M Ziauddin
CORONAVIRUS is threatening the global economy.
And so far the world has failed to stop its spread or
find the anti-dot to kill it for good. Being the first to suffer the attack, and its fast spread over the country before the needed precautions could be taken to localize its occurrence and start remedial measures, the Chinese economy had already suffered the most. Nouriel Roubin, one of the most prominent and enigmatic economists in the world has predicted that the crisis will spill over and result in a disaster. His word is being taken rather seriously because he had correctly predicted the 2008 financial crisis in addition to the U.S. housing bubble along with the ramifications of austerity measures for debt-laden Greece. Roubini is famous for his daring prognostications. He believes that stock markets will plunge by 30 to 40 percent because of the corona-virus. And that Trump will lose his re-election bid. In an interview conducted by DER SPIEGEL’s Tim Bartz on February 27, 2020 he said the current crisis was much more severe for China and the rest of the world than investors have expected for four reasons: First, it is not an epidemic limited to China, but a global pandemic. Second, it is far from being over. This has massive consequences, but politicians don’t realize it.
Elaborating the four points he said just look at the European continent. “Europe is afraid of closing its borders, which is a huge mistake. In 2016, in response to the refugee crisis, Schengen was effectively suspended, but this is even worse. The Italian borders should be closed as soon as possible. The situation is much worse than one million refugees coming to Europe. “And everyone believes it’s going to be a V-shaped recession, but people don’t know what they are talking about. They prefer to believe in miracles. It’s simple math: If the Chinese economy were to shrink by two percent in the first quarter, it would require growth of eight percent in the final three quarters to reach the six percent annual growth rate that everyone had expected before the virus broke out. If growth is only six percent from the second quarter onwards, which is a more realistic scenario, we would see the Chinese economy only growing by 2.5 to 4% for the entire year. This rate would essentially mean a recession for China and a shock to the world. The Chinese government will need a scapegoat.
“Everyone thinks that policymakers will react swiftly but that’s also wrong. The markets are completely delusional. Look at fiscal policy: You can do fiscal stuff only in some countries like Germany, because others like Italy don’t have any leeway. But even if you do something, the political process requires a great deal of talking and negotiating. It takes six to nine months, which is way too long. The truth is: Europe would have needed fiscal stimulus even without the corona crisis. Italy was already on the verge of a recession, as was Germany. But German politicians aren’t even thinking about stimulus, despite the country being so exposed to China. The political response is a joke – politicians are often behind the curve. This crisis will spill over and result in a disaster.”
Roubini believes, Trump would try to reap benefits from this crisis, that’s for sure, but, in his opinion, everything will change when corona-virus reaches the U.S. “You can’t build a wall in the sky. Look, I live in New York City and people there are hardly going to restaurants, cinemas or theatres, even though nobody there has been infected by the virus thus far. When he was asked why he felt “Trump is dead.”, Roubini said: Because there is a significant risk of a war between US and Iran. The US govt wants regime change, and they will bomb the hell out of the Iranians. But Iranians are used to suffering, believe me, I am an Iranian Jew, and I know them! And the Iranians also want regime change in US. The tensions will drive up oil prices and lead inevitably to Trump’s defeat in the elections.
“This has always the case in history. Ford lost to Carter after the 1973 oil shock, Carter lost to Reagan due to the second oil crisis in 1979, and Bush lost to Clinton after the Kuwait invasion. The Democratic field is poor, but Trump is dead. Quote me on that!” What should investors do to brace for the impact? Asked Tim Bartz. Roubini’s response: I expect global equities to tank by 30 to 40 percent this year. My advice is: Put your money into cash and safe government bonds, like German bonds. They have negative rates, but so what? That just means that prices will rise and rise – you can make a lot of money that way. And if I am wrong and equities go up by 10 percent instead, that’s also OK. You have to hedge your money against a crash, that is more important. That’s my motto: “Better safe than sorry!” According to Fareed’s global briefing dated Feb. 28, 2020 the world was already warned about such a pandemic: The corona-virus hews with surprising fidelity to characteristics listed by a group of health experts in 2018, when they warned WHO that humanity was vulnerable to a pandemic of a hypothetical “Disease X.”
“Disease X, experts said back then, would likely result from a virus originating in animals and would emerge somewhere on the planet where economic development drives people and wildlife together,” Peter Daszak, a disease ecologist on that team, wrote in a New York Times op-ed. “Disease X would probably be confused with other diseases early in the outbreak and would spread quickly and silently; exploiting networks of human travel and trade, it would reach multiple countries and thwart containment. Disease X would have a mortality rate higher than a seasonal flu but would spread as easily as the flu. It would shake financial markets even before it achieved pandemic status.” In other words, it would look just like this virus. As for how to protect ourselves in the future, Daszak wrote that prevention efforts need to be sustained between headline-grabbing outbreaks, with efforts directed toward “disease surveillance.” In more immediate terms, the virus is coming, and governments should heed lessons from China: that it’s best to communicate actively with the public, to try to slow the disease with quarantines, and to undertake the “painstaking” logistics of figuring out, for instance, how to set aside hospital beds and floors.
Pakistan’s next door Western neighbour, Iran has faced its share of chaos lately. Iranians are under economic and military pressure, and the daily stress of worrying, literally every few minutes, whether you will accidentally kill yourself by picking your nose or opening a door may prove, additively, too much for a society to bear. The virus stands to harm Iran’s embattled economy, as Adnan Mazarei of the Peterson Institute for International Economics predicts lost tourism and trade, with weakened demand from China (a major buyer of Iranian oil) an even bigger cause for concern. What about Pakistan? Can we cope, medically as well as economically on our own or even with some emergency assistance from WHO or other such sources plus bilateral and multilateral donors with big hearts with an Iranian like invasion of Corona virus? A question begging seriously for an answer!
— The writer is veteran journalist and a former editor based in Islamabad.
