Heal the wounds of the global economy on the basis of solidarity in the face of disaster.

by Mr. Ghazi Abu Nahel
Founder of Trust International Insurance Company

Translated from the Original article in Arabic

I return once again to writing about the devastating economic effects of the Covid-19 pandemic. Not the first time the world has been hit by a pandemic. The plague and the Spanish flu are stark examples of the power of epidemics and the enormity of the lives taken. But the previous major attacks were before the human race was armed with scientific progress that fortified and improved medical conditions. It was before the technological revolution that improved hospitals, laboratories, medicines and serums. Perhaps that is why the world is in panic. The past months have created waves of depression in people's minds. The world seemed to be stuck in a Corona trap with no route to escape.

The global economy has not witnessed a crisis like the one caused by the spread of the new Corona virus (Covid-19), as the repercussions affected all aspects of the economy and losses as a result were estimated at about $28 trillion, according to the International Monetary Fund in its latest statistics last October. Slowing growth rates are hitting the elements of supply and demand, due to the imposition of quarantine restrictions and the state of panic among consumers. The effects of this crisis will continue for many years. However, what is worrisome is the fear that these repercussions will continue for quite a while, which is what the economic adviser at the IMF, Gita Gopinath said, as she suggested that the pressures will continue for a long time amid a high degree of uncertainty as expectations for more waves of the disease.

This will lead to an increased spending on fighting the epidemic and restricting interest rates will make the global debt increase more and more. The United Nations Conference on Trade and Development predicted that most of the world’s economies would lose about 2.4% of their GDP over the course of 2020, and the economy is likely to shrink by 4% this year, as the global trade volume decreased by 20% and the volume of foreign direct investment decreased by 40%. Major sectors such as tourism, energy and the air transport sector were affected. In a report, the International Air Transport Association (IATA) warned of the long-term damage caused to it by the virus and its repercussions represented by the stoppage of air traffic. The Middle East region is expected to lose 1.7 million jobs. In the air transport sector and its related sectors during the year 2020, this number represents about half of the 3.3 million jobs related to the air transport sector in the region.

In contrast to this reality, the financial measures announced by many of the world's governments, which amounted to 20 trillion dollars, helped alleviate the bad effects that companies and workers were exposed to due to the epidemic. The crisis has exacerbated distrust in the major currencies of the world, a problem that will appear clearly during the years 2021 and 2022, as all central banks resort to reducing interest rates to stimulate the economy. So that the countries do not stop the movement of their economies they pumped more liquidity in the markets, which will in turn create inflation. Some countries will be able to manage it well, while others may suffer due to the high debt-to-GDP ratio. The global debt ratio pushed the global economic output to more than 100% for the first time, as stated in the outlook report issued recently by the International Monetary Fund, in which it confirmed that the increase in this ratio approached 19 percentage points, far exceeding what happened in 2009 during the global financial crisis.

The global economy cannot bear a second wave of the Corona outbreak, and there is international agreement not to repeat the scenario of complete closure, but it may be proposed depending on the strength of the wave. An effective drug is the only hope for the continuation of the global economy’s recovery and to offset the losses it has incurred. We believe that the policies of central banks to rescue will continue if necessary, and the only thing that is expected to remain supportive of the economy is monetary policy. It is important to note that the probability of a second wave depends on the speed and effectiveness of vaccines currently available and the immunity they achieve for societies.

The risks of a second wave may damage the stability of oil markets with the contraction of expected demand, and it will also affect stock markets that have recovered to some extent and have begun to achieve record levels, especially in the United States of America, as well as an increase in the demand for safe havens, which increased from the demand for gold, which revived its prices to exceed levels of $2,000 an ounce and then to $2,300. The global financial system cannot afford to provide financial stimulus programs, such as those presented during the pandemic, which exacerbated debt conditions and increased liquidity levels in the markets, threatening the emergence of a debt bubble if companies fail to repay loans with a second outbreak. The unprecedented losses on the global economy affected all countries, and it is expected that this will carry on for a long period, and matters will differ from one country to the other according to their financial solvency and reserves.