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Although the data on the fall in gross domestic product in the first quarter and the beginning of the second are not yet ready, thanks to the spread of the coronavirus, the measures taken against the diseases and accumulated distortions in the economy, it is already clear that the Global growth has already turned into collapse. And although most governments expect this trend to reverse in the past two quarters or next year, not everyone is of the same opinion.
“I assumed, as now, that the world gross domestic product, including our country, will decrease by about 20-25%, which is about the contraction of GDP during the Great Depression,” said Dr. Krasimir Petrov on the show. money.bg. “It is likely to be the most serious economic crisis in the last ten years.”
According to him, this crisis will not be resolved with the arrival of summer, that is. We are unlikely to see the expected recovery of the V-shaped farm by the end of the year or 2021. Instead, we will have a long period of decline that will take several years.
Economic bubbles
He also said that the coronavirus and the response of politicians are not the only problems facing the global economy. In fact, what is not visible is that in the last twelve years, new and bigger bubbles have been created in more and more sectors. “Separately, we have accumulated stock market problems that are markedly overvalued since 2008, which will also lead to a stock market crash that will be comparable to that of the 1930s or ’70s,” said Dr. Petrov. “Furthermore, we have repeatedly accumulated corporate debt, which also has no way of leading to a serious debt crisis.”
He recalled that the extremely high level of indebtedness was not only observed in the private sector. The debt of many countries is actually much higher today than it was when the Great Recession of 2008 broke out.
“This applies to Japan, the United States, Germany and almost all of Europe,” Petrov said. “Almost the entire developed world and the large economies, including Italy, France, Spain, etc., also double with sovereign debt, it sinks much more, so we have all the indicators, both debt and capital, – that assets are significantly overvalued and we have many economic inefficiencies.
The response of the central banks.
After all, the natural economic process of purification – that is, the bankruptcies of the balloon industries will lead to a series of bankruptcies. But the response from central banks around the world, which have already started to inject large amounts of liquidity, can lead to two different scenarios that lead to their actions.
Through an aggressive monetary inflation policy, central banks are trying to reinflate existing bubbles. This prevents the economy from recovering from accumulated errors on the one hand.
If financial institutions can really re-inflate the balloons to create a sense of prosperity, something that will take a lot more money than it did twelve years ago, they will create a “zombie economy.” According to Petrov, this is a probable scenario in the current situation.
“A large part of the companies and factories, instead of going bankrupt and going through a cleaning process, will continue to live,” he said. “We have been seeing this process very well for the past 30 years in Japan. Zombification has created a ‘lost decade’, which has already become three lost decades. It is estimated that the country will have a fourth lost decade, during which the economy will continue to be inefficient, not growing well and not having high productivity. “
And the result of printing money in the Land of the Rising Sun is a decline in stock markets, with the Nikkei index falling from more than 40,000 points in the early 1990s to 18,000 today, and Japanese purchasing power declining with housing prices. This especially affects those who earn a fixed income, such as retirees. “So unfortunately printing money will only delay the problem.”
Inflation and deflation
Central bank actions will not only affect businesses and balloons, they will also affect commodity prices. According to Dr. Petrov, it will not be unequivocal. “We will have both inflation and deflation at the same time,” he said. “It sounds complicated, but it’s actually very elementary.”
According to him, inflation will be seen in basic products, while non-vital products, including real estate, will become cheaper. Here’s an important point: if currencies depreciate quickly, for example by 20-30%, in nominally expression prices will remain unchanged, but at real they will still lose their value.
In his words, such rampant inflation is not impossible. “If we enter the working hypothesis that the virus will last two to three years, because 70% of the world population must be infected anyway to develop group immunity, we can be sure that we will have a huge, serious disease and deep stagflation, “Petrov said. “There is no problem with the economy shrinking by 10-15% per year, while keeping inflation at 20-30% per year.”
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