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Thu 26 Mar 2020 08:26 AM

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Coronavirus: The Great Escape or The Great Depression?

With global economies in meltdown, experts are divided on what awaits us

Coronavirus: The Great Escape or The Great Depression?

Dr Doom Economist Nouriel Roubini is not painting too rosy a picture.

If like me, you spend much of your time running a P&L sheet, you will be familiar with the phrase “live and die by the quarter.”

In simple terms, it means that your entire career is judged over a three-month period. And if you really screw up in one quarter – let’s say between January 1, 2020 and March 31, 2020 – well, it’s ok. If you have enough kudos and credits with the boss, you get the chance to redeem yourself between April 1, 2020 and June 30, 2020. The usual rule of thumb is three consecutive bad quarters and you’re out.

Except usual rules no longer apply. The year began with Carlos Ghosn escaping Japan in a music box (legendary), mass protests in Hong Kong, Chile, Lebanon and Iraq (unsurprising), the US and Iran threatening World War Three (again) and Greta Thunberg lecturing us all on how to live (annoying).

Bad enough for any quarter. And that’s just Greta. Then came the virus.

Time to panic?

As I write this, there have been 435,036 cases worldwide and 19,607 deaths. The world’s biggest cities are in lockdown, many with troops on the streets, and economies in meltdown.

So, what happens now? If your Q1 P&L is best forgotten, how do you forecast Q2, Q3, and Q4? Our cover story this week looks in detail at both the devastation and opportunities in key business sectors.

What is clear is nothing is clear. This is not your usual financial crisis that is a U-curve in economic terms. In fact, in an article in The Guardian, the hugely respected economist Nouriel Roubini says forget the V shape – the sharp fall and quick upturn many experts predict. Forget even the L shape of sharp downturn followed by stagnation: prepare for the I – a total collapse that leads not just to recession but depression. Greater than the Great Depression.

Roubini makes a compelling case, citing the facts: markets are down 35 percent, US GDP is expected to fall by 24 percent in Q2, and US unemployment could hit 20 percent – twice the level of the financial crisis. If the world’s biggest economy is screwed, by definition and default, we are all screwed.

The latest report by Oxford Economics says 1.3 percent of global growth has been wiped out, with $1.1trillion of lost income. According to surveys, 24 percent of MENA firms have already made job cuts. And I am sure many of the other 76 percent are lying. IATA says global airlines need $200bn of state support, or 670 of 700 global airlines will go bust. Yes, you read that right – 670 of 700.

There are some positives. The retail sector has seen a huge shift to online spending. The Dubai Mall is creating a fabulous virtual store on noon.com. E-commerce is king right now, with many firms seeing a 200 percent rise in sales. But e-commerce previously only accounted for a very small share of total retail spend. And are they equipped to deal with this demand? If the economy tanks, then nobody is spending online or offline, period.

Lie to me

The only sector that seems to be claiming everything will be rosy is real estate. There is no shortage of experts in this industry telling us this week that buyers are returning. The problem is not just me, but nobody, believes them. A two-minute browse on Dubizzle will give you a better insight than any unpaid leave expert.

I suspect how the rest of the year shapes out will depend on two factors: the spread of the virus, and the level of bailouts from governments. Apart from staying at home, we cannot hugely influence the rate of virus spread and timelines for a cure.

On the second point, the UAE’s $34bn stimulus package will go a long way, and in comparison to other economies, is generous. But on a global scale, no bailout at current levels may be enough. Cities such as Berlin and Istanbul built and bet their futures on being fabulous hubs for SMEs. That whole sector is close to collapse, and should not be forgotten in favour of the blue chip names that could also collapse. Without small businesses, there is no big future.

Roubini himself argues it is time for “helicopter drops” – a phrase first coined by the American economist Milton Friedman in 1969, when he illustrated the concept of monetary expansion by a helicopter dropping bags of cash on thousands of poor people from the air. In practice, this means the Central Bank making direct payments to individuals.

Given how the first three months of 2020 have gone, don’t rule out Friedman’s concept becoming reality.


Anil Bhoyrul, Deputy Managing Director of ITP Media Group

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