Radical influences in the global economy affected by Corona virus
The world is witnessing a sharp deterioration in economic performance due to the continued outbreak of the Corona virus. Certainly, developing countries will be severely affected by this crisis, which led the International Monetary Fund and other bodies to warn that it may cause the worst economic downturn since the Great Depression of the thirties of the last century. This is shown in the following: - Developing countries have to deal with a situation in which international investors withdraw their money. The IMF's chief economist, Gita Gopinath, says the appetite for risk among international investors has diminished.
This means that they are more likely to sell investments that are considered relatively risky, including bonds and equities in emerging markets, and withdraw money to what they consider safer bets, such as the United States, Europe or Japan. It says the result has been "unprecedented repercussions in capital flows." Thus, this epidemic strikes developing economies in many ways and from different aspects, for example, the prices of consumer goods for these countries. Since many developing countries export basic commodities that are used in industry. This means that, due to the spread of the Corona epidemic and the economic recession, many factories around the world have been closed, and consequently the prices of these commodities have decreased sharply in some cases. Oil is a prime example of this. The decline in demand for it was severe, as the crisis led to a huge decrease in the demand for transportation fuel, which consists of more than 90 percent of it from crude oil. The situation was further aggravated by a price war between the two largest exporters, Russia and Saudi Arabia. There was an unusual situation where the prices of some types of oil reached below zero. It is not a general feature of the oil market, but it highlights the enormous imbalance between supply and demand. Other commodities have also witnessed a sharp decline in prices, for example: the price of copper is now about 18 percent cheaper than it was in mid-January, and the price of zinc is more than 20 percent lower. Falling prices hit companies and government revenue in the countries that export these goods. Not only were consumer goods affected by the spread of the Corona virus, but the stock market was also greatly affected, as it was published Bruegel Center for Future Studies, a number of financial indicators have been identified that show the pressures that have developed rapidly on some emerging economies.
The research showed: How has the spread between bond yields, a measure of borrowing costs in financial markets, widened between the United States and developing countries in many cases? This is often an indication that investors believe there is an increased risk from borrowers, including governments, defaulting on their debt. Another sign of this is the increased cost of obtaining a default insurance (i.e. the cost of a credit default swap). Then there was a sharp depreciation of local currency values in many countries. This is further evidence that investors want to withdraw their money. written by: Doaa Hamdy