A record surge in private debt triggered by the Covid-19 pandemic could slow the global economic recovery, with the biggest drag on future expansion in countries where low-income households and vulnerable firms are highly indebted.
The recent spike in debt levels could slow economic recovery by a cumulative 0.9 per cent of gross domestic product in advanced economies and 1.3 per cent in emerging markets on average over the next three years, the International Monetary Fund said on Monday.
"The recent surge in indebtedness of households and firms poses risks to the pace of recovery," the Washington-based lender said in a report.
"Yet this risk is not equally distributed. Careful, real-time monitoring of the balance sheets of low-income households and vulnerable firms is key to calibrating the unwinding of support measures. This could prevent sudden distress when financial conditions tighten."
Governments worldwide have provided economic stimulus packages to help individuals and businesses ride out the Covid-19 pandemic. These have helped to provide liquidity for affected individuals and businesses through credit guarantees, concessional lending and extensions on interest payments. While these policies helped prop balance sheets, they also led to a spike in private debt, extending a steady increase in leverage since the global financial crisis of 2008.
Global private debt surged by 13 per cent of the world’s GDP in 2020 — faster than the rise seen during the global financial crisis and almost as fast as public debt, the IMF said.
The impact of the pandemic on households’ and firms’ balance sheets has been unequal across and within countries, depending on policy responses and the types of sectors in those economies, the IMF added.
High-contact-services such as entertainment shrank as people stayed at home, but production and exports of computers, software and other goods expanded as consumers spent more on appliances.
For example, the situation of workers in tourism services, restaurants, hospitality and entertainment has in many cases "remained precarious" two years after the start of the pandemic. Meanwhile, labour shortages and fast wage increases have become the norm in construction and logistics, the fund said.
The war in Ukraine has further disrupted global supply chains, leading to shortages and higher costs of basic commodities.
"Large increases in the prices of energy and food products are likely to affect low-income households — especially in emerging markets and developing economies — and could spill over to many industries via higher input prices if the conflict is prolonged," the IMF said.
The worsening situation in Ukraine, with Russia bombarding several cities and peace talks between Kyiv and Moscow at a dead end, have also raised the prospects of tougher sanctions on Russian energy exports in an already tight market.
The impact of the pandemic on consumer and business balance sheets, especially those most exposed to the crisis, differed greatly depending on the support provided by governments.
"The post-pandemic drag on growth could be much larger in countries where (1) indebtedness is more concentrated among financially stretched households and vulnerable firms, (2) fiscal space is limited, (3) the insolvency regime is inefficient and (4) monetary policy needs to be tightened rapidly," IMF analysis shows.
Low-income households and highly-indebted or unprofitable firms are typically less able to cope with a high level of debt, becoming more likely to make sharper cuts to consumption and investment spending in the future.
"The drag on future growth is therefore expected to be greatest in countries that experienced the largest increases in indebtedness among low-income households and vulnerable firms during the pandemic," the IMF warned.
Consumers in China and South Africa suffered the biggest increases in household debt ratios among the countries for which detailed data are available, according to the report.
Within advanced economies, low-income households in the US, Germany, and the UK recorded comparatively larger increases in debt than those in France and Italy, where debt actually declined for poorer households.
Vulnerable businesses — which are highly concentrated in contact-intensive services — often borrowed to survive the drop in revenues caused by the pandemic.
Future investment is therefore likely to be lower in countries with a higher share of contact-intensive sectors, the IMF said.
"As economies recover and inflation accelerates, governments should take account of the impact of fiscal and monetary policy tightening on the most financially stretched consumers and businesses when pacing the exit from extraordinary support policies," the IMF said in its policy recommendations.
It estimates that a surprise tightening of 100 basis points would slow investment by the most leveraged firms by a cumulative 6.5 percentage points over two years — four percentage points more than for the least leveraged.
In countries where the economic recovery is well underway and balance sheets are in good shape, governments can reduce fiscal support faster, therefore facilitating the work of central banks, the IMF said.
In other economies, governments should target fiscal support to the most vulnerable in the transition to recovery but within "within credible medium-term fiscal framework", it said.
Government support to firms could be limited to circumstances in which there is clear market failure, it added.
"To prevent rapid tightening of monetary policy from causing large and potentially long-lasting disruptions, policymakers should pay close attention to adverse developments in the financial sector," the IMF said.
This is especially important in countries where a wave of bankruptcies in sectors heavily hit by the pandemic could spill over to the rest of the economy. In this case, governments could provide incentives for restructuring over liquidation and solvency support could be considered where necessary, the fund said.
"As countries prepare to normalise monetary policy, assessing how leverage is distributed is key to forecasting the pace of the recovery and calibrating the unwinding of pandemic-time support."
Results
6.30pm: Baniyas (PA) Group 2 Dh195,000 1,400m | Winner: ES Ajeeb, Sam Hitchcock (jockey), Ibrahim Aseel (trainer)
7.05pm: Maiden (TB) Dh165,000 1,400m | Winner: Al Shamkhah, Royston Ffrench, Sandeep Jadhav
7.40pm: Handicap (TB) Dh190,000 1,200m | Winner: Lavaspin, Richard Mullen, Satish Seemar
8.15pm: Maiden (TB) Dh165,000 1,200m | Winner: Kawasir, Dane O’Neill, Musabah Al Muhairi
8.50pm: Rated Conditions (TB) Dh240,000 1,600m | Winner: Cosmo Charlie, Pat Dobbs, Doug Watson
9.20pm: Handicap (TB) Dh165,000 1,400m | Winner: Bochart, Richard Mullen, Satish Seemar
10pm: Handicap (TB) Dh175,000 2,000m | Winner: Quartier Francais, Fernando Jara, Ali Rashid Al Raihe
What the law says
Micro-retirement is not a recognised concept or employment status under Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations (as amended) (UAE Labour Law). As such, it reflects a voluntary work-life balance practice, rather than a recognised legal employment category, according to Dilini Loku, senior associate for law firm Gateley Middle East.
“Some companies may offer formal sabbatical policies or career break programmes; however, beyond such arrangements, there is no automatic right or statutory entitlement to extended breaks,” she explains.
“Any leave taken beyond statutory entitlements, such as annual leave, is typically regarded as unpaid leave in accordance with Article 33 of the UAE Labour Law. While employees may legally take unpaid leave, such requests are subject to the employer’s discretion and require approval.”
If an employee resigns to pursue micro-retirement, the employment contract is terminated, and the employer is under no legal obligation to rehire the employee in the future unless specific contractual agreements are in place (such as return-to-work arrangements), which are generally uncommon, Ms Loku adds.
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
The biog
Name: Dhabia Khalifa AlQubaisi
Age: 23
How she spends spare time: Playing with cats at the clinic and feeding them
Inspiration: My father. He’s a hard working man who has been through a lot to provide us with everything we need
Favourite book: Attitude, emotions and the psychology of cats by Dr Nicholes Dodman
Favourit film: 101 Dalmatians - it remind me of my childhood and began my love of dogs
Word of advice: By being patient, good things will come and by staying positive you’ll have the will to continue to love what you're doing
KEY%20DATES%20IN%20AMAZON'S%20HISTORY
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The bio
Who inspires you?
I am in awe of the remarkable women in the Arab region, both big and small, pushing boundaries and becoming role models for generations. Emily Nasrallah was a writer, journalist, teacher and women’s rights activist
How do you relax?
Yoga relaxes me and helps me relieve tension, especially now when we’re practically chained to laptops and desks. I enjoy learning more about music and the history of famous music bands and genres.
What is favourite book?
The Perks of Being a Wallflower - I think I've read it more than 7 times
What is your favourite Arabic film?
Hala2 Lawen (Translation: Where Do We Go Now?) by Nadine Labaki
What is favourite English film?
Mamma Mia
Best piece of advice to someone looking for a career at Google?
If you’re interested in a career at Google, deep dive into the different career paths and pinpoint the space you want to join. When you know your space, you’re likely to identify the skills you need to develop.
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Dhadak 2
Director: Shazia Iqbal
Starring: Siddhant Chaturvedi, Triptii Dimri
Rating: 1/5
Nepotism is the name of the game
Salman Khan’s father, Salim Khan, is one of Bollywood’s most legendary screenwriters. Through his partnership with co-writer Javed Akhtar, Salim is credited with having paved the path for the Indian film industry’s blockbuster format in the 1970s. Something his son now rules the roost of. More importantly, the Salim-Javed duo also created the persona of the “angry young man” for Bollywood megastar Amitabh Bachchan in the 1970s, reflecting the angst of the average Indian. In choosing to be the ordinary man’s “hero” as opposed to a thespian in new Bollywood, Salman Khan remains tightly linked to his father’s oeuvre. Thanks dad.
If you go:
The flights: Etihad, Emirates, British Airways and Virgin all fly from the UAE to London from Dh2,700 return, including taxes
The tours: The Tour for Muggles usually runs several times a day, lasts about two-and-a-half hours and costs £14 (Dh67)
Harry Potter and the Cursed Child is on now at the Palace Theatre. Tickets need booking significantly in advance
Entrance to the Harry Potter exhibition at the House of MinaLima is free
The hotel: The grand, 1909-built Strand Palace Hotel is in a handy location near the Theatre District and several of the key Harry Potter filming and inspiration sites. The family rooms are spacious, with sofa beds that can accommodate children, and wooden shutters that keep out the light at night. Rooms cost from £170 (Dh808).
Scores
Wales 74-24 Tonga
England 35-15 Japan
Italy 7-26 Australia
About Housecall
Date started: July 2020
Founders: Omar and Humaid Alzaabi
Based: Abu Dhabi
Sector: HealthTech
# of staff: 10
Funding to date: Self-funded
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Mica
Director: Ismael Ferroukhi
Stars: Zakaria Inan, Sabrina Ouazani
3 stars
Avengers: Endgame
Directors: Anthony Russo, Joe Russo
Starring: Robert Downey Jr, Chris Evans, Scarlett Johansson, Chris Hemsworth, Josh Brolin
4/5 stars
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
UAE currency: the story behind the money in your pockets
Global state-owned investor ranking by size
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United States
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China
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UAE
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Japan
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5
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Norway
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Canada
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Singapore
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Australia
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Saudi Arabia
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South Korea
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THE CLOWN OF GAZA
Director: Abdulrahman Sabbah
Starring: Alaa Meqdad
Rating: 4/5
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
Zayed Sustainability Prize
The five pillars of Islam
The bio
Favourite vegetable: Broccoli
Favourite food: Seafood
Favourite thing to cook: Duck l'orange
Favourite book: Give and Take by Adam Grant, one of his professors at University of Pennsylvania
Favourite place to travel: Home in Kuwait.
Favourite place in the UAE: Al Qudra lakes
BRIEF SCORES
England 353 and 313-8 dec
(B Stokes 112, A Cook 88; M Morkel 3-70, K Rabada 3-85)
(J Bairstow 63, T Westley 59, J Root 50; K Maharaj 3-50)
South Africa 175 and 252
(T Bavuma 52; T Roland-Jones 5-57, J Anderson 3-25)
(D Elgar 136; M Ali 4-45, T Roland-Jones 3-72)
Result: England won by 239 runs
England lead four-match series 2-1
Killing of Qassem Suleimani
So what is Spicy Chickenjoy?
Just as McDonald’s has the Big Mac, Jollibee has Spicy Chickenjoy – a piece of fried chicken that’s crispy and spicy on the outside and comes with a side of spaghetti, all covered in tomato sauce and topped with sausage slices and ground beef. It sounds like a recipe that a child would come up with, but perhaps that’s the point – a flavourbomb combination of cheap comfort foods. Chickenjoy is Jollibee’s best-selling product in every country in which it has a presence.
More from Aya Iskandarani
COMPANY%20PROFILE%3A
%3Cp%3E%3Cstrong%3EName%3A%3C%2Fstrong%3E%20Envision%3Cbr%3E%3Cstrong%3EStarted%3A%20%3C%2Fstrong%3E2017%3Cbr%3E%3Cstrong%3EFounders%3A%20%3C%2Fstrong%3EKarthik%20Mahadevan%20and%20Karthik%20Kannan%3Cbr%3E%3Cstrong%3EBased%3A%3C%2Fstrong%3E%20The%20Netherlands%3Cbr%3E%3Cstrong%3ESector%3A%3C%2Fstrong%3E%20Technology%2FAssistive%20Technology%3Cbr%3E%3Cstrong%3EInitial%20investment%3A%3C%2Fstrong%3E%20%241.5%20million%3Cbr%3E%3Cstrong%3ECurrent%20number%20of%20staff%3A%3C%2Fstrong%3E%2020%3Cbr%3E%3Cstrong%3EInvestment%20stage%3A%3C%2Fstrong%3E%20Seed%3Cbr%3E%3Cstrong%3EInvestors%3A%3C%2Fstrong%3E%204impact%2C%20ABN%20Amro%2C%20Impact%20Ventures%20and%20group%20of%20angels%3C%2Fp%3E%0A
Jetour T1 specs
Engine: 2-litre turbocharged
Power: 254hp
Torque: 390Nm
Price: From Dh126,000
Available: Now
Lexus LX700h specs
Engine: 3.4-litre twin-turbo V6 plus supplementary electric motor
Power: 464hp at 5,200rpm
Torque: 790Nm from 2,000-3,600rpm
Transmission: 10-speed auto
Fuel consumption: 11.7L/100km
On sale: Now
Price: From Dh590,000
Specs
Engine: Duel electric motors
Power: 659hp
Torque: 1075Nm
On sale: Available for pre-order now
Price: On request
