US and European GDP growth set to fall 2.6 per cent in 2020

MANAMA: US and European economic growth in 2020 will fall by 2.6 per cent from direct coronavirus implications, according to research by a Bahrain-based think-tank.

A report titled ‘Economic Implications of the Coronavirus Crisis: An Economic Outlook’ published by the Bahrain Centre for Strategic, International and Energy Studies (Derasat) also sees commercial dividends plunging by 25-28pc in both economies, based on statistical models.

Authored by the centre’s director of studies and research Dr Omar Al Ubaydli and research analyst Ghada Abdulla, the report analyses the economic damage caused by the pandemic.

The main deduction is that the global economy will be largely harmed by the coronavirus pandemic, in both growth rates and living standards, and some implications will have a lasting impact, such as fundamental changes to the world trade system.

Due to the short while since the beginning of the crisis, no long-term economic implications have appeared yet, but in case it continues without adopting fiscal and monetary policies to deal with it, the global economy is expected to face the following:

  • The bankruptcy of companies that default on covering their financial obligations, as part of a vicious economic recession cycle,
  • The bankruptcy of individuals unable to settle their debts, such as mortgages and car loans, also as part of a vicious economic recession cycle,
  • Laying-off employees by companies that could no longer pay their wages, again as part of a vicious economic recession cycle,
  • The collapse of the financial system due to a squeeze on liquidity,
  • A retreat in globalisation, and an increase in self-sufficiency in each country’s production chains, to avoid similar future economic crises, but at the expense of the higher living standard caused by globalisation.

Due to the rapid implementation of monetary and fiscal policies, these implications will only appear limited.

However, there are other risks related to these policies.

Notably, the coronavirus crisis will lead to a decrease in global inequality, since wealthy nations and individuals are the most affected.

Throughout history, diseases and epidemics usually spread more among the poor, but today we see – especially outside China – that the wealthy are more prone to disease, with those infected being people on cruise ships, politicians, entrepreneurs and celebrities.

The wealthy and elite are more susceptible to contract the coronavirus, because they travel more, live in large urban centres and interact with a lot of people.

The fortunes of the wealthy have also been the most affected by the coronavirus outbreak, as stock markets fell, and companies owned by the wealthy recorded a sharp decline in profits.

The combined net worth of the wealthiest 500 people in the world lost $500 billion as the outbreak continues.

The world’s richest three: Jeff Bezos, Bill Gates and Bernard Arnault accumulated the biggest losses of $30bn.




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