The Monster That Disciplines Humanity: Covid-19

Corona virus, which started to be seen in the 1960s, has turned all the balances by making a rapid entry into our lives as a health and economy black hole of 100 years in the city of Wuhan, China, in late 2019.

Since January, the epidemic has first caused a disruption in supply chains by affecting global trade, a China-based supply shock, then financial markets began to unravel when investors realized that recession was inevitable, and now; China, Europe and the USA are facing a serious demand shock that negatively affects both consumption and investment expenditures.

States took extraordinary measures to straighten the recession curve during this extraordinary time. Everything is done to overcome the cash flow crisis, prevent a deeper liquidity crisis and protect the economy. However, the effects of 20% to 30% of the one-month measures taken in order to prevent an epidemic based on the Chinese example are evident in each economy. The cost of the damage caused by the outbreak on global trade in a single quarter will also be $ 1064 billion because the EU and the US are taking serious isolation measures, including very strict border bans.

Markets have not yet fully priced the negative news flow that came with isolation practices that affect 50% of the world GDP. When we look at the situation of companies, although governments promise to do everything to prevent unemployment and bankruptcies, a wave of bankruptcy will most likely occur after the re-opening of businesses and bankruptcies will occur in 2020. Experts predict that the economic and financial crisis will further extend due to the pressure on the companies, liquidity problems and economic policy errors that may last 12 to 18 months. In such a situation, the recession may extend to 2021. Also, in this case, markets may lose their reflex functions for years due to the increasing direct intervention of governments, and it may be difficult for the economy to restart its engines on its own.

The Covid-19 crisis will definitely change our view of health investments, our inclusive understanding of capitalism, our assessments of China's soft power, and our understanding of globalization. It will lead us to review our ways of saving for life-threatening events, and will challenge our view of tackling climate change, the rapidly growing, probable and social challenge ahead.

The first banning from leaving the house came into effect on January 23, 2020. After these prohibitions, the slowing of the spread of the virus took almost a month, and after another month, the prohibitions not to leave the house began to be lifted gradually. Until February 26, the outbreak was mostly concentrated in China (95% of confirmed cases were in China). After this date, it started to spread all over the world. For example, as of March 26, nearly 50% of cases were in Europe. 1.5-2 months after China; In Italy, Spain and France, the bans on leaving the house on March 10, 14 and 17, respectively, were implemented. This means that, from the Chinese experience, the global epidemic can last at least until June.

The strict home-based prohibition measures, originally based in China, soon created shock waves that quickly disrupted the global trade of goods and services (travel and shipping) and production supply chains around the world. It can now be said that the trade will remain in quarantine in 2020, as prohibitions to go home are also imposed in Europe and the USA.

An unprecedented epidemic of limiting shock in the world can lead to the most serious recession of the century. This will have serious implications. The implementation of harsh home-keeping measures taken by governments has led to serious sacrifices without growth, as private consumption has suspended investment spending.

In Europe, governments only provide 1 trillion euro public guarantees for the Euro Area. (eg Germany 500 billion EUR, France 300 billion EUR, Spain 100 billion EUR) all of this is to prevent a sudden increase in corporate bankruptcies. There is an increase in budget expenditures exceeding 250 billion EUR in total. Measures taken include deferred debts, partial unemployment and support provided by national public banks. The ECB (European Central Bank) added an additional purchase measure of EUR 120 billion to the monthly purchases made under the monetary expansion of EUR 20 billion and last year for a year. In addition, the ECB launched a new Pandemic Emergency Purchase Program (PEPP) worth EUR 750 billion (about 6% of the Eur Region's GDP).

In the US, the White House announced a $ 2 trillion (10% of GDP) financial package. The package includes guaranteed paid sick leave, food aid, corporate loan guarantees, loan allowances, income tax items, and infrastructure and health spending, as well as cash benefits to households. The Fed lowered the interest rates to 0-0.25 base point range and for liquidity problems; It announced $ 1.5 trillion in liquidity injections through new $ 700 billion of securities purchases and Repo operations.

South Korea, Taiwan, Hong Kong, Singapore and Malaysia have implemented fiscal revitalization measures. The fact that the financial accounts are generally healthy in developing European countries and that most Gulf countries have significant National Asset Funds also relieves the governments of these countries in terms of financial support.

Economic policies are reminiscent of those of the war period, and seem to be inadequate in combating the beast of the 100 Years. People-oriented packages should continue to provide unconditional support to capitals and industrialists in terms of sustainability.

Kaynak: https://www.eulerhermes.com/