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Global recession. The dollar did not save world markets

Global recession. The dollar did not save world markets

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The world entered a global recession due to coronavirus

The world suddenly began to plunge into the financial crisis on February 24, despite record highs of stock markets the day before.

The stock markets collapsed again — oil updated at least since the fall of 2003, US and European indices fell by five percent.

The coronavirus pandemic and severe disease restrictions introduced by many countries are pushing markets.

The economic support measures promised by various governments have failed to block this negative.

Methods for resolving the 2008 crisis do not help

By the evening of March 18, the price of a barrel of Brent crude oil for the first time since September 2003 fell below $26. At a minimum, the price of oil futures for delivery in May dropped to $25.98, which is almost three dollars, or 9.6 percent, lower than the closing level of the previous trading.

WTI Oil quotes are falling even faster. During the auction on March 18, the cost of a barrel of WTI fell to almost $23, which is 15 percent lower than the previous close.

The falling oil price also affected the ruble exchange rate against world currencies. On March 18, the ruble to the dollar reached 80.8. Earlier this week, Bloomberg analysts said that because of the attachment to the price of oil, the ruble could weaken against the dollar by 30 percent.

Oil began to fall in price in January after the outbreak of coronavirus was followed by a decrease in fuel demand. The decline in prices intensified after the breakdown of the OPEC + agreement and the outbreak of a price war between Russia and Saudi Arabia.

Goldman Sachs Investment Bank March 18 lowered its forecast for Brent oil prices in the second quarter by 30 percent — up to $20 per barrel.

Trading on European exchanges on Wednesday also opened in the fall. Major indices lose 3-5 percent by the evening of March 18. US indices are also falling — by more than five percent.

Standard & Poor's, an international rating agency, has come to the conclusion that this year the global economy will face a massive recession due to the coronavirus pandemic — for the first time since 2009.

The agency notes that a decrease in the intensity of capital flows, as well as tightening financial conditions at the same time as a shock in the oil market, will damage the creditworthiness of economic agents.

Economists Morgan Stanley and Goldman Sachs are also talking about a global recession, but are expecting a return to growth in the second half of the year.

According to the chief economists of the International Monetary Fund, the global economy has already entered a recession.

Gita Gopinath, the IMF chief economist, believes that it is difficult to predict the course of events, but the pandemic that has already swept the whole world does not look like an ordinary recession.

“This is not an easy task. It should be an intermediate shock if there is an aggressive political response that can stop its transformation into a major financial crisis,” the Financial Times quoted her as saying.

Meanwhile, the sharp drop in US exchanges has been the strongest since 1987. The drop in industrial production in China in the first two months of this year was the strongest in 30 years. The EU expects a five percent contraction in its economy.

At the beginning of this week, the US Federal Reserve System urgently reduced the discount rate to a minimum level: 0-0.25 percent per annum.

At the same time, the central banks of the five largest economies — the USA, Canada, Great Britain, Japan, and the euro area — are launching a mechanism of practically unlimited currency swaps in a coordinated manner.

The dollar swap agreement with major world currencies was launched in September 2008 after the bankruptcy of Lehman Brothers and the collapse of global stock markets. Actively this mechanism was used until 2015.

However, the large-scale easing of the US Federal Reserve policy, its plans to buy back assets worth $ 700 billion and the joint actions of the largest central banks in the world to provide dollar liquidity did not reassure investors and markets continue to sag, Capital Economics says.

Indicators in China — a decline of 13.5 percent in annual terms — became the worst in the history of observations and radically diverged from analysts' expectations, suggesting a 3-5 percent decline in industrial production in February.

Retail sales in China against the backdrop of quarantines dipped by 20.5 percent, this even affected online retailers. Capital investment in China also declined more than expected — by 24.5 percent.

“Given the events in China, Europe, and the USA, I don’t see how to avoid a very significant slowdown in the economy,” says Maurice Obstfeld, professor at the University of California at Berkeley.

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