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World GDP will fall dramatically. All experts agree on this. There are different approaches only to the extent of economic contraction and the medium-term prospects for a return to growth.
The International Monetary Fund hopes for 2020 and next year contraction of the world economy by 11 trillion euros. “This is the biggest recession since the financial crisis of 1929,” said a leading IMF economist quoted by Deutsche Welle, warning that “no country will emerge unscathed from the crisis.”
As a result of the economic crisis, budget deficits relative to GDP will reach at the highest point since the end of WWII. According to the Fund, measures should be taken to support development and the richest countries should help the poorest even more. “Also, strict austerity measures must be taken after the end of the pandemic to reduce public debt.”
The IMF places the global recession at 4.9%, while for 2021 it expects a gradual recovery of 5.4%. However, these estimates are valid only on the condition that there is no other wave of pandemics with the imposition of new lockdowns, which would strengthen any return to development.
Industrialized countries “fuck”
More pessimistic are the estimates of the World Bank, which predicts the contraction of the world economy to 5.2%. And the experts of the international organization point out that the Bank’s forecasts will be worse in case the severe restrictive measures are extended in the economy and public life.
As for industrialized countries, the World Bank speaks of a recession of 7% and in emerging economies of 2.5%. In the United States the recession will exceed 6% and in the EU 9%. Unlike China, where the coronavirus pandemic started about a year ago but now economic life has returned to normal, The World Bank expects a growth of 1%.
The forecasts of the International Monetary Fund and the World Bank refer to the so-called real economy. The panorama in the financial field, however, is different. In this area, any prediction is particularly difficult because there is rarely data on the volume of financial transactions.
For example, at a time when the IMF forecasts a global GDP contraction of 11 trillion euros, the Swiss bank Credit Suisse records almost 51 trillion euros in derivatives on its balance sheets. That is 25% more than in 2007, a year before the outbreak of the global financial crisis. Despite repeated promises to restrict investment activities by banks, the volume of derivatives is constantly expanding.
When the antidote turns to poison
Derivatives trading is boosted not only because profits from conventional banking products remain low, but also because there is a lot of money on the global market that is not invested. Because it is much more profitable for clients to use financial tools to increase their profits than to invest in the economy.
At the same time, governments and central banks continue to print money., which are then released to the market to counteract deflationary trends, but also to reduce the risk of economic recession.
In reality, however, fresh money is not funneled into the economy, but ends up in the financial markets.. As a result, the BIS Bank for International Settlements, based in the Kingdom of Switzerland, estimates the GDP of all countries in the world at $ 63 trillion, while the total turnover with derivatives at around 630 trillion. That’s ten times. Consequently, the new money that is printed is more harmful than beneficial, especially if we are in a “respite” from a new economic crisis like the one of 2008.
With information from Deutsche Welle
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