As the International Monetary Fund slightly upgraded its global economic outlook last week, the reality on the ground appears to be less positive thanks to a surge in Covid-19 infections in many countries.
With policymakers appearing to be running out of ammunition at such a critical moment, thoughts of V-shaped recoveries are again going into abeyance.
As so often happens when the IMF releases its World Economic Outlook, the situation being faced by many countries appeared to be at odds with its overall messages. While the IMF reduced the extent of the global contraction expected this year to -4.4 per cent from -5.2 per cent in June, and signalled a still relatively strong rebound in 2021 of 5.2 per cent (albeit down 0.2 per cent from its June forecasts), the world was beginning to confront a second phase of the pandemic, which has seen more lockdowns and restrictions.
With policymakers appearing to be running out of ammunition at such a critical moment, thoughts of V-shaped recoveries are again going into abeyance
Admittedly, the IMF acknowledged the likely uneven nature of its rebound forecast, but as winter approaches, the conditions for the world economy continuing its recovery – seen during the summer – appears to be getting more difficult, not better.
Activity rebounded in the middle of the year, reflecting pent-up consumer and business demand along with unprecedented fiscal support measures designed to provide temporary income support. It also reflected quick and aggressive monetary policy responses from the world’s central banks. The global fiscal stimulus amounted to $12 trillion, while central banks expanded their balance sheets by $7.5tn.
However, with lockdowns and restrictions now returning in many countries and with no visibility yet over the availability of an effective vaccine, there is a significant risk that economic activity will soon run out of steam and begin to slump again. And this time around, global policymakers are also running out of ammunition to confront it.
Policymakers face a much more challenging situation in terms of providing ‘‘Phase 2’’ policy support than they did during the first phase of the pandemic, given the sharp increase in budget deficits and debt levels as a percentage of gross domestic product. Monetary policy has also long been perceived as running out of effectiveness given the widespread prevalence of negative or zero interest rates.
The IMF expects debt levels to go up significantly to about 125 per cent of GDP in advanced economies next year, and up to 65 per cent of GDP in emerging market economies. However, more debt can act as a drag on economic growth and undermine the effectiveness of other policy steps, with highly indebted countries often the worst performing in terms of economic growth.
For now, the IMF noted that low or negative interest rates should contain debt service costs, especially for advanced economies, indicating that now is not the time to engage in austerity to restore public finances back to health. However, looking ahead, it also observed that the ability of fiscal policy to provide further support might become more limited.
Fiscal support packages are certainly becoming less generous than they were earlier in the Covid-19 crisis and in the US, the timeline for Congress to pass a meaningful fiscal package is now fading as the November 3 presidential election comes into view. This puts the burden onto the central banks again, but what can they do?
The Bank of England is apparently preparing UK banks for negative interest rates, but the US Federal Reserve is more likely to go down the road of more quantitative easing programmes alongside credit support and easier terms and conditions for its loans. This may limit the upside for bond yields, but investors might be right to wonder what real difference this will make.
With analysts again dusting off their lexicons for the likely shape of the economic recovery from V to U to W or K, some commentators abandoned alphabetic metaphors completely and instead described the UK recovery, for example, as likely to be ‘‘pear-shaped’’. Whatever shape the recovery turns out to be, the headwinds to markets are clearly returning as vulnerabilities increase, leaving investors quite likely to remain nervous and probably defensive.
Tim Fox is a prominent regional economist and financial markets analyst
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What is blockchain?
Blockchain is a form of distributed ledger technology, a digital system in which data is recorded across multiple places at the same time. Unlike traditional databases, DLTs have no central administrator or centralised data storage. They are transparent because the data is visible and, because they are automatically replicated and impossible to be tampered with, they are secure.
The main difference between blockchain and other forms of DLT is the way data is stored as ‘blocks’ – new transactions are added to the existing ‘chain’ of past transactions, hence the name ‘blockchain’. It is impossible to delete or modify information on the chain due to the replication of blocks across various locations.
Blockchain is mostly associated with cryptocurrency Bitcoin. Due to the inability to tamper with transactions, advocates say this makes the currency more secure and safer than traditional systems. It is maintained by a network of people referred to as ‘miners’, who receive rewards for solving complex mathematical equations that enable transactions to go through.
However, one of the major problems that has come to light has been the presence of illicit material buried in the Bitcoin blockchain, linking it to the dark web.
Other blockchain platforms can offer things like smart contracts, which are automatically implemented when specific conditions from all interested parties are reached, cutting the time involved and the risk of mistakes. Another use could be storing medical records, as patients can be confident their information cannot be changed. The technology can also be used in supply chains, voting and has the potential to used for storing property records.
Other acts on the Jazz Garden bill
Sharrie Williams
The American singer is hugely respected in blues circles due to her passionate vocals and songwriting. Born and raised in Michigan, Williams began recording and touring as a teenage gospel singer. Her career took off with the blues band The Wiseguys. Such was the acclaim of their live shows that they toured throughout Europe and in Africa. As a solo artist, Williams has also collaborated with the likes of the late Dizzy Gillespie, Van Morrison and Mavis Staples.
Lin Rountree
An accomplished smooth jazz artist who blends his chilled approach with R‘n’B. Trained at the Duke Ellington School of the Arts in Washington, DC, Rountree formed his own band in 2004. He has also recorded with the likes of Kem, Dwele and Conya Doss. He comes to Dubai on the back of his new single Pass The Groove, from his forthcoming 2018 album Stronger Still, which may follow his five previous solo albums in cracking the top 10 of the US jazz charts.
Anita Williams
Dubai-based singer Anita Williams will open the night with a set of covers and swing, jazz and blues standards that made her an in-demand singer across the emirate. The Irish singer has been performing in Dubai since 2008 at venues such as MusicHall and Voda Bar. Her Jazz Garden appearance is career highlight as she will use the event to perform the original song Big Blue Eyes, the single from her debut solo album, due for release soon.
Red flags
- Promises of high, fixed or 'guaranteed' returns.
- Unregulated structured products or complex investments often used to bypass traditional safeguards.
- Lack of clear information, vague language, no access to audited financials.
- Overseas companies targeting investors in other jurisdictions - this can make legal recovery difficult.
- Hard-selling tactics - creating urgency, offering 'exclusive' deals.
Courtesy: Carol Glynn, founder of Conscious Finance Coaching
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THE LOWDOWN
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- Grade 8 = between grades A* and A
- Grade 7 = grade A
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- Grade 5 = between grades B and C
- Grade 4 = grade C
- Grade 3 = between grades D and E
- Grade 2 = between grades E and F
- Grade 1 = between grades F and G
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