World counts coronavirus pandemic’s runaway economic cost

World counts coronavirus pandemic’s runaway economic cost
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Empty luggage belts are picture at an arrival terminal at Dubai International Airport on May 8, 2020 amid the coronavirus COVID-19 pandemic. (AFP/File Photo)
World counts coronavirus pandemic’s runaway economic cost
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An aerial view shows a nearly-deserted highway overpass due to the COVID-19 pandemic, on the first day of the Eid al-Fitr feast marking the end of the Muslim holy month of Ramadan, in the Saudi capital Riyadh, on May 24, 2020. (AFP/File Photo)
World counts coronavirus pandemic’s runaway economic cost
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Updated 12 August 2020

World counts coronavirus pandemic’s runaway economic cost

World counts coronavirus pandemic’s runaway economic cost
  • Pandemic lockdowns’ economic shock will cost the world $12 trillion by 2021 end, says IMF
  • ILO estimates put the number of full-time jobs lost in the second quarter of 2020 at 300 million

DUBAI: Imagine a scenario where every man, woman and child on the planet had to suddenly come up with $1,600 in cash. For some in the wealthy West, it would be small change, but for others it would be a significant task.

For the world’s middle classes, it would require a readjustment of spending priorities — perhaps a vacation canceled, or a big purchase delayed. Given that gross domestic product per capita — how much each person in the world earns on average per year — is around $18,000, according to estimates by economists, $1,600 would be a big lump sum to meet for many.

For hundreds of millions in the developing and emerging world, it would be a life-or-death situation. For people in Liberia or Mozambique, for example, $1,600 is more than the annual salary, according to the World Bank. Having to hand over that cash would mean not being able to eat or get medical care.

That is the situation effectively forecast by the International Monetary Fund (IMF). The economic shock from the pandemic lockdowns and the ongoing damage it is doing to the global economy will cost us $12 trillion in lost economic output by the end of 2021 — roughly $1,600 per human being on the planet.

Of course, there is not going to be some global tax collector visiting each household in the world to demand the cash. Rather, it will be a slow but relentless deterioration in income and capital over the next 18 months. But it is a measure of the unprecedented situation we find ourselves in because of the coronavirus disease (COVID-19).

The IMF called it a “crisis like no other.” Managing Director Kristalina Georgieva said: “The world has changed almost beyond recognition. No country has escaped the health, economic and social impacts of the COVID-19 crisis.”

Apart from the headline-grabbing $12 trillion number, there were other shocks in the IMF’s World Economic Outlook. The world economy is predicted to shrink by the end of 2020 by nearly 5 percent — one of the biggest annual falls in economic history outside war and nearly 2 percent worse than the gloomy prognosis the IMF produced in April, when it suggested the downturn would be the most dramatic in nearly 100 years.

Nor could the IMF predict with any certainty when the economic chaos would end. “There is a higher-than-usual degree of uncertainty around this forecast. The recovery is projected to be more gradual than previously forecast. Downside risks remain significant,” it said.

On virtually every measure of economic health, from GDP forecasts through consumer spending to transport and mobility and including world trade, the pandemic is still wreaking terrible havoc on the world economy.

But some areas will be more badly affected than others. In what the IMF calls the “advanced” economies, “there appears to have been a deeper hit to activity in the first half of the year than anticipated, with signs of voluntary distancing even before lockdowns were imposed.”

“There are, however, substantial differences across individual economies, reflecting the evolution of the pandemic and the effectiveness of containment strategies; variation in economic structure (for example, dependence on severely affected sectors, such as tourism and oil); reliance on external financial flows, including remittances; and pre-crisis growth trends,” the IMF said.

The “emerging” markets are already pretty close to the worst-case scenarios the IMF mapped out in April. Most do not have the capital depth of the West, nor have they put in place measures to support employees through the (hopefully) temporary disruption to employment and income as a result of lockdowns.

The International Labour Organization (ILO) estimated that some 300 million full-time jobs were lost around the world just in the second quarter of the year, when the pandemic was at its peak. This will inevitably affect workers in Asia, Africa and Latin America more than the rest of the world.

“The hit to the labor market has been particularly acute for low-skilled workers who do not have the option of working from home. Income losses also appear to have been uneven across genders, with women among lower income groups bearing a larger brunt of the impact in some countries,” the IMF report said.

The ILO calculates that some two billion people worldwide are “informally employed,” ranging from Uber drivers to agricultural day laborers, and that around 80 percent of them have been significantly affected by the slump in employment.

This overwhelmingly bleak picture is relieved, however, by some of the measures that governments have taken to mitigate the pandemic shock. “Policy countermeasures have limited economic damage and lifted financial sentiment,” the IMF said.

Since the real onset of the global pandemic in March, governments have spent around $11 trillion on a series of measures to help offset the economic downturn, ranging from the $3 trillion-plus “bazooka” fired by the US Federal Reserve through to more modest efforts to stabilize financial and banking systems and support small to medium businesses. 

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“Swift and, in some cases, novel actions by major central banks have enhanced liquidity provision and limited the rise in borrowing costs. Meanwhile, financial regulators’ actions — including modification of bank-loan repayment terms and release of capital and liquidity buffers — have supported the supply of credit,” the IMF said.

Financial markets have generally behaved responsibly during the pandemic crisis. After an initial big downturn in March, the key Wall Street indices have reacted positively to stimulus and support packages and returned to approach near-record levels.

There has also been concerted action to improve the financial position of the most vulnerable countries and economies of the emerging markets.

At a G20 meeting hosted by Saudi Arabia in March, agreement was reached by the biggest economies in the world to forgive some debt repayments by poorer countries and to be more flexible on repayment terms.

It might seem that the $11 trillion pledged in support of pandemic mitigation rather neatly balances the $12 trillion hit to the global economy the IMF described, but that would be simplistic, as global consulting firm McKinsey & Co pointed out in a recent paper.

For one thing, McKinsey estimated that spending by governments could actually reach around $30 trillion by 2023 as the unpredictable effects of the pandemic lingered. 

Such global levels of public debt are as unprecedented as the circumstances that gave rise to them. The long-term economic effect of so much “printed money” washing around the world is impossible to forecast.

“Governments will need to find ways to manage these unprecedented deficits without crippling their economies. It is this challenge which creates the need for the great balancing act: Managing the $30 trillion deficit while restoring economic growth,” McKinsey said.

It added: “Decisions to ‘print money’ at scale could prompt a rise in inflation. And a big rise in taxation could hamper business innovation and growth and harm countries’ competitiveness. Any of these paths could lead to a vicious cycle in which both economic growth and public revenues are suppressed for years to come.”

The firm suggested measures that governments could use to simultaneously “ensure that they sustain sound public finances and economic competitiveness,” including more effective tax collection and fraud reduction.

“We believe the crisis presents a historic opportunity for government and business to forge a new social contract for inclusive, sustainable growth,” McKinsey said.

Whether the world takes that opportunity remains to be seen. For now, many people will just be focusing on how they can raise $1,600 in a hurry.

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@frankkanedubai


Big banks see more than half of staff in office in Q3

Big banks see more than half of staff in office in Q3
Updated 26 February 2021

Big banks see more than half of staff in office in Q3

Big banks see more than half of staff in office in Q3

COPENHAGEN: Global financial institutions plan to have more than half of staff back in offices during the third quarter, up from 10 percent-15 percent now, but none are envisaging a full return anytime soon, the head of Danish services group ISS said on Thursday.

ISS provides services ranging from call centers to office cleaning, catering and security to more than 200,000 companies in 60 countries, including UBS and Deutsche Telekom.

“Many of our customers in banking, consulting and service industries are now very eager to get employees back to the office,” Chief Executive Jacob Aarup-Andersen said in an interview.

“They tell us about lack of innovation, less engagement among employees working from home and the corporate culture suffering,” he said.

But while global banking customers in general expect to have more than 50 percent of employees back on site during the third quarter, none of ISS’ customers are yet speaking about returning 100 percent of the workforce to offices, Aarup-Andersen said.

HSBC said this week it planned to nearly halve its office space globally in a sign the pandemic could mean permanent changes to working patterns, as companies prepare to reduce office space and allow employees more flexibility in working from home.

Aarup-Andersen said earlier he expected office space globally to shrink by 10 percent-15 percent over the next three years.

ISS on Thursday said sales fell 10 percent last year to 69.8 billion Danish crowns ($11.5 billion), hit by weakness in catering, retail and hotel services.


Aston Martin says it is back on the road to profitability

Aston Martin says it is back on the road to profitability
Updated 26 February 2021

Aston Martin says it is back on the road to profitability

Aston Martin says it is back on the road to profitability
  • British carmaker expects ‘to see the first steps toward improved profitability’

LONDON: Aston Martin expects to almost double sales and move back toward profitability this year after sinking deeper into the red in 2020, when the luxury carmaker was hit by the pandemic, changed its boss and was forced to raise cash.

The British company’s shares jumped 9 percent in early Thursday trading after it kept a forecast for around 6,000 sales to dealers this year as new management turns around its performance.

The carmaker of choice for fictional secret agent James Bond has had a tough time since floating in 2018, as it failed to meet expectations and burned through cash, prompting it to seek fresh investment from billionaire Executive Chairman Lawrence Stroll.

The firm made a 466-million pound ($660 million) loss last year, compared with a 120 million pound loss in 2019, as sales to dealers fell by 42 percent to 3,394 vehicles, hit by the closure of showrooms and factories due to COVID-19.

FASTFACT

Aston said demand for its first sport utility vehicle, the DBX, which rolled off the production line at its Welsh plant in 2020, was strong in a lucrative segment of the market it entered to widen its appeal.

For 2021, it expects “to see the first steps toward improved profitability” but is still likely to post a pre-tax loss, the carmaker said.

“I am extremely pleased with the progress to date despite operating in these most challenging of times,” Stroll said.

Aston said demand for its first sport utility vehicle, the DBX, which rolled off the production line at its Welsh plant in 2020, was strong in a lucrative segment of the market it entered to widen its appeal.

The model accounted for 1,516 of deliveries to dealers last year and the company expects further growth in its first full-year of sales, including in the key market of China, where rivals such as Bentley are also seeing high demand.

“We had not even a half-year DBX production in wholesome so probably we are going to see over-proportional growth in China,” Chief Executive Tobias Moers, who took over in August, told Reuters.


Diamond tycoon Modi loses bid to avoid extradition to India

Diamond tycoon Modi loses bid to avoid extradition to India
Updated 26 February 2021

Diamond tycoon Modi loses bid to avoid extradition to India

Diamond tycoon Modi loses bid to avoid extradition to India
  • District Judge Samuel Goozee ruled in London that the fugitive jeweler has a case to answer before the Indian courts

LONDON: Diamond tycoon Nirav Modi lost his bid Thursday to avoid extradition from Britain to India to face allegations he was involved in a $1.8 billion bank fraud.

District Judge Samuel Goozee ruled in London that the fugitive jeweler has a case to answer before the Indian courts. Modi, whose jewels once adorned stars from Bollywood to Hollywood, has been held without bail in London since he was arrested in the capital in 2019.

Goozee ruled that there was enough evidence to prosecute him in his homeland, and dismissed Modi’s argument that he would not be treated fairly in India.

Indian authorities have sought Modi’s arrest since February 2018, when they alleged companies he controlled defrauded the state-owned Punjab National Bank by using fake financial documents to get loans to buy and import jewels.

Modi is also accused of witness intimidation and destroying evidence. Police in India later raided the homes and offices of Modi and business partner Mehul Choksi, seizing nearly $800 million in jewels and gold.

Modi, 49, has refused to submit to extradition to India and denies the fraud allegations. He sought political asylum in the UK

The extradition matter now goes to the UK Home Office, which will make the final decision. Modi has 14 days from that decision to appeal.

Modi, who wore a dark suit for Thursday’s hearing, showed little emotion as he appeared by video link from Wandsworth Prison in southwest London.

Amit Malviya, a spokesman for India’s governing Bharatiya Janata Party, said Thursday’s ruling was “a shot in the arm for the agencies pursuing the fugitive,” adding that the Indian government is committed to “bring all economic offenders to book.”

The son of a diamond merchant, Modi built an international jewelry empire that stretched from India to New York and Hong Kong. Bollywood star Priyanka Chopra became the face of his eponymous brand and Hollywood actress Naomi Watts appeared with Modi at the opening of his first US boutique in 2015.

Forbes magazine estimated Modi’s wealth at $1.8 billion in 2017, but he was removed from the publication’s billionaires’ list after the fraud allegations.


Oil hovers near 13-month highs as storm dents US output

Oil hovers near 13-month  highs as storm dents US output
Updated 26 February 2021

Oil hovers near 13-month highs as storm dents US output

Oil hovers near 13-month  highs as storm dents US output
  • Severe winter storm in Texas caused US crude production to drop by more than 10 percent

LONDON: Oil prices extended gains for a fourth session on Thursday to reach the highest levels in more than 13 months, underpinned by an assurance that US interest rates will stay low, and a sharp drop in US crude output last week due to the storm in Texas.

Brent crude futures for April gained 33 cents, 0.49 percent, to $67.37 a barrel by 0925 GMT, while US West Texas Intermediate crude for April was at $63.45 a barrel, up 23 cents, 0.36 percent.

Both contracts hit their highest since Jan. 8, 2020, earlier in the session with Brent at $67.70 and WTI at $63.79. The April Brent contract expires on Friday.

An assurance from the US Federal Reserve that interest rates would stay low for a while weakened the US dollar, while boosting investors’ risk appetite and global equity markets.

A severe winter storm in Texas has caused US crude production to drop by more than 10 percent, or 1 million barrels per day (bpd) last week, the Energy Information Administration said on Wednesday.

“Combined with a dovish Jerome Powell and an already tight physical market, oil prices exploded higher,” Jeffrey Halley, senior market analyst for Asia Pacific at OANDA said.

Combined with a dovish Jerome Powell and an already tight physical market, oil prices exploded higher.

Jeffrey Halle, senior market analyst at OANDA

Fuel supplies in the world’s largest oil consumer could also tighten as its refinery crude inputs had dropped to the lowest since September 2008, EIA’s data showed.

ING analysts said US crude stocks could rise in weeks ahead as production has recovered fairly quickly while refinery capacity is expected to take longer to return to normal.

Barclays, which raised its oil price forecasts on Thursday, said it is seeing staying power in the recent oil price rally on a weaker-than-expected supply response by US tight oil operators to higher prices.

“However, we remain cautious over the near term on easing OPEC+ support, risks from more transmissible COVID-19 variants and elevated positioning,” Barclays said.

The Organization of the Petroleum Exporting Countries and their allies including Russia, a group known as OPEC+, is due to meet on March 4.

The group will discuss a modest easing of oil supply curbs from April given a recovery in prices, OPEC+ sources said, although some suggest holding steady for now given the risk of new setbacks in the battle against the pandemic.

Extra voluntary cuts by Saudi Arabia in February and March have tightened global supplies and supported prices.


Experts discuss WhatsApp’s new privacy update

Experts discuss WhatsApp’s new privacy update
Updated 26 February 2021

Experts discuss WhatsApp’s new privacy update

Experts discuss WhatsApp’s new privacy update
  • “People have made this into a bigger issue than it really is”: cybersecurity expert

JEDDAH: As WhatsApp launches a new in-app banner in response to the backlash over its privacy issue, Saudi experts and users weigh in on the company’s strategy.

“Harvesting user data is part of Facebook’s strategy,” Abdullah Al-Gumaijan, cybersecurity expert, told Arab News.

“It seems this will never change, even if it costs them millions of users, like what happened to WhatsApp last month when they updated their policy,” he said. “Today, WhatsApp will force their users to accept a similar policy. However, this time around they made it very clear they will not share users’ actual conversations.”

As long as WhatsApp remains a free app, he added, Facebook will make sure to get what it can from its users’ data.

Fahd Naseem, a WhatsApp user, said: “People have made this into a bigger issue than it really is. Facebook and other social media platforms are already using the data; there’s nothing wrong in WhatsApp using it too.”

He told Arab News that this data helps the apps deliver better and more personalized ads to their users.

Fatimah Al-Maddah, owner of Labothecaire, said that the privacy issue does not concern her and her team. “We use services like Dropbox for sensitive matters, and if we need to discuss something, we normally call. So, we don’t risk our information to begin with.”

WhatsApp will allow users to review its privacy policy, and users will have to agree to the new terms or risk losing access to the app. The firm said that it was facing issues because of “misinformation” regarding the changes, which led users to believe that their information was accessible by WhatsApp’s parent firm, Facebook.

However, WhatsApp said that it would never allow that to happen and that its end-to-end encryption ensures that people on both ends of the conversation are the only ones who can read those texts; not even the company has the access to them.

In a blog post, the company clarified that it would be working hard to clear up confusion and that it would be sharing the updated plan for how it will ask users to review the terms of service and privacy policy.

“In the coming weeks, we’ll display a banner in WhatsApp providing more information that people can read at their own pace,” the blog post read.

The company also faced backlash because of the poorly worded terms in the previous update, which caused confusion and concern and resulted in users abandoning the app entirely and moving onto other platforms.