18Jan2021
While in the corporate world, not to mention the fields of communications and marketing, the year 2021 has been labeled as the pivotal one in the sense of economic recovery, the financial experts around the world are still to come out of the gates banging their chests and pumping fists in the air in celebration. And why should they, given the ever-increasing challenge of making actually predictions about… well, anything. The world has shown that there is no more such thing as an impossibility.
Recovery and moving forward require a certain degree of risk, which is nothing new in free economy; then again, rolling the dice on empty promises will benefit no one. Now, if ever, people and businesses should not count their chickens before they are hatched.
Money talks, and the pandemic may still cause severe health problems to the world economy. Carmen Reinhart, Chief Economist at the World Bank, mentioned recently at an interview for Bloomberg TV that the longer the Covid crisis stays around, the more it disturbs businesses and employment. This puts an increasing pressure on the economies – on individual, household, corporate and even national scale.
What began as a health crisis is slowly evolving into an economic problem; should this continue for a long time we might be facing another finance crisis.
However, it does not have to turn out that way. Various finance experts are already seeing light at the end of the tunnel.
Will vaccinations enhance the competitive spirit?
One of the greatest weapons – also from the economical point of view – is the vaccine. Now that vaccinations have kicked off and medical companies are taking their production lines to the extreme, people are slowly starting to believe this thing could actually be overcome. That will encourage individuals to spend and companies to invest.
Throughout the history, we have witnessed the monumental power of human belief when it comes to stock markets. Who cares about annual reports and long-term strategies when there is the personal gut feeling to turn to?
To further boost both the spirit and actual prerequisites of livelihood, governments and banks around the world have carried out extraordinary monetary and fiscal stimulus measures.
While in the beginning of the pandemic, the large central banks seemed to focus on preventing the situation from turning into a financial crisis, their actions of purchasing financial assets during the latter part of the year are clearly aimed to actively support economic recovery. This trend is likely to continue, resulting in the interest rates remaining low. There are also the direct support packages to take into account: they keep playing a vital role in saving both companies and jobs.
There is still no free lunch
All sorts of measures are essential to stop the bleeding, yet we should not forget that there will, eventually, come the time for payback. The amount of public debt is going through the roof as we speak and judging by the whispers coming from surprisingly high places in surprisingly civilized countries, some are already thinking about borrowing more with no intention to ever meet the consequences.
This is the road on which we will, eventually, come across the bear. After spending too much time making believe the debt will all go away by itself, the harsh realities will hit. Countries are already borrowing money to pay off older debts – the kind of development that is way too familiar for many on an individual level. While governments need to take whatever it takes to save businesses and economies, they must also bear the responsibility to not go overboard by borrowing indefinitely. The coat can only be cut according to cloth, and the lottery jackpots that would be able to brush off national debts just do not exist.
Carmen Reinhart points out, that while we may have started the road to recovery, that should not be mixed with revival. While the economic indicators are picking up, the World Bank still predicts that the global GNP per citizen will at the end of 2021 still be lower than before the pandemic. This means that any talk about revival is, at this point, premature.
