Monday, 20 April 2020 10:04

Something about the COVID 19 related recession vs monetary and fiscal stimulus…

Given the below presented table as well as some additional information, as of today (20.4.2020)  Japan and France have entered an economic recession, which short description is at least 2 consecutive quarters (3 + 3 months) of negative GDP growth. On it's turn China recorded its biggest GDP drop of -6,8% in Q1 of 2020 for long time, which assumes a global chain recession repercussions throughout the rest of the world...   

A

B

C

D

E

F

G

H

 

QE* mil €

GDP** nom(2019) mil €

QE/GDP %

Nat. debt/GDP %***

10 y Government Bonds%****

GDP capita ppp €*****

Recession 2020

US

1 958 440

19 085 401

10,3

106,9

0,64

57 962

Q3

EU

3 200 000

16 651 309

19,2

84,2

0,54

39 649

Q3

Germany

750 000

3 439 238

21,8

62,6

-0,48

47 685

Q2 (revised)

UK

243 025

2 442 340

10,0

85,9

0,29

41 685

Q3

France

345 000

2 409 837

14,3

100,5

0,02

41 940

Q1

China

535 079

12 587 573

4,3

55,4

2,56

17 362

Q2

Japan

883 969

4 588 514

19,3

200,3

0,01

40 545

Q1

Russia

72 9037

1 458 051

5,0

12,5

6,46

26 387

Q3

*Global economic policy response to coronavirus crisis (Reuters)

**List of countries by GDP (nominal)

***National debt to GDP in the 3rd quarter of 2019 of EU countries plus www.ceicdata.com for the rest…

****Bloomberg Barclays Indices (18.4.2020)

*****List of countries by GDP PPP

Bloomberg узнал о новом плане поддержки экономики России на ₽1 трлн Подробнее на РБК

****** Currency conversion course 31.12.2019, 1$=0,8902€ 

Then following the data for the annual GDP growth rate (forecast) of G20, published by Trading Economics, in column “H” of the above table, I have given the quarter of 2020, after which the listed economic entities are forecasted to fall into recession… Taking at least that into account, the governments and/or governing entities of the global economies, have recently announced massive financial stimulus/QE/ programmes, which I tried to present in columns “B” (absolutely) and “D” (relatively, for better comparison)... of the above given table…

In general the QE (quantitative easing… a term borrowed from the 2009 crisis vocabulary…) includes a broad range of monetary and fiscal policy tools, through which the governments try to limit the severity of the crisis (less job losses, bankruptcies etc…) and simultaneously stimulate growth… Hence given the presented data, one can see that relatively the biggest stimulus packages have been announced by Germany, Japan and the EU as a whole (the programme of the EU though is not as homogenous as those of the single states, as at its monetary side it consists of some 500 bn€...from which only expenditure for healthcare could be easily used...

Since the articles of newfinns.com aim at truth, transparency and knowledge as much as  possible, I want to bring to your attention, that in column “C” I intentionally presented the nominal 2019 GDP of the chosen by me economic entities, and that is because it is usually used for budgeting, forecasting and so… Yet then in column “G” I have shown the better for comparisons and real standard of living used, GDP per capita on PPP (Purchasing Power Parity basis - in brief 1 000 $ turned into, let say CNY= 7 071,56 (1$=7,07156 CNY), could buy you a larger basket of the same goods and services in China /vs USA/). And just for the protocol to mention, that if we take the PPP GDP of the national economies, China has for some time already been the world’s largest economy see…

Then in columns “E” (national debt/GDP %) and “F” (10 year Government Bonds yields/rates) I wanted to bring to your attention, often an incorrectly interpreted ratio, when taking solely the numbers, ex. the sole indebtedness of a country… Look in general rarely anything excessive is good, nor is indebtedness… YET it doesn’t necessarily mean that a more indebted economy is a worse one… From the above given table, take for instance Japan (debt/GDP ratio 200,3%) and Russia (debt/GDP ratio 12,5%)... vs their respective yields for 10 years GB (borrowed money) which are 0,01% for Japan and 6,46% for Russia. Said in other words, the trust of the government-bond investors is considerably higher for the largely indebted country, Japan and that is for several major reasons, such as political stability of technologically advanced democracy, which operates at substantially high gear of economic and financial leverage as a whole. Again, Japan’s GDP growth is stable and enough to cover its debts, contemporary standard- and future development needs… One cannot say the same for Greece though, which has a slightly lower (178,2%) than Japan’s debt ratio, BUT not that well working economy!!!

Another thing which is often discussed in the larger public about QE, or more specifically when printing new money, is that it happens in a way freely, which is not quite true. Look the Federal Reserve, ECB or any other central bank take into account many things, when controlling the money supply chain, such as the GDP value and growth rate (in general if you have oversupply of money vs goods and services, you could have an unhealthy high rates of inflation…), national trading accounts, exchange rates, unemployment rates etc… 

Also some people still mix the commodity money (largely abandoned with the golden standard abolition since the 70’s),  with the contemporary FIAT money system… Look in general still most of the raw materials, including the petrol, are quoted and exchanged in USD, because of which major volatility in the price of oil and the USD exchange rates, could have substantial chain effect throughout the globe including currency fluctuations, especially in the so called petrodollar countries (such whose GDP is largely dependent of the volume and the price of oil sold and/or the USD exchange rate…), however the US are the first to abandon (1971) the golden/commodity money standard... 

P.S. The articles of www.newfinns.com contain a lot of hyperlinked vertical content such as songs/lyrics, videos, articles and pictures integrated into the core of the subject…  

P.S.(27.4.2020) Since some of the feedback I got, ask for some kind of conclusion … I would dare inversely say : “...sometimes hardship and pain are just the other side of the coin of truth...”. Hence despite the challenge and the seemingly imminent global recession, don’t lose faith and act accordingly!!! Then generally speaking there are 3 prime types of recession:

  1. “V (the downhill ends with a hit of the bottom)”, 
  2. “U (after hitting the bottom the economic entity could struggle to restart well, for a longer period)...”,
  3.  “L (after hitting the bottom, the economic entity sees no better horizon ahead...)”...

So taking the economies listed in the table of this article I would assume as follows.

The USA, expected to enter recession in Q3 of 2020, more likely to have a hard “V” OR a kind of shorter lived “U” type recesion, as the prerequisites for my assumption are - the US is in many regards still the world’s scientific/innovation, military and economic powerhouse, with strong central government and … democracy…

The EU, expected to fall into recession in Q3 of 2020, as here I may assume a kind of more typical “U” type recession, which would also be diverse internally, as are the economies of the economic and political block itself… Again powerhouses like Germany and Sweden for instance are much more likely to have considerably shorter recession periods vs some southern EU economies, which on top to their financial struggles, were hardest hit by the COVID 19 pandemia… In the case of the whole EU… I would also dare note as big flows the absence of its own army..., technologies and central government power… For people that haven’t browsed through www.newfinns.com I would again state being very pro European, yet this very crisis once again showed what “compilation of independently working differences” means…

China expected to enter recession after Q2 of 2020... If not hit by a second COVID 19 wave and/or rather sharp withrough of production facilities away, more likely to have a “V” or short “U” type recession… The prime assumption prerequisites are, that contemporarily China is the world’s production powerhouse, with vast currency reserves, a powerful army and already its own technologies… Look, many other countries had to enter this crisis in order to understand how dependent on China they really are - masks, medicines, equipment, technology…

Japan, already in recession, as here I should admit that after withdrawing from the financial world, I have considerably decreased following what happens with it, hence I have scares knowledge about Japan, yet being one of the world’s technologically advanced democracies, which has strong central government and army, I would assume a kind of probably deeper “U” recession type…

Russia, expected to fall into recession in Q3 of 2020… Well despite being a kind of a weaker economy in comparison with the listed above, on a basic level (food and raw material supplies) Russia will, in my view, enter this recession better prepared than some other countries of the table above… Look, during the last 5 years Russia lived within the realm of economic sanction, and it was time during which it developed many industries of its own, especially in the agricultural and food processing and related industries… However, since the country's GDP is strongly related to the price and the amount of exported oil and raw materials, it could see some hardship through the weaker worldwide demand... Hence here I may assume a kind of typical, or depending on what happens elsewhere, a prolonged “U” recession type…


NOTE Given the sometimes immense QE packages agreed by the governments across the world (ex. see the table above) I would dare make a parallel towards the previous 2009 similar situation,even though now the crisis is much deeper and diverse… Well strange or not after 2009 the gap between rich and poor, deepened even further, and if not the whole truth, this happened because of the pretty uneven redistribution of the, for then vast QE packages… Look we more and more live in the time of the fourth industrial/“technological” revolution, where the already superior in some or many regards to us, artificial intelligence (AI), plaies bigger and bigger role of the, let say, “national/corporational” economic success… And this is how the powerful, technologically advanced AI networks acquired the biggest slice of the QE pie, sometimes solely within the financial sector… This benefited several countries and especially the already rich and powerful corporations and circles within them...

Kind regards, Rosti….

Read 847 times