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Financial collapse: how much the coronavirus pandemic will cost the world

Coronavirus has put the global economy on the brink of crisis, and it may be the most serious in a century. Hopes for a quick recovery of the planet are melting every day, and the bill for treatment is growing before our eyes. The virus has already cost the world tens of billions of dollars, and this is only the beginning, economists warn. Writes about it with the BBC.

Photo: Shutterstock

If, before the closure of quarantine of Europe and the USA and the collapse of financial and commodity markets, experts had cautiously predicted a slowdown in wealth growth in the world, now the majority agree that the world will become poorer.

They warn that an impending economic downturn could prove more damaging to the well-being of the world's population than the financial crash of a decade ago, because this time the problems are wider and deeper.

The last time the stalled banking system was launched by central banks, they printed money. The current crisis has undermined the entire economy: production, the service sector, and demand - and therefore targeted interventions are needed, which will have to be poured into by everyone.

“This time the problem is different - interruptions in the real economy. And it cannot be eliminated solely by central banks, ”says Rupert Harrison of the world's largest investment fund BlackRock.

“Anti-crisis instruments, developed after the crises of the global financial system and the eurozone, are designed to deal with problems of a completely different nature. This time everything is different, ”agree economists, who warned in an open letter that the coronavirus threatens not only the European economy, but also its unity.

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The authorities of all countries of the world will have to spend hundreds of billions of dollars of taxpayer funds to eliminate both the cause of the crisis - to stop the epidemic, and the consequences - to support the affected people and businesses. Problems may arise with this: it is necessary to act quickly, decisively, costly, and preferably in coordination with neighbors, which is difficult for politicians in many countries.

How much and what will have to spend

Some countries have already announced that they will allocate money to combat the crisis. Other politicians are still trading. In any case, the amounts are only preliminary, but they have already exceeded $ 100 billion.

This is clearly not enough.

EU countries will have to spend about $ 350 billion a year to eliminate the consequences of monthly quarantine, one group of economists calculated.

What will this money go to? Three main things: supporting healthcare, people, and business.

The first will help to cope with the epidemic, the second - to support demand in the economy and social stability, the third - to revive the supply of goods and services.

State support will be needed both for people who have lost their earnings due to quarantine, and for companies that have lost their labor, suppliers and consumers. It can be issued in the form of budget subsidies, tax holidays and cash compensation.

Social expenditures will increase the treasury of many countries if the authorities loosen their policies during the crisis, for example, increase unemployment benefits and expand the circle of those eligible for these and other payments, for example, paid sick leave.

The business is already sounding the alarm, and from the first cries for help it is clear that this is not only a loss of profit. Millions of people will lose their jobs, thousands of companies will go bankrupt. The authorities are faced with a difficult choice: to support the business now or later to support the unemployed, and even in conditions when there is less and less money in the treasury due to a reduction in tax revenues.

At the forefront is tourism and aviation. The World Tourism and Travel Council has warned that a pandemic could deprive the industry of 50 million jobs and reduce the travel market by a quarter this year.

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In Spain alone, in February, hotel occupancy fell by 20-30% compared to last year. Even before the lockdown was complete, hotels in Madrid lost every fourth guest, and Barcelona - every fifth.

Airlines drastically reduced passenger traffic, first to Asia, and then to the United States and Europe. They do not skimp on epithets, talk about the worst crisis in the history of civil aviation and have already asked governments for billions of help, although most flight bans have not yet entered into force.

The entire service sector is at stake: from restaurants and film studios to universities and taxis. Big sport lost billions in revenue from broadcasts and ticket sales. In turn, even oil and gas companies lined up for subsidies, discouraged by the collapse in demand and oil prices.

And this is just the beginning

The package of budget assistance in the United States passed only the lower house of Congress, and its volume is known only approximately: exactly more than $ 10 billion, but less than $ 50 billion, which the US president Donald Trump stuttered about.

The EU has pledged to allocate about 40 billion euros. Italy, which suffered more than others - up to 25 billion euros. Switzerland and South Korea - $ 10 billion each, Egypt - $ 6 billion. France, Australia, New Zealand and Japan promised to do “everything possible” to support the economy at the expense of the treasury. China has launched an ambitious program to stimulate production through tax breaks and soft loans.

And this despite the fact that not one of these countries has yet to fully face the consequences of the crisis. And they will be serious, economist Mohamed El-Erian is confident, who worked in senior positions in the IMF and in the administration of Barack Obama, as well as in the Pimco investment fund and Allianz insurance company.

“In the very near future, the world will face economic challenges that will be bigger and bigger than anything that most people in developed countries have ever experienced,” he shared his findings after several weeks of conversations with economists, doctors and scientists specializing in behavioral models. ...

“We live in a global economy set for growing interconnectedness. But suddenly health protection demanded from us social disunity, separation and isolation. This contradicts everything that underlies economic growth, prosperity and financial stability, ”El-Erian described the prerequisites for deepening the crisis.

How much poorer do we get

Before the advent of the coronavirus, economists had expected global economies to grow by about three percent in 2020. Now they read the recession and differ only in estimates of its duration: it all depends on how the pandemic develops.

If, according to the results of the year, the economy does not grow, the world will be short of about $ 4 trillion. This is more than the GDP of Germany, the largest economy in Europe, and two and a half times more than Russia's GDP.

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Of the three leading world economies - the United States, the European Union and China - two are still counting on an increase in wealth, albeit less than expected, and one - the European Union - is preparing to tighten its belt with might and main.

European officials at the beginning of March said that fresh estimates suggest a year-on-year decline of about 1%.

The US economy, the largest in the world, is still on the path to growth, but in the States, economists are gradually starting to revise forecasts. In a March poll of the University of Chicago, they turned out to be slightly less pessimistic than their European counterparts: 62% see the likelihood of a massive recession in the world due to coronavirus versus 82% of European economists, mostly locked in quarantine houses.

Since the US, China and the EU account for two-thirds of the world's economic activity, a recession in Europe and a significant slowdown in China will be enough to slow down the entire global economy. And if you add here the threat to commodity countries from falling oil and metal prices, the picture becomes depressing.

The scale of problems in the West is not yet reflected in the statistics, but it can be judged approximately by leading indicators from China, where activity in both the industry and the services sector froze in February. The decline turned out to be more significant than at the beginning of the previous crisis a decade ago.

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