Saturday, May 25, 2024

Corona threat to the economy

Opinions of the epidemiologists are divided on the effects of the Corona virus. Some require very strict measures, while others find it unnecessary. In contrast, economists are unanimous that we should expect economic crisis. No one can predict whether it will be like the economic crisis 90 years ago (1929-1933). According to the IMF, 81 countries have requested assistance, although in normal conditions only 3-4 countries require IMF assistance.

Goran Lefkov

Covid-19 on the rise. Thousands of dead. This is the news that has been flooding the world media for the past 6 months. This is the news that will “occupy” the media and journalists by the end of 2020. Playing the map of populism with creating panic among people will be paid off badly in the end. The economy will suffer the most. Nonsensical draconian decisions to restrict the freedoms of citizens taken by governments in the Balkans, such as Serbia, Bulgaria, Albania, are of populist urge. Leaders of these countries, Aleksandar Vucic, Edi Rama, Bojko Borisov, use every moment to sell cheap populist propaganda to their citizens. Epidemiologists argue that science is not at all involved in these decisions.

Here, the Minister of Health, Venko Filipce, takes the role of an informant about the Corona virus. Unlike the previously mentioned leaders of the Balkan countries, he is a doctor by profession. However, he is not specialized in the field of epidemiology and virology. Filipce is a neurosurgeon. Little to do with epidemiology and the world of viruses.

Although I am deeply convinced, that this battle should be fought more appropriately and its most outspoken fighters should be epidemiologists.Prof. Dr. Velo Markovski, an epidemiologist, professor at Goce Delcev University in Stip in the TV program “Sleep if you can” on Alpha Television thinks that all these measures about the Corona virus are unnecessary.

The problem now is whether we can keep the panic or think calmly with cold heads. In such an information society, I think it is impossible to think with cold heads. According to the recommendations of the World Health Organization, we are taking several steps forward. The WHO’s first recommendation was that if there were up to 20 cases, they should be isolated and the population informed. We went to the second level, closed schools, where children are known to be the main transmitters of respiratory infections. We have almost reached the last stage of what the WHO has proposed, said Markovski.

So far, this is a known virus, discovered 1965 and so dangerous that initially medical students, voluntarily became infected with the virus to see what the clinical picture will be. It has been established that he is in that group of viruses that gives colds 4 times a year. Between 15 and 35% of all colds in the winter are caused by a coronavirus. Twice this virus is not surprising, it has four subtypes, and it is present in animals.

The virus has extremely low contagion, unlike measles that have 100% contagion, if you sit next to each other for 15 minutes or closer to half a meter, this virus will infect 1 to 5. Covid 19 is not a quarantine disease. The list of quarantine diseases is known, these are hemorrhagic fever, cholera, varicose vein where they have a mortality of up to 70%. We do not have scientific knowledge about this disease, that is what causes panic, thinks Markovski.

All countries have taken rigorous measures except Sweden, which has introduced measures that are more liberal. Sweden has chosen a strategy based on science advice. The government is trying to level the curve of the sick. The government wants to put optimal measures on time. If you put in many repressive measures, people will get tired of them, but if taken with time, they can have an effect. Restaurants and bars can only serve the food in the table and it is forbidden to gather people and to stand in bars. The gathering is allowed for up to 50 people. Previously the limit was up to 500 people. Universities and high schools have online teaching, while elementary schools and kindergartens are still working. People who can work from home can choose not to go to work.

A growing number of epidemiologists disagree with current restrictions imposed by governments. The damage to such measures in the economy is terrible.

The recession of the world economy is inevitable

World stock markets are the first to respond to external shocks. They are an indicator of the economy. The data on the growth of the world economy has long been negative.

Kristalina Georgieva, chief executive of the International Monetary Fund (IMF), these days came with a data that 81 countries have asked for help form IMF, unlike other crisis times when only 3-4 countries ask for help. According to IMF estimates, the countries’ requests are for loans worth $ 2,500 billion.

She expects the recession to be worse than the 2008 crisis. The same opinion shares Matthias Larson, a former analyst and investment adviser at IKF Funds from Sweden, who trades securities around the world.

“Economies have been very strong since Lehman’s 2008 accident. There has been no major crisis in the past 10 years, which is not normal in economic cycles. We have never paid full price for that credit bubble, instead of having to correct the stock indexes, thanks to all the massive stimulus programs i.e. massive bond purchases and expansion of central bank balance sheets and negative to zero interest rates, the correction was prevented. Definitely, this is an event that is causing a global recession, how big will the question be no one can answer, “Larson talks about this story.

He adds that the crisis will last no earlier than the end of the year.
Some economists predict it may be like depression from the 1930s. This epidemic in short-term will encourage greater protectionism, which will have a negative impact on future growth. Monetary policy will have a hard time dealing with this crisis; massive government programs such as infrastructure investment, etc. will probably be launched around the world to support economies

Macedonian analysts share a similar view. Branimir Jovanovic, a doctor of economics at Thor Vergata University in Rome and a researcher at the Institute of Social and Human Sciences, believes that the global economy will decline.

“The latest forecasts are that the crisis can be prolonged even after the middle of the year. The bad news is that the virus is spreading rapidly in the United States; they have already overcome China by the number of infected people found. If the epidemic escalates there, the economic crisis will definitely prolong, “said Jovanovic.

The Down Jones Index fell about 25% in a month. No such decline has been recorded in the history of this index. The price of oil has also fallen.
The other day the Economist Magazine announced that their new projection for global growth for 2020 is that it will be -2.2%, which is similar to 2009 (-1.7%).

Macedonian economy on world paths

In conditions of globalization where the interconnectedness of economies and markets worldwide is high, it is inevitable that the crisis will overtake the domestic economy as well. Macedonian Stock Exchange Index MBI-10 is in a downward spiral. In just one month, it lost about 30% of its value.

Most of the industrial branches such as catering, tourism and transport have had trouble in functioning. It is therefore very important to determine specific economic measures to assist the economy.

It is bad that there is uncertainty about the government’s economic measures. The first package was announced on time, it was OK, it started to be implemented, but the second package is still missing, although the government announced it. Zaev, who is not a Prime minister, announced a proposal for economic measures, including a cut in public sector wages, but himself later said that these were not government’s measures but SDSM’s measures. The government has not commented on his proposal, so now there is uncertainty in the public about whether those measures will be government’s measures or not. In addition, while the government is silent, Zaev keeps making statements, even ones that do more harm than good. He has repeatedly stated that 1-2 billion euros were missing in the budget. .

“Such statements are not allowed at such times; they can only do harm because they create uncertainty and diminish confidence. In these moments everything should be calmed down, to introduce security and create trust,” said Branimir Jovanovic.
He adds that state measures should be aimed at preventing companies from collapsing and firing workers.

All states adopt very similar measures, such as tax deferral for affected companies, favorable loans, covering part of the wages, etc. These measures provide liquidity for affected firms and prevent them from collapsing and firing workers. This prevents the health crisis from becoming an economic crisis. Let us not forget, the essence of this crisis is that we ourselves are stopping the economy in order to stop the spread of coronavirus. We do not have an economic crisis, we ourselves are stopping the economy. However, while the economy is stopped, we need to ensure that citizens and businesses will survive, and that is why measures are needed.

The worst that can happen is to fire workers, and here the government is not doing enough. Firms must be strictly prohibited from firing workers during a crisis. So, the aid must not be conditioned on the dismissal of workers, but to be prohibited of firing, because a company may not seek state aid and fire workers. It must not be allowed.

Analysts do not expect a general rise in prices or inflation. It is true that we have a rise in prices for some products such as lemons etc, but that is far from the possibility of causing inflation. Oil prices on world stock markets are very low, which will create pressure for prices to fall, and over the past few years inflation has been consistently low (around 1%), so there is no pressure for inflation. Our Девизните резерви exchange reserves are around 3 billion euros, which is a very good level, the state has the capacity to react on the foreign currency exchange market, so that the denar will remain stable.

Measures to get out of the crisis

On March 18, Deputy Prime Minister, Mila Jarovska and Finance Minister, Nina Angelovska announced the first set of measures to help the economy.

Government measures to deal with the recession

1 Fund of 5.7 million euros
2 Exemption from contributions up to 50%
3 NBRM interest rate of 1.75%
4 Exemption for Profit Tax Advances
5 Halving the rate of income tax advance payments

The measures taken by governments are similar. Their aim is to directly influence the retention of the number of staff, which will keep household consumption stable and the tension and fear will do no harm. The second direction where the measures should be taken is to prohibit the collapse of companies.

Neighboring Bulgaria has announced interest-free loans of up to 750 euros for those who lose their jobs, while for those who work in companies; the state will cover 60% of the wages agreed between the worker and the employer. The value of these measures in Bulgaria is billion leva (about 500m euros). In addition, it also lends to companies worth about 4.5 billion leva or 2.3 billion euros.

As we prepared this analysis, from Serbia came announcements for measures in order to save the economy. Albania has not yet announced an economic aid package until Kosovo enters a political crisis after the fall of the Albin Kurti’s government. Many European countries have announced measures to get out of the crisis.

Therefore, Sweden is already implementing crisis measures:

The government covers 50% of the salary. If the employee is fired during the crisis, he will receive 90% of his salary. This measure is applied during the crisis. The package is worth SEK 300 billion (about EUR 30 billion euros). While salary contributions will not be paid in April, May and June for salaries of up to SEK 25,000 per month  (approximately 2,500 euros).

An additional credit line is opened from the Swedish Central Bank of 500 billion Swedish krona, (50 billion euros) to support loans corporate, but it does not work because banks have not eased their credit policies. According to Larson, these are good measures, but there are sectors that are not covered with measures.

“Unfortunately, until now this aid has not worked well for smaller businesses, many will have to close and apply for bankruptcy,” he said. Packages in the European Union and the United States of America are estimated of thousands of billions of euros. Germany alone has announced a package of 750 billion euros.

Goran Lefkov

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