Syed Tahir Rashdi;
It is New Year’s Eve 2019 and around the world stock markets are closing for business on a high note. Shares in the US are up by almost 30% on the year, those in Japan by 18%. Even in Britain, where the mood has been dampened by months of Brexit uncertainty, the FTSE 100 has risen by 12%. Overall it had been the best year for stocks since 2009 and traders saw no real reason why the party should not continue into 2020. The US and China looked close to an armistice in their trade war, the US central bank was stimulating the world’s biggest economy, and Boris Johnson’s decisive victory in the general election had removed any lingering doubts about whether Britain would leave the European Union. What the markets had yet to factor in was that on that same day China had informed the World Health Organization about a string of pneumonia-like cases in Wuhan. Few of those trading on Wall Street or in Canary Wharf had heard of this city of 11 million people nestled on the banks of the Yangtze river. A month later they would know plenty about Wuhan. Three months on, a localised health problem has turned into a pandemic. The global economy is in a state of paralysis, there has been a massive expansion in the size of the state, and questions are being asked about whether global capitalism will ever be the same again. After many weeks of lockdowns, tragic loss of life, and the shuttering of much of the global economy, radical uncertainty is still the best way to describe this historical moment. Will businesses reopen and jobs come back? Will we travel again? Will the flood of money from central banks and governments be enough to prevent a deep and lasting recession, or worse? This much is certain: The pandemic will lead to permanent shifts in political and economic power in ways that will become apparent only later. Saudi Arabia and Russia ended their oil-price war, agreeing to a deal that will see oil-producing countries cut output by a record 9.7m barrels a day over the next two months, around 10% of global supply. There will be smaller cuts thereafter. The rally in oil markets that greeted the announcement soon faded, however. The International Energy Agency forecast that global demand for oil will fall by 9.3m barrels a day in 2020. This month “may go down as Black April in the history of the oil industry”, said the head of the agency. In its direst warning yet about the effects of the pandemic, the IMG said that “the great lockdown” will result in the biggest economic downturn since the Depression. Assuming that covid-19 and restrictions on daily life peak in the second quarter, the fund thinks global GDP will shrink by 3% this year, although advanced economies are expected to contract by an average 6.1%. If the crisis does not ease in the second half the world economy could shrink by a further 3%. The fund urged countries to continue with measures to slow the spread of the disease so that economic activity can resume. The Federal Reserve took more unprecedented measures to prop up the American economy, announcing a series of programmes that will provide $2.3trn in credit and support to households, businesses and state and local governments. The central bank is backing up to $600bn in loans to small and mid-sized firms, which must demonstrate a “reasonable effort” to retain staff. The Fed surprised markets by expanding its interventions to include buying stakes in exchange traded funds that own risky, high-yield debt. Stock markets continued to swing wildly. The S&P 500 had its best week since 1974 for the four days ending April 9th, rising by 12% (markets were closed on Good Friday). At an emergency meeting. South Africa’s central banks lashed its benchmark interest rate by another one percentage point, following a cut last month of the same size. The repo rate is now 4.25%, a record low. The move came after a further downgrade to credit ratings on South African debt, making it harder for the government to borrow. The hard fall in China’s exports softened in March. Exports were down by 6.6% compared with the same month last year, much better than expected. China chalked up a trade surplus of $19.9bn, reversing the deficit of January and February, when factories were locked down. Many of those facilities have now reopened, though they face as squeeze from a global slump in consumer demand for their products. China’s central bank took more steps to increase liquidity, pumping another 100bn yuan ($14bn) into the financial system ahead of the release of data expected to show the first quarterly contraction in GDP, year on year, since 1976. The Asian Development Bank tripled the size of its aid package to member countries to $20bn. That includes some grants to governments to buy medical and personal protective equipment. Retail sales in America fell by 8.7% in March compared with February, the biggest decline since the official run of data began three decades ago. Releasing their first-quarter earnings, big banks in America revealed that they are putting billions aside to guard against an expected surge in loan defaults. JP Morgan Chase’s credit costs rose to $8.3bn in the quarter, for example, resulting in a sharp fall in net profit, to $2.9bn.