the Uniqueness of the current crisis consists of several aspects. First, is it a planetary scale. The sudden stop of the economy has touched almost simultaneously 210 countries and territories that can be compared with natural disasters that affect the entire planet, says chief analyst at Sovcombank Mikhail Vasiliev.
second, is the breadth of economic paralysis. Quarantine measures were introduced in almost all countries, plus the people themselves limited activity for fear of Contracting. It has affected almost all sectors of the economy. The global economy has received a rare double strike as a demand-side and supply-side stresses Vasiliev. Most people sit at home and limit purchase only the most necessary.
third, is the depth of the economic downturn. Because of the coronavirus global economy this year, expects the worst recession since the great depression of the 1930-ies, the IMF believed. According to the forecast Fund, the global economy this year will lose 3%. “For greater understanding of the depth of the recession will bring a series of numbers. US GDP in the second quarter is expected to lose a record of 20-40%, after falling 4.8% in the first quarter. Unemployment in the United States in this quarter will exceed 20% in two times more than the global financial crisis of 2008. Retail sales in China in March fell by 15.8% year-on-year, after falling 20.5% in January-February. The volume of industrial production in the U.S. in March fell by 5.4% compared to February – this is the maximum rate of decline since 1946,” says Vasiliev.
fourth is the lack of clear treatments of the crisis and uncertain prospects. While people are locked up in the house, standard methods of monetary and fiscal stimulus work poorly, the analyst said. “The real cure for the economy is now in the hands of doctors. In addition, there is the risk of a second wave of infection of the coronavirus. Social distancing, probably, will long be present in your life that will suppress economic activity,” admits Vasiliev.
the Source of the last global crisis in 2008 was the financial sector in developed economies, treatment of the global economy were clear. In addition, China then has kept quarterly growth rates at the level of 6-12% and actually pulled the world economy. In this crisis, China was an epicenter of the virus, and China’s GDP in I quarter has lost 6.8 percent.
the Unprecedented shocks require unprecedented responses from governments and Central banks. The authorities ‘ main concern has been the rapid provision of assistance to affected industries in order to preserve as much of the economic potential.
According to Vasiliev, the leading Central banks (fed, ECB) worked quickly, application��whether the entire Arsenal gained from the 2008 crisis, have expanded and added new tools. The fed quickly enough to arrest the crisis of dollar liquidity in the world, preventing the escalation of an economic shock to the financial crisis. In addition, the fed tried to restore the provision of the required credits for the affected small and medium businesses, cities and States.
in fact, the Central banks in this crisis has involved all the known tools is the inclusion of the printing press and flooding the markets with liquidity worked well in the previous crisis. However, this tool has serious side effects and its effectiveness for the real economy declines, says Vasiliev.
According to senior analyst “BCS Premier” Sergei Suverov, the monetary support of Central banks, including repurchase junk bonds, has prevented massive defaults companies, with irreversible consequences. Monetary stimulus Central banks act in parallel with the fiscal stimulus from the authorities.
“However, such measures carry the risk of bubbles in financial markets and rescuing inefficient enterprises zombies. These companies could go bankrupt as a result of the crisis, which would ultimately improve the economy. The prerequisites of a new crisis are that the global economy will become less effective as it will focus not on market mechanisms and measures of state support”, says Suverov.
