(Newswire.net — March 22, 2020) — According to the United Nations Organization – UNCTAD – 42 of the 100 largest multinational companies in the world say they are facing the problem of sustaining a profitable business.
This means that they have to reduce investment allocations, which will have a negative impact on banks’ operations and then on the rest of the global economy.
That’s why IHS Markit, a London-based economic research firm, estimates that global economic growth will be 1.7 percent this year, well below the 2.5 percent optimistic forecast from February.
This company believes that regardless of the negative effects of the coronavirus, the US economy is strong enough to avoid recession. The European Union, however, will suffer serious consequences as Italy and Germany are already in recession, which could also drag the rest of the Eurozone into recession, the IHS Markit estimates.
“The fear that really got us down here was the inadequate US policy response from a medical and health care concern,” Stephen Innes, global chief markets strategist at AxiCorp, told CNN Business.
The situation is aggravated by corporate debt growth which is higher than in 2009, the year following a major financial crisis. Corporations based their expansion too much on borrowing using “cheap money” because governments and central banks sought to help the economy with bailouts.
Thus, corporate debt outside the banking sector grew to $ 75 billion at the end of 2019, up from $ 48 billion at the end of 2009, according to the Washington Institute of International Finance.
Thus, airlines are threatened with a decline in revenue of $ 113 billion this year, the International Transport Association warned. The stock of the largest companies in the aviation sector fell by more than 19 percent on the US stock exchanges on Thursday.
British regional carrier Flybe announced in early March that it had gone bankrupt due to a fall in travel demand, making it the first aviation industry casualty of the coronavirus epidemic.
Germany’s Lufthansa has announced it will halve its capacity in the next few weeks, landing their largest overseas aircraft.
Admittedly, there are different estimates of the scale of the economic crisis.
Thus, US President Donald Trump stated that “this is not a financial crisis.” Announcing Friday’s $ 50 billion aid package to fight the coronavirus crisis, he noted that this is just a “temporary situation” that the World shall overcome.
US Treasury Secretary Steven Mnuchin also believes that this is a short-term economic problem.
Many analysts around the world, however, warn that the economic consequences will be felt in the long run, even if the epidemic comes down with the advent of warmer weather. According to Singapore Foreign Minister Vivian Balakrishnan, as the virus spreads, countries around the world must be prepared to face economic consequences that will be have negative repercussions for at least a year.
“The genie came out of the bottle,” warned the Singaporean Foreign Minister.
US President Donald Trump declared a state of emergency on Friday over a pandemic that opens up the possibility of using $ 50 billion from state reserves to fight the corona virus. Analysts warn that the worst may not be over, even with the announced pumping of money by the Federal Reserve and other central banks.