Global Economies and Russia Amidst Coronavirus – Economic Downturn Analysis and Scenarios

  • Italy has recorded the worst mortality rate from Coronavirus.
  • Russia has six years of comfortable budgets even if the oil war and an economic downturn continue.
  • US and EU central banks are injecting funds into their economies.

Coronavirus has forced a majority of nations around the globe to implement drastic measures. These include the support of businesses and private citizens to alleviate losses and financial strains. In the US and Canada unemployment applications are reaching all time highs. A majority of nations in the West embraced an approach adverse to globalism.

The virus originated in China and they didn’t take initial reports seriously, instead they threatened doctors and closed a laboratory that published an open source genome sequence of the virus. If it wasn’t for conglomerates craving marginal profits and moving a majority of manufacturing from the West to China, it wouldn’t have such catastrophic effects on the global population.

The US Federal Reserve and European central bank have introduced quantitive easing amidst the Coronavirus pandemic. Quantitative easing, in this case, involves large-scale asset purchases. Usually, it is a  monetary policy where a central bank buys predetermined amounts of government bonds or other financial assets in order to inject money directly into the economy. The feds measures are surpassing their records from the 2008 crisis.

Leaders are also contemplating distribution of money among the population in order to maintain effective demand. In the United States, they are considering giving $1,000 to each citizen. In Canada the offer is $400 Canadian dollars for each citizen and $600 Canadian dollars for a couple.  Of course there are no complaints against this measure. Nevertheless, it may lead to an inflationary jump. That may mean leaving Central Bank rates at zero or at intervals extremely close to zero in the US and Europe. All so the economy does not experience liquidity issues.

US Federal Reserve.

Emergency measures are aimed at addressing the large number of people who became unemployed due to layoffs. This is a classic response of the Western world to the possible threat of a full blown crisis. It is a usual risk control measure, when of course preliminary risk assessment wasn’t shared with the general public and it was downplayed originally in the West, including in the US. The US does not want to repeat the 2008 crisis, even though the triggers are different this time.

Since the US is in the midst of a presidential election campaign, both parties are slinging mud at each other and blame. US president Trump was advocating nationalism before globalism, while the Democratic Party was advocating for more refugees. At the same time, it is the same party that is blaming US Donald Trump for not doing enough earlier. On the other side of the spectrum, Republicans took a strong stance on immigration and a trade war with China but did not suspend travel to China amidst spread of the Coronavirus cases back in January 2020. The US also continued to enter into new business agreements with China.

Meanwhile, China is actively earning points via propaganda and false narratives by taking advantage of its victory over the coronavirus, sending masks, medicines, tests and doctors to different countries, and demonstrating “China’s care for the world.” Let’s not forget the virus did originate in China, be it from their lab or mutation. Also, China is spreading fake information (with giddy Russian support) that the US brought the virus to China.

When the entire service sector in many EU nations stopped, it’s a predictable disaster, since 80% of their economy is based on service sectors. Italy is in critical condition economically and also has the highest mortality rate of the Coronavirus, surpassing even Chinese numbers of deaths reported. However, how accurate China’s numbers of reported deaths are may never be known. Italy will not be able to cope with the economic collapse, showing record drops in gross domestic product. Support from the EU can save the country from the collapse of the banking system, mass unemployment, bankruptcy, etc. Perhaps the UK leaving the EU was premature amid the coronavirus pandemic.

One of the sectors that is booming is the pharmaceutical industry which as a whole always shows a strong performance, other than drug recalls due to severe adverse reactions. A majority of pharma has enough reserves, reinsurance to cover such loses as (including litigation costs) and they are usually backed by the government. The Pharma lobby is one of the largest in the US.

Hypothetically, if the pandemic ends in April, the multiplier effects will still have serious economic consequences. By the fall, it is highly likely that we will experience a hyper inflationary shock. An important factor to consider is that during the 2008 crises, injections into the US economy were given over time which allowed for a smoother operation. At this time we’ve seen a rapid, knee jerk reaction. If it is not withdrawn from the economy by fall, the markets will feel enormous pressure with the extra funds supply. The worst scenario would be US states starting to default.

Besides adding to the spread of misinformation, Russia has tamed coronavirus within their country. The Russian stock market did not take a significant hit, but some stocks appear to be trading 15% lower.

Of course, there is the drop in oil prices caused by the pseudo Russian-Saudi oil war and the Saudis taking the opportunity to gain a larger share of the market. There is an observed decline in demand for oil based products due to COVID-19. Therefore, the Russian economy is effected. For global PR purposes, the Kremlin throws out statements about increasing oil production to lower the prices even further and that it costs Russia close to $3.00 (US) to produce oil. Putin is good at puppeteering and showing stone cold strength. In reality if this oil war continues and Donald Trump even considered an embargo against Russia and Saudi oil, it would cost Russia.

In the US and Europe central banks are vying to hold REPO auctions, which means to dump billions of dollars and euros on the market and inflating the bubble of unsecured financial securities. This in turn results in placing volumes of liquidity into the markets. By the way, the easing was applied in the form of an opportunity to openly sell all foreign exchange earnings to companies on the exchange, and it was stated that the Central Bank is ready for currency interventions to smooth out sharp changes in exchange rates. In Russia no such changes have been observed or announced so far.

One manipulation that has taken place is that Oleg Deripaska taken advantage of owning shares in Siberbank with Putin’s blessing. He was allowed to close a VTB loan with Siberbank. Oleg Deripaska is a Russian oligarch and part of Putin’s inner circle, He has been in the media a lot, due to a myriad of allegations. VTB Bank is one of the leading universal banks in Russia and has been part of the US sanctions against Russia.

Vladimir Putin with Oleg Deripaska.

The Kremlin is taking a measured approach to the global pandemic crisis. It is noticeable many Channel 1 (the main channel in Russia) shows are now taped without audiences. Russian citizens that returned from Europe were ordered to be in self imposed 14 day quarantines and some were even forced into hospital quarantines.

It seems Putin knows he has six years of stable budget regardless. The new amendments to the Russian constitution introduced in January 2020 and the removal of term limits guarantees Putin and his inner circle will remain in power.

Russia anticipates the bubbles that will more than likely hit the West. No true election campaign will occur in Russia. It is simply going to be Putin and many are resigned to that fact in Russia. At this time there is no true strong opposition in Russia. To change power there, many external factors are needed.

The next two months will be crucial to determine the direction of global economies.

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Christina Kitova

I spent most of my professional life in finance, insurance risk management litigation.

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