depth of this global recession depend on two things: Containing the virus and having an effective, coordinated response to the crisis.
S&P Global Ratings said a prolonged outbreak will depress economic activity and stress health systems. Extended shock to investor sentiment could result in heightened refinancing risk, especially for low rated issuers.
"Global recession is heightening risk aversion, resulting in significant capital outflows from emerging markets, pressuring currencies and widening spreads. The sudden and substantial shock to global economy has impacted several sectors in EM economies, pressuring credit ratings."
S&P noted the volatility in capital markets resulting from the pandemic and oil price shock could weaken the credit quality of some insurers in the GCC.
"Most insurers we rate in the GCC region benefit from robust capital buffers and should be able to absorb Covid-19-related claims and capital market volatility," said S&P credit analyst Emir Mujkic. "However, the significant fall in equity markets, widening bond spreads, and ongoing decline in real estate prices will damage earnings and capital buffers of insurers with material exposure to these asset classes."
- issacjohn@khaleejtimes.com