What’s in store for the global economy?

Author: Mladen Mladenović, Senior Lead Associate, Novaston Asset Management

Mladen Mladenovic

As the coronavirus spreads throughout the world, the problems befalling the global economy are building up. Some estimates indicate that — after the crisis — the global economy will never be the same. Nearly every sector of industry has already been severely affected, although each will be dealing differently with the consequences. We will have to wait and how exactly in the days to come.

According to a McKinsey survey, tourism, hospitality, and airlines have already suffered the hardest blow. Oil and gas companies are also feeling the effects of the crisis, and banks are to follow suit with liquidity issues and declining activity. The consequences have been felt by and large also by the textile industry, which — in the wake of supply chain issues, movement restrictions, and stores closing — is experiencing dwindling demand for its products.

From a global perspective, stock exchanges around the world have responded aggressively to COVID-19 and global stock market losses are estimated at more than USD 16 trillion (16,000,000,000,000) in less than two months, which is equivalent to the collective GDP (as per the IMF report’s 2019 purchasing power parity) of Japan, Germany, Russia, and Spain and considered one of the biggest downturns in the history of international trade. Risky investments are not common, particularly in times of global crisis, and gold has always been a safe haven for investors when they are facing down the unknown. However, the price of gold has yet to see a significant growth trend — partly owing to the stability of the US dollar and partly owing to other disturbances that hit the market in the previous period. Still, an upward trend is to be expected in the upcoming period.

As for positive effects, we are seeing intensified activity in medicine and pharmacy, as well as e-commerce and delivery services. Unlike other industries, these are facing issues of insufficient capacity for service delivery, as well as different regulatory constraints that hamper the smooth flow of goods, both globally and within national borders.

The question now looming is whether the global economy is slated to undergo a standstill or perhaps some other scenario? Although it is too early for forecasts, the global economy is projected to encounter considerable challenges in 2020, and highly likely in 2021 as well. The biggest limiting factor for making any more accurate estimates of the impact of COVID-19 on economies around the world — including the Serbian economy — is that there are still many questions without clear answers to provide straightforward guidance in projections. The assumption that the virus will change and diminish amidst warmer weather (the negative effect of temperatures above 75°F on the virus, an assumption yet to be confirmed)? Can/should we count on the virus being seasonal and recurrent? What is the actual number of the infected with regard to the mortality rate? What will be the impact of the policies and measures that governments around the world will be implementing to combat the virus, and how will people and companies respond to the overall situation? How resilient will healthcare systems be in combating the virus? Will a vaccine for the virus be found and — more importantly — when? Once we have clearer answers to these and similar questions that will start to come up in the coming period, we will be positioned to make more relevant estimates and predictions and form expectations around the crisis affecting the future growth of the global economy.

Until then, stay informed, analyze, and read. Look for answers to these and other questions. The only thing certain is that we will be facing a new uncertainty, one equation with multiple variables. And its solution will be up to all of us, the entire society and community.

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