The Impact of COVID-19 on the Global Economy [HSC Economics Review Episode #18]

– Two, what.
– What’s up guys?
It’s Rowan.
– Well, there’s a
bit of a lag.
– What’s up guys, it’s Rowan.
– And Terry.
– Here from Art Of Smart TV
with another episode of the
HSE Economic Review brought
to you from COVID locked down.
Now, Terry, what on
earth are we discussing
in today’s episode?
– Well, I also wanted to start
today’s episode with a very
special shout-out to Zoom,
for making all of this happen, right.
I know most of you who are
studying at home probably have
been using Zoom a lot in the
education industry have also
been using a lot of Zoom
and that’s why we’re talking about this.
The reason why we are using
Zoom first way is we’re doing
an episode about COVID-19
and its impact on the global economy.
Recently we’ve had we’ve just
picked over 5 million cases
around the world it’s
been dominating the media,
the news, since the start of the year.
We’ve had, unfortunately,
over 300,000 deaths,
a huge, huge impact on the economy.
Probably the left,
obviously, not probably,
obviously, the landmark events of 2020.
So that is why we are

just
going to look at today,
the impact of COVID-19
on the global economy.
– And I think it’s important
to highlight here that,
in the past when you’ve been
looking at topic one, right,
which is the global
economy for HSC economics,
the go to case study has been the GFC.
And I think what we’re going
to see here is that there is
an update in the go through case study,
or at least now there is a
really interesting comparative,
and because obviously, we’ve got, the GFC,
which indicated in big ways,
just the sheer extent to the
existence of a global economy
and the transmission effect of
conditions in countries.
But we saw that play out oh
really play out over a couple of
years where we’re seeing
here with COVID-19
certainly transmission into the word.
And we’re also seeing it
play out in a credibly
rapid period of time.
So it’s going to be a really
interesting case study that
I think he’s going to be able
to really be used in a big way
as part of both topic, one global economy.
But as we see in future
episodes of HSE Economic Review,
I think it’s also going to
feature really strongly as we
look at topic to Australia’s
place in the global,
and how this is impacting Australia.
And then, of course,
with our economic issues
and our economic policy management,
and how we respond to it.
So it’s really going to have
quite far reaching consequences
across the entirety of
the HSC economic syllabus.
So the better you get
your head around this,
I think, the more sophisticated
your responses are
going to be, and when you
get into trials and HSC.
– And there’s so much
information, so that’s why I feel
like we need to make a video
like this to kind of help
you guys just compartmentalize
it, kind of break it down
a little bit so you can
see where it is or relevant
otherwise, it just ends up
becoming, I guess a little bit of
a big blob of COVID-19
knowledge which you may
or may not have give you the applying.
– Definitely, so jumping, yes,
Terry, an initial question.
When we’re looking at the
impact of COVID on the global
economy, I mean, where do we start?
– Well, I think we should
start with, the international
organizations that you guys
have looked at in topic one.
One of them the
International Monetary Fund.
They’ve posted their predictions
on how GDP is expected
to move this year.
So at the beginning of
year, they had their initial
pre-pandemic prediction of a
3.3% expansion, which would
have been a little bit
more than last year.
So it was, if you remember
some of our videos
from Saudi, which do feel
like a long time ago,
we were saying that,
the global economy was,
expected to recover slightly this year.
Then, of course, we had
Coronavirus, and then we had a video
then as well, we would say,
we obviously we don’t know.
But as time has moved forward,
and we have started to see
how governments and
central banks have tried
to respond to it,
we have a bigger picture now.
And so the estimate here is
it will shrink 3% this year.
Now, Rowan, how does this compare to I,
you’re talking about the
GFC, other reference points
that we have looked at in economics?
– Yes, I look, I think what’s
really interesting about these
is that they’re expecting it to be
the deepest dive in
economic growth globally
since the Great Depression.
I mean if we think about it
during the global
financial crisis in 2009,
if you look at real GDP
growth year on year percentage
change for the global economy
in 2009, it was minus 0.1%.
Okay, so there was an overall impact.
And it went just into, negative
figures if we look at it for
what is now being known as
the Great Lockdown of 2020.
It’s negative 3%.
So the pace of the change and
the sheer size of it in terms
of the impact on the global
economy is unprecedented.
I mean it really even going
back to Great Depression.
I mean, at the moment, the
figures are looking like it’s
going to be similar,
but probably worse even.
And that’s pretty scary, I think
really, because if we think
about it, I mean, they’ve gone
from a 3.3% projected growth
prior to now saying it’s going
to shrink by negative 3%.
So that’s like a 6.3%
turnaround in what has been
what like three months?
– Three months yeah.
– Crazy (laugh) absolutely nuts.
How does this play out Terry
because obviously that’s
at a global level,
but I think clear what
we think he is that,
Coronavirus is that I
think really, perhaps
causing the differences in
categories rise of economies
to become practice more clearly
seen in terms of the impact
it’s having on growth rates.
So how is this impacting
different categories of countries?
– Yeah, so in your study of
topic one you learn that,
you have the advanced economies,
the emerging economies,
and then you have, I guess,
the developing economies.
And so Coronavirus does, yeah,
as you were saying it really
expose those differences
because different economies are
being impacted differently, okay.
And to kick things off
advanced economies are actually
suffering the most dramatically, right.
They’re projected to
have a decrease in GDP,
and real GDP percentage
change of 6.1%, negative 6.1%.
So they’re going to be shrinking by 6.1%.
This is, of course led
by the United States,
the Euro region,
Japan, the UK, Australia,
really, really bad.
Now, the other thing I
just wanted to point out is
comparing this with this is a real shock,
not just necessarily a
financial shock, right.
So that’s why that’s one of
my reasons for why I think
this is more serious than the GFC.
Because it’s affecting people’s
lifestyle doesn’t matter if
you’re in the financial industry
or not this time around.
So the manager,
engagement market, yeah.
– It’s multiple far reached.
Definitely.
– Yeah, but however, emerging markets
and developing economies really
aren’t feeling it as much.
Because if we remember
from what you’ve looked at
in topic one, these are
economies that were moving
and developing faster anyway,
than the advanced economies.
And so in line with that, they
also are going to be shrinking
a lot less compared to the
advanced economies with
projections as only negative
1% economic growth in 2020.
– I think perhaps what’s
interesting is well,
it’s some of it
you’re developing economies
is to some extent,
it’s probably also not yet clear on
the degree to which
COVID will impact them.
And I say that because if
we look at the cases, right,
globally at the moment that
the overwhelming bulk of
cases are, in Western Europe, the US,
and as a result we probably
got better modeling
and the IMF has probably got
a better sense of modeling
on impact where, the
impact is yet to, I think,
be determined when we start
to look at, Latin America,
although Brazil struggling in
there’s been some interesting
policy decisions in Brazil,
which might exacerbate their recovery.
And it’s unclear, particularly
with Sub Saharan Africa,
the sort of impact particularly,
in the sense of what
they’ve already got practice
and not so great health system already.
High levels of poverty,
how does this really exacerbate that?
So I think what for me isn’t
really clear, and I feel like
the IMF has probably been
a little more optimistic.
To be honest, when we start
to look at particularly the
developing economies category,
I can certainly see the
rationale for emerging.
They’ve already had high growth rates,
even if those growth rates get hit by 5%.
They’re still coming out at
maybe the negative one, right?
I can certainly see that,
but I do have question marks
about to what extent does it,
have a long term consequences
for more of the developing
economies in unfortunately,
potentially really further entrenching
inequalities in the global economy.
Which again, is part of topic one.
It’s also a part of topic
one that often not well,
I think, revised by students
if I’m being really, and–
– I would argue, because
it’s not well assessed,
as in it doesn’t really pop up that often.
– Yeah, that’s true, but
I think this creates the
opportunity right for–
– Right.
– Some more discipline around that.
And I think also for someone
to stand out that students
could be using then to sort
of start to highlight how
we can see now, particularly
if we start to look at some
of the reasons for differences
in the global economy, global
trade architecture, financial
architecture, global aid,
you can start to see how,
COVID may cause that to stretch
and actually create increasing
inequality globally,
which I think that’s probably my concern.
I’d say at the moment.
– Can I just add one more thing.
– Yeah, go for it.
– Like about the modeling.
I also think there’s a
lower rate of testing
in more emerging and
developing economies, right.
So most of the bulk of the
testing is being done in advanced
economies and so therefore, obviously,
that’s why they’re getting both
more reported cases as well.
And so I think that is that
highlight another issue of just
inequality and inequity of
access to infrastructure
and healthcare and whatnot
in between economies.
– Yeah definitely.
– Again, yes,
throws off our our projections.
– Pretty big definitely.
Now, let’s keep on moving,
so that’s obviously at
a big level.
– Yeah.
– Where we’re seeing really,
unprecedented levels of
falling economic growth,
beyond GFC, similar to Great Depression
and possibly beyond.
Let’s take a look at a
couple of more specific areas
now in the global economy.
So, what’s been happening
with the share markets, Terry?
– Well, if yeah, you’ve
been following the news,
it’s just been a whole
sea of red, right (laugh).
It’s very sad, right?
Because a lot of people are,
with especially in Australia
with superannuation, right.
The superannuation depends on performance
in the share market.
So, globally, right, the share
markets have not fared well.
And this should come
as no surprise because
share markets depend so much
just one called confidence
and economic health, right.
And so this the state of the economy
isn’t really particularly healthy.
The share markets will often take a dive,
and that’s exactly what’s happened
it’s fallen by about 15 to 25%.
I know obviously, the
the US stock markets,
they were riding some pretty highs
before that all right?
and so to have it all come crashing down
pretty shocking stuff so
specifically if we look at the
sorry for screwing this, is it Nikkei?
– Yep.
– I looks like yeah–
– That’s sounds yeah like to me,
I’m certainly not good at pronunciation
– Yeah, I’m not qualified
to pronounce that correctly.
So that’s had a drop of 15%
and Dow Jones in America of
18.5% and the FTSE is
more than 25 almost 25%
so stock markets have
not performed well now.
Are there any other kind
of assets which is also
or commodities which
haven’t performed well?
– Yes I think it probably
the other big one
has been oil prices.
So oil prices are now 65% lower
than they were in early January.
And if we think about it,
it makes perfect sense
if all of a sudden, cruise liners
are no longer able to operate
we’ve got been on most
international travel
we’ve got, overall less travel recurring
And that’s even incurred–
– Yeah road travel,
yeah, road traffic, yeah.
– Yeah, definitely.
I think what we’re seeing
is massive falling global
demand for oil.
Now if you’re in (mumbles) friendly,
you’re probably cheering,
right now (laugh).
It’s been a fantastic
outcome for the environment.
But it does have interesting
impacts on our oil prices.
So 65% down and what’s really crazy, okay,
is that there’s even been in
the case in the United States
with a barrel of West Texas Intermediate,
which is a particular oil commodity that
it actually turned negative
for the first time in history.
And what that means just
so that you get a bit of a
sense, guys is that the oil producer
was actually paying
buyers to take the oil.
And that’s simply because
they had fears that they
couldn’t store it anywhere.
And then needed to just get
rid of it because it was
going to create bigger problems
and from a storage point
of view, so crazy outcome.
And it’s funny because earlier
in Italy we sort of talked
about, pre COVID, that one of
the things that could cause
a global recession was an oil shock.
certainly did, of course the COVID,
but we’ve seen the opposite
of good of that, right,
which is actually just
absolutely collapsing demand.
And to be fair, I think we’re
going to see really quite
repressed oil prices, for
the next 12 to 24 months,
even as transportation
starts kicking into gear,
it’s going to be at a lower level,
it’s going to be less transport.
And so I think we’ll see
oil prices to be low,
which is not necessarily a bad thing.
We’ll have a deflationary
impact, certainly,
in terms of, prices in the economy
and when people’s earning an income
and disposable income is also falling.
That’s not necessarily a bad thing.
So, I guess that’s probably
a nice segue Terry, though,
which is what’s been happening a global
level with unemployment?
– Yeah, as he said, Rowan,
there’s a good reason why
there’s such a low demand for
oil overall is because people
don’t need to move, right?
More often than not people
are moving because they
need to go to work, right.
And unfortunately, global
unemployment levels have
also dramatically increased,
just because of the the
shutdowns that have been
announced by governments.
And obviously the shutdown
you can’t go to work, right.
And so for a couple of
examples, the I know,
the United States has been
hit pretty, pretty hard.
So they’ve gone very short
over 10% unemployment,
the Euro area, which is
already, systematically,
pretty high unemployment rates
to begin with also over 10%.
In Australia, quite interesting case.
And we will talk about that
in Australia viewing, right.
There’s plenty to do there,
but pretty much all around the world.
You’re getting quite a bit of
an increase in unemployment.
– Definitely and I think
it’s interesting because
unemployment is also a bit of
a lag indicator, and so the
fact that it’s heating very
quickly is indicative of the
rapid shutdown but I think the
concern that’s going to sit
and it’s certainly something
we’re going to unpack more
when we look at the impact
of COVID on Australia,
is that unemployment is a
lagging indicator, which means
that even as your economy recovers,
it can take quite a long time
for unemployment to actually
get back to sort of,
acceptable levels, right,
in terms of nearer to your objectives.
And, you see that, throughout
history where there’s often
two or three years after
an economic recovery,
after a recession,
you still got quite large
levels of unemployment.
And so I think that’s one of
the big concerns here is that
this, very rapid increase
may lead to quite sort of
entrenched unemployment in the
global economy over quite a
period of time and
remains to be to be seen,
but I think certainly a big concern.
I mean now, maybe what we
should do Terry is also dive in
and look at some specific economies
and sort of regions, right,
because we’ve talked about,
it’s impacting different
countries in different ways.
So, you mentioned a little bit about
the United States before.
One, how is it impacting
the United States?
How are they responding to it?
– Well, to answer the first
part, how is the impact within
is the most in the world, right,
because I do have the most
number of confirmed cases.
And I believe also the
most amount of death too.
So it has been very
unfortunate to see how the
United States has really struggled
to cope with this crisis.
But it’s not through
lack of stimulus, right.
It’s more so I guess, with
the way that things happened
in terms of they’re locked down,
but they’ve been spending
lots of money in fact, right.
So they passed over $2
trillion in Coronavirus,
and I think there’s still
more bills to come right,
which is, every couple of
weeks, there’ll be more bills
being introduced but right now
they’re about 2 trillion
past, just to help workers
and businesses give them the necessary aid
just to make it through,
they’ve got additional 310
billion dollars in progress
to provide low cost loans
that do not need to be repaid
if there’s certain criteria
that can be met.
But, this might be like just
not necessarily help them to
smaller firms that some of them
more medium to large firms,
but just so much money
being poured in, right,
and so, overall, I’ve seen
lots of conflicting numbers.
And I think that’s the issue
with all of this really,
there’s so many just articles
and so many numbers that
it can often get a little
bit overwhelming, right.
And so what would your advice be here,
like when you say so
much information, right?
So we obviously know the
United States is spending
a lot of money.
So what would you say, to a student,
what number do you go with?
– Yeah, I mean, look,
I would, in most cases,
pick one of two.
One, if I can get access
to what seems to be like a
an overall number, that’s
probably the default, right?
Particularly because it’s not
Australia as well it’s another
country and you might be
using it as a comparison.
So, in that case, I would be
referencing the 2 trillion
right that has been spent.
That’s probably the first,
the second may be easy for
with wanting to speak
more specifically about,
a policy and comparing it to
a similar policy in Australia,
I might reference something specific.
So for example, there was a
340 $9 billion dollar relief
program for small businesses,
which might be a key to
job keeper in Australia, for example,
so if I was wanting to make
a specific, a comparison
across country, I might
then look at a specific.
But to be honest, in most
cases, the first option,
just the big picture number,
is going to be more than enough
particularly if it’s that
you know, a foreign country.
And it’s not your case
study country, right?
If it was your case study country,
you would want to go a little
more detailed than that.
– And also, just to go on with
that, from a teaching point
of view, teachers don’t have
the time to just independently
review and audit every single statistic.
As long as it passes what I like to call
a realism test, right.
Like, it sounds like
it’s really realistic.
You’re not saying like,
with the US Senate passes
$200 trillion Coronavirus, I just thought,
something that makes sense,
even if you’re a little bit off, right.
I think they do allow for i
would allow much more there
just to reflect the fact that
the different times, right,
where things are changing
so quickly, right.
So you may well have had
to correct statistic,
it might just be a couple days,
out of there, out of date.
– And I think that’s a good point.
Don’t stress too much about,
like, I’ve got to get the
most up to date stats all the
time, because clearly things
are moving so quickly.
I think one of the ways that
you can handle that is when
you do list a stat,
particularly if it’s let’s say
unemployment, because each
month globally and domestically,
unemployment is going to
be in a state of change.
One of the things I would recommend,
because things are changing so quickly is
if you have a stat for unemployment,
let’s say, for example, the US
unemployment figure for April
is 14.7%, right?
So pretty huge, it’s
up from 4.4%, in March,
which was a 50 year low, right?
We’ve seen a 10%–
– Wow.
– Increase in a month right?
Now, that’s probably
going to get a lot worse,
and they’re expecting it’s
going to go to 20% and beyond,
which is greater than,
or comparable to Great Depression era.
For the US, we’re reached 25%.
Now, my point here
is I would probably write 14.7%.
And then just in brackets,
write April 2020.
So if you are concerned about,
the fact that the stats
are changing so quickly,
just let your teacher know,
when you’re referencing it.
Well, okay, it’s from this month.
So that way, then, if things have changed,
and your teachers reading
it, and they’re like,
“Well, this is not true”.
They’re like okay it’d be
great, it was from April,
great, I can see,
that was right, you’ve done work–
– It was true, at that point, yeah.
– Yeah, exactly, it’s pretty simple.
It’s not too challenging to
do, it doesn’t take up a whole
lot of words in responses either.
So you can keep it pretty tight.
So I think clearly, we can
see the US is in trouble,
as you said, Terry now, faces.
– Yeah
– It’s having a huge impact
on their own employments.
Job losses in April alone,
exceeded the 8.7 million
in the last recession.
So that’s what’s crazy.
They’ve seen that, job
losses in a single month
in the US
– Yes
– Have exceeded the entirety
of job losses during GFC,
which goes to your point theory that it’s
not just a financial crisis.
It’s got a much far reaching
consequences on economies.
What about China?
I mean, there’s been a
lot of stuff going on
– God (laugh).
– In US and China.
What’s been happening with China Terry?
– Even Australia and China now,
yeah.
– What’s that (mumbles).
– But, I think but the key statistic that
we’re going to take from China is that,
they’ve reopened their
factories and their economy.
They’re allowing, the travel
of people between places.
But they’ve reported that
in the first quarter,
their GDP has shrank by 6.8%.
So that’s negative 6.9% in
the first quarter of 2020.
They were, however forecasted
to do positive versus
about two and a half percent.
So you can see that that’s,
if I’m asking is correct.
It’s about a 9.3% swing.
And so they’ve also been quite
heavily affected, as well.
– Just to clarify, Terry, I
think what the analysts were
actually trying to do on that was,
I think their growth was
expected to be 5.4 for the year,
and they’ve gone backwards to 6.8 right.
And analysts have now
updated well, because China
or they were the first
to have it in a big way.
Massive shutdowns they now
reopening factories that, the
expectation is Chinese
growth for the year I think
will be–
– Up for the year, okay.
– Yeah, 2.5 which, is relatively good.
And compared to–
– yeah,
– The state of the
global economy right now,
which I think is going to
be interesting for China.
I think one, because,
China have been using it.
There’s a lot of criticism
right now about this,
in some ways China have been
using their sort of stronger
economic positioning because
they’ve been able to come out,
quicker and relatively more
unscathed at the moment,
as a way to really,
position themselves economically
in the global economy in a stronger way
and not always in a good way, I mean,
and that’s something that
is interesting because
obviously they’ve got their,
their silk belt policy,
where they make strategic investments
into countries, throughout
the sort of Asian region
and beyond, and that’s a key
way for them to then really
build infrastructure assets
and very strong connection
so they can place economic
pressure on countries,
for certain outcomes they’re
willing to speak in Australia
certainly experienced that
with our beef in our Bali.
And we don’t have a degree
of Chinese investments that
some of these other countries have had.
And so I think what I’ve
seen to be quite interesting,
we’ve had China’s responding
is that now that they’ve,
sort of getting things reopened,
the economy is going to
see some growth have been
quiet, not aggressive per se,
in relation to this,
but certainly out there
and trying to offer support.
And that’s been part of the,
sort of so built policy.
And on the flip side,
there’s now concerns that
a lot of countries that
are unable to pay these
and a defaulting on them
are actually going to
result in these loans that
we’re required to build
huge port assets and huge infrastructure,
that actually China will
then get significant equity
ownership in a lot of these
assets that wouldn’t have
otherwise been able to occur
just due to how critical some
of these assets are for,
both sort of sovereignty
and national economy, so interesting.
I think it’s going to be
interesting at a geopolitical level,
how a lot of this plays out
in terms of the differences in
how certain economies survive and respond,
and then what that means
for a reshaping of the
global geopolitics, essentially.
– Yeah, so I think I definitely agree,
I think that we have to
really look at what’s
going to happen in the
next, 12 months or so.
Just because, China really
hasn’t missed a beat have they?
They’ve just stepped in and they,
that whole independent inquiry
that we were looking at
as well they pretty much
just shut us down, right?
It was kind of scary, really just to see,
whilst everybody wants
to struggling with this
Coronavirus today couldn’t move
at the pace that they have.
So it will be very interesting
to see the Japanese are
also inside China or?
– No, I was going to say I mean,
the EU is another interesting,
really struggling.
I think they’ve had fairly high
cases, particularly France,
and Spain clearly, they had
already quite high unemployment
in the area priests.
That was the unemployment
across the EU was 7.5%.
But there would be differences across,
member states of the EU.
And so I think it’s been
interesting to see that,
at the moment that,
the European Central Bank has
provided a 750 billion dollar
sort of fun to relieve government
debt during the crisis.
They’re spending 120 billion
dollars in quantitative easing
for the 20 billion in
debt purchases so yeah,
hasn’t matched, certainly the US’s
spending of two trillion.
But certainly we have seen a
big amount of support that’s
coming through in terms of
some fiscal stimulus now
actually should scan (mumbles) because,
I’ve just realized that actually,
the EU fiscal response has
actually been the largest
in the world,
which is quite interesting.
I mean, again, scope and size.
So they had a $3.2 trillion.
– Yeah.
– Fiscal stimulus outside of what their
central bank has done.
I think the central bank
has cleared up a lot,
which is, I think, quite
significant, but I think also
they’re dealing with some
economies that have got,
large variance as well,
which is going to prove
to be quite challenging.
And I think we can see that
if we look at we look at the
euro area, you can certainly
see that alien Spain
is going to have a significantly
bigger reductions in gross,
then perhaps Germany in France,
despite, all countries being
quite negatively affected.
– I think it’s interesting
that you do mention
Italy in Spain as well,
because those are areas where
something we haven’t talked
about today is that Coronavirus
affects different areas
disproportionately, right.
And so I know in Italy, it’s
affecting the northern part
of Italy a lot worse than the others,
because those are the areas
where a lot of the
manufacturing is being done.
And so there’s also that
issue as well, like,
maybe why they’re spending
such a large fiscal,
why there’s such a large fiscal
responses because it needs
to be, as we know that fiscal policy is
the more sharper tool, right.
And so there is more targeted support for
these particular areas as well.
– Definitely, very good point.
Now what about let’s look at India
and then emerging economies.
– Yeah.
– What’s been happening
with India and all of this?
– Well, before, I even
before our India was,
there were talks about how
India was going to really,
really accelerate their
growth and then last year
it was it kind of slowed
down a little bit.
And so obviously, you combine
that with a crisis such
as Coronavirus is going to
just really accelerate that
deceleration, if you will,
it’s going to make it more severe
and so, India has had a,
much lower slower growth
and rate of growth.
And so the Reserve Bank
of India has responded,
they’ve cut the repo rate, which
is establishing benchmark
their cash, right?
– That’s right, yeah.
– Yeah and so that cut that to 4.4%.
So that is to encourage, more lending
and more spending.
– I think the positive about
India and I think there’s a
couple of interesting thoughts.
One is for Australia for a moment, right.
Our sort of plan B, I think,
to some extent has always been
well, if China’s growth
sort of falls off a cliff,
we’ll start selling commodities
to India, because they’re
the next emergent global,
sort of economic powerhouse.
And I think clearly due to, I
think some, challenges with,
politics and bureaucracy
and administration
within India that quite
hasn’t happened as quickly
as we would have expected.
So they’re certainly not at
a position I think globally
that perhaps analysts would
have predicted 10 years ago.
And I think on the flip side,
what’s a positive though,
is that India’s cash rate
4.4%, like, think about
where the rest of the world is at (laugh)?
It’s on the floor.
So I think that sort of lay
the good news here is that
there’s–
– They’ve got some room.
– There’s (mumbles) some room.
– Yeah and I agree they’ve
got some room (mumbles)
– And once that important Terry, I mean,
let’s just bring a little
bit of monetary policy.
Yeah, like, why is that actually
important in India’s case?
– Well, because if you
run out of room you need
to resort to what’s known as
unconventional monetary policy
and how, have we done a video of this yet?
– We have yeah, we have.
– Yeah, we (laugh) I’m loosing track.
Yeah, but yeah–
– Watch that video guys,
if you want to learn all about
like alternative forms of
unconventional monetary policy.
– (laugh) But yeah, like, if
you’ve got these rooms off
already, it just gives
you more options, right
that you’ve got more capacity
to try and use monetary policy
in a more meaningful
way to stimulate more bending
expenditure aggregate demand.
And so it does give them an
opportunity, I guess, to rebound
more strongly from this, COVID-19?
– Definitely, I agree
and I think that’s a real
positive for Australia, actually.
Because, again, it means
that we’ll see, hopefully,
both India and China, two large economies
in arguably, that sort
of fairly close proximity
to the Australian economy,
sort of kicking into gear
or at least stay more positive
than the rest of the globe,
and that’s what got us through the GFC,
if we think about it,
was the fact that the regional
economies stayed stronger,
and more insulated from the global impact.
And the Hope here for
Australia, short of us trying to
maintain sovereignty,
despite Chinese pressure is
that will also help us get
through this crisis as well.
Now, final thing, just as we
sort of move towards wrapping
up this one sort of group of
economies we haven’t really
looked at, and that’s emerging economies.
What’s been happening with
emerging economies, Terry?
– So I think I want to kick
things off to talking about
Africa, because they have
really been, for the past couple
years really knocking on the door,
to really make just making
class studies right.
Make because a lot of, in the
police in the past, right,
in topic one, we don’t really
go to Africa very much.
Right, but I think they have
been knocking on the door,
but they have, we’ve all been, spending
and investment in Africa.
I think they as also been a bit of
some newfound fears of
lacking debt crisis, right?
Because they’ve only leveraged themselves.
I know that China’s really
heavily invested into Africa.
So to bring up that point,
again with you, their belt project, right.
So there could be some very
serious concerns about,
how those investments play
out if they are so leveraged
and so dependent on additional support.
– Now, I think when we
look at, Africa, right,
I think that perhaps
positive here is that well,
positive slash negative 80 poor
and middle income countries
have already sought
financial help from the IMF,
because they’ve struggled
to cope with the fallout.
And, 50 low income countries
in 31 middle income countries,
which is more than 40%
of the IMS 189 members
have been asking for support from the IMF.
So I think that’s perhaps
what’s a little scary, right,
that 40% of our, 189 members
of the IMF are knocking on the
door saying, hey, we
need financial support.
Otherwise, there’s a risk of
financial market collapse,
which is really one of the key
objectives and outcomes that
the IMF is responsible for,
which is, the stability in
global financial markets now,
it’s interesting.
And, I’m curious to see how
the World Bank is also going to
come to play in all of this,
given that, there’s a heavily
indebted nations initiative as well.
And I wonder to what
extent, that’s also going
to play a role in supporting
some of these countries.
But, again, it’s perhaps a
little too early to tell.
Did you have any final
comments, Terry, in terms of,
the emerging economies?
– I think just overall like
you said, if you’re going to
look for a start, go
look for an overall one.
So we’ve got here that,
even though they’re very
conservative level, right estimates
to all the toast support
that’s needed just to get these
emerging economy to
struggling get them back
on their feet, could be almost two
and a half trillion dollars.
And there’s, it’s really
difficult for them to come
up with $2.5 trillion.
So they will find we need
to get this support through
those international
organizations, but then they might
even have a little bit
of a struggle themselves
getting access to those funds.
Because during a during
a crisis like COVID-19,
it’s very difficult to find,
cheap, accessible capital.
– I think, a final point to make here
is that one of the things that
you’ll look at as part
of, the global economy
and inequality in the global
economy is the sort of,
global investment and the
patterns and direction of
investment and how that one creates
an interconnected economy.
But on the other side, it
can also create regional
differences in practice
and regionalization.
And what’s really interesting
here is that in most cases,
you see that particularly
foreign direct investment,
but even portfolio it
tends to be attracted to
emerging in develop mode.
Right over you’re sort
of, you’re developing
And unfortunately, this
gets exacerbated during
periods of crisis.
And so we can see that since,
you know COVID has started
creating some turbulence
in the financial markets
$83 billion of capital
has left emerging markets,
as investors in sought out
the safe havens of more
developed economies.
Now, that’s just from
emerging markets not even developing.
So I think it says a lot about
just how, that that global
architecture around the
patterns of investment is
also going to post COVID,
I think continue to cause
growing inequality between
some of our developed,
emerging and then
developing nations as well.
So there we have it, guys,
I mean, that’s a bit of an
overview right now with the
emerging impacts that COVID-19
has on the global economy.
And a couple of things to note number one,
we’ll do some further other
updates as things continue
to progress in terms of
impacts on the global economy,
so stay tuned for other HSE
Economic Review episodes.
Secondly, this is the first
of a three part series
that we’re shooting.
The second we’ll look at
well, how is COVID impacting
Australia specifically, and
we’ve started touching upon
it a little bit, but
we will do a deep dive.
So stay tuned for the next episode.
And then finally, we’re
also going to look at
what Australia’s COVID economic
policy response has been,
both at a physical level, federally,
a monetary level, federally
and even look at how the
states have played a role
in trying to support Australia’s
fruitfully at V shaped
recovery, but that’s
something that we will unpack
in part three of this
three episode series.
So stay tuned, if you
haven’t, hit subscribe
so that you’ll get further
updates and we will see you
in the next episode of
HSC economics review.
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