“I don't know where to start for the weekly look ahead for the global economy and markets… Look for lots of policy news… weakening economic and corporate data, and continued volatility in markets,” tweeted Mohamed Al-Erian, chief economic adviser at the European insurer Allianz on Sunday. Al-Erian was referring to the unchartered territory the global economy was entering in the wake of the spread of the new coronavirus. It has continued to wreak havoc in the global economy, with Egypt and the region being no exception. Stock markets in Egypt, the region, and the world saw a sell-off of stocks continue for the second day, with the benchmark EGX30 index falling on Monday to its lowest level since October 2016. In the Gulf things were worse, with the Saudi Arabian, UAE, Qatari and Kuwaiti bourses losing between seven and 10 per cent. Markets in Asia and Europe recovered slightly on Tuesday after they had had their worst day since the financial crisis on Monday. The US network CNN suggested this was helped by US president Donald Trump's plan to propose “significant relief” in the form of a payroll tax cut and help for hourly workers most affected by the coronavirus in the US and expectations of more stimulus measures elsewhere. Some $7 trillion was wiped off the world's markets last week. The dip in the Gulf markets was augmented by plunging oil prices after OPEC and non-OPEC members failed to reach a deal on production cuts to contain sliding oil prices on the back of the coronavirus-propelled global slowdown. On Monday oil prices fell 30 per cent in a week from $52 to around $35 per barrel of Brent crude. Saudi Arabia is set to increase its crude output above 10 million barrels per day (bpd) next month in a move that has been seen as spiting Russia, the world's second-largest producer, for not supporting the production cuts proposed last week by OPEC. With the increasing number of cases of the coronavirus and more areas being quarantined, fears of the economic fallout are growing. Economist Hani Tawfik wrote on his Facebook page this week that the persistence of the coronavirus could mean stagnation and even ruin. With less commercial exchanges because fewer and fewer people are meeting up at malls, cafés, and shops, there will be no production, no demand, and no income, he wrote. This could mean unemployment and bankruptcy for everything from factories to cinemas. For Egypt, it could affect tourism, aviation, exports, the Suez Canal and remittances and slower GDP growth on the back of lower consumption and investment, Tawfik said. He was praying that this nightmare would end soon and that the state would prepare itself for different scenarios to reduce the negative effects as much as possible. The presidency has asked the government to prepare a mitigation plan to enable the economy to withstand the fallout from the coronavirus, Finance Minister Mohamed Maait told Enterprise Press, an online news service, this week. He said that his ministry would take emergency measures if needed to ease the impact of the outbreak on the Egyptian economy. If the crisis persisted, GDP growth forecasts might have to be reconsidered, Maait said. The government has targeted six per cent GDP growth in the current fiscal year. Meanwhile, the International Monetary Fund (IMF) said it was making available about $50 billion through its rapid-disbursing emergency financing facilities for low-income and emerging-market countries that could potentially seek support. Of this, $10 billion is available at zero interest for the poorest countries through the IMF's Rapid Credit Facility. Managing Sirector Kristalina Georgieva at a press conference with World Bank Group President David Malpass last Wednesday said the shock of the virus was unusual as it affected significant elements of both supply and demand. She acknowledged the supply disruptions were due to morbidity and mortality but also to the containment efforts that restrict mobility and the higher costs of doing business due to restricted supply chains and tightening credit. She said demand would also fall due to higher uncertainty, increased precautionary behaviour, containment efforts, and rising financial costs that reduce the ability to spend. These effects would spill over across borders, she said. Experience suggested that about one-third of the economic losses from the disease would be direct costs from loss of life, workplace closures, and quarantines, she said. The remaining two-thirds would be indirect, reflecting a retrenchment in consumer confidence and business behaviour and a tightening in the financial markets. “The biggest challenge right now is handling uncertainty,” she stressed, adding that under any scenario global growth in 2020 would drop below last year's level. “How far it will fall, and for how long, is difficult to predict and would depend on the epidemic, but also on the timeliness and effectiveness of our actions.” In January, the IMF in its World Economic Outlook update had said that global growth was estimated at 2.9 per cent in 2019. It had forecast growth to come in at 3.3 per cent in 2020 before the onset of the current health crisis. The slowdown of manufacturing in China due to the coronavirus outbreak is disrupting world trade and could result in a $50 billion cut in exports across global value chains, according to estimates published by the UN Conference on Trade and Development (UNCTAD) last week. “Because China has become the central manufacturing hub of many global business operations, a slowdown in Chinese production has repercussions for any given country depending on how reliant its industries are on Chinese suppliers,” the report said. According to UNCTAD estimates, the most-affected sectors include precision instruments, machinery, and automotive and communication equipment. “The coronavirus outbreak carries serious risks for the global economy,” UNCTAD Secretary-General Mukhisa Kituyi said, adding that any slowdown in manufacturing in one part of the world would have a “ripple effect in economic activity across the globe because of regional and global value chains.” However, that is less likely to be a concern for countries in the Middle East and North Africa region, since they have limited participation in global value chains, said Rabah Arezki and Ha Nguyen in a policy paper for the Economic Research Forum, a research group. Nonetheless, disruptions to global value chains might exacerbate the depression in oil prices caused by China's weakening demand, they added.
*A version of this article appears in print in the 12 March, 2020 edition of Al-Ahram Weekly
