The world economy is expected to shrink by approximately 3% in 2020 (according to the IMF), a drop which will likely cause a sharp drop in tax revenues. Global net government debt on the other hand, will see a healthy increase from 69.5% of national income to an estimated 85.3%. To any shrewd observer, this might seem a little bit irresponsible. However, governments work a little different to you and me, you see, they can print their own money. This isn’t without consequences however, so the question remains how will rising public debt affect countries?
In the OECD alone, governments are expected to collectively take on 17 Trillion US Dollars of public debt. This would increase their debt-to-GDP ratios from an already high 109% to 137%, putting OECD countries debt levels in line with that of Italy (who as we now, has a debt problem). Some notable examples in Europe include the UK whose debt-to-GDP ratio will rise to 95.7%, France’s ratio will increase to 115.4%, Greece’s will top 200%, Italy will rise again to 155% and finally Portugal and Spain will see their ratios increase to 135% and 113.4%, respectively.
Is this something to worry about? Americans certainly don’t think so, a poll released showed that less than 1% of US adults thought the mountain of debt was an important problem. However, debt can be a real problem for countries. An extreme example is Argentina, they just announced that they will default on their debt. Again. However, this is hardly a surprise, the country has already defaulted 9 times and was likely headed for default even before the pandemic hit.
For the less default-prone OECD countries however, large levels of debt are still unsustainable. Although new debt raised by them is likely to be cheap, this is due to their central banks printing money and buying public debt, keeping interest rates artificially low. This can cannot be exploited forever as inflation will eventually kick in. Previous research suggested that debt levels over 90% are unsustainable and harm economic growth. Nowadays, economists are not so sure about the exact cut-off point, but many still do believe that high levels of debt are a large problem.
Japan for example, who has the highest debt levels in the world has seen stagnant growth for decades now. As the country begins to spend even further to tackle the crisis, many are worried. As a Japanese executive explained, “our economic strategy is using a considerable amount of money, and honestly speaking, it is going to be a fiscal problem in the future.” He also added “I have no good plan.” It seems like not many do.
This why economists fear that advanced economies might see economic stagnation similar to that of Japan. Although that largely depends on whether debt levels remain high or decrease post crisis. If they decrease and economic growth surpasses debt growth, then the new borrowing is unlikely to be a problem. However, all G7 countries (except Germany) have seen their debt levels rise sharply since 2006, which does not provide too much hope that debt reduction is on these countries’ radars. Therefore, the question remains, will OECD countries see stagnating growth as Japan has, or will they manage to get their finances in check, and resume economic growth?
In May 2019, SoftBank founder and CEO, Masayoshi Son, declared that “our time has finally come”, as the company celebrated historic profits, their highest yet. One year later, and SoftBank has now posted over $12.5 billion USD in losses, their highest yet. This, however, is not because of the pandemic, they are due to Uber’s disappointing IPO and WeWork’s complete collapse in the face of its founder’s, Adam Neumann, ‘shenanigans’, to put it lightly. However, as SoftBank scrambled to turn WeWork profitable, another meteorite hit it right in its face, a global pandemic. This of course, doesn’t bode very well with WeWork’s co-working spaces. However, Softbank’s other big investments are also suffering; Uber, Didi, Ola and Grab, all ride-hailing companies, are suffering large losses as nobody is ordering taxis anymore. OYO, a hotel booking firm, is also struggling as bookings disappear, along with revenues. It’s safe to say, SoftBank does not have a very pretty year ahead of it; however, how are other start-up’s fairing during the pandemic?
Globally, two-thirds of start-ups will run out of money within six months. Many are seeing their revenues completely dry-up. For instance, ClassPass, which offers memberships to fitness classes saw 95% of its revenues evaporate in 10 days as gyms and other fitness centres closed. OneWeb, a satellite start-up and another Softbank darling has just filed for bankruptcy. European ‘unicorns’ like Germany’s GetYourGuide and Omio are also facing significant strain as tourism and transport bookings disappear. This has prompted start-ups to go into crisis mode; 84% of start-ups in North America, 67% in Europe and 59% in Asia have already furloughed workers. Some of the most prominent are Cadre, the real estate fintech firm which has laid off 25% of its workers, Bird, the e-scooter firm, has laid off 30% of its workforce and Airbnb, whose very survival is now in question. Airbnb was valued at $31 billion USD in March 2017; its current valuation stands closer to $18 billion. The company, which was planning on going public in 2020, has already laid off 25% of its staff (1,900 people) and revenue for 2020 is expected to be cut in half. Moreover, the company’s reputation has also been shattered as it tried and failed to properly balance reimbursements to guests without sending hosts into bankruptcy.
Nonetheless, it’s not all bad news. We’ve all heard of Zoom’s meteoric rise, but there are other start-ups that are also having a rosier time. In fact, 26% of start-ups globally have seen revenue growth during the pandemic. Online medicine, remote meetups, biotech, fintech and software are some of the areas experiencing growth during the pandemic. In the US, this has meant that many AI powered remote working or software start-ups are seeing significant growth. Peloton, the virtual fitness class and gym equipment start-up that went public last year, has seen revenues grow 77% recently. In Europe, Swedish doctor app Kry has seen a 60% increase in downloads and 80% increase in consultations. Other German unicorns like biotech firms CureVac and BioNTech are big winners as they race to create a coronavirus vaccine. Finally, many fintech firms are also seeing an uptick in use as people turn to remote payments and traders try to ‘buy the dip’. For example, US-based Robinhood has seen such a massive uptick in trading activity that its servers have collapsed several times in the past few weeks. Dutch fintech’s like Flow Traders and Bux, along with the UK fintech firm Freetrade, are also poised to be big winners from the pandemic.
A common stereotype about the world of finance is that it is a world of alpha-men, hostile to women. This image is often propagated through famous Hollywood movies such as “The Wolf of Wall Street”. But does this image accurately reflect reality? The answer is more than a yes or a no. While a gender imbalance is an undeniable problem, there is a strong push across the board to make finance more women-friendly.
Currently, only 18% of the sector’s workforce is female - worse than the male-dominated STEM field. Research points to three main causes for this embarrassing gap.
Firstly, women face greater time obligations outside of work and finance is a profession that disproportionately rewards those who work long and inflexible hours.
A study of CFA members revealed that women express a stronger desire to recapture time from work than men.
A second reason seems to be the lack of suitable role models for girls. A mother working in STEM increases the likelihood of the child working in finance by 48% more than for boys.
Lastly, researchers have connected the proportion of women in finance to the math gender gap, in which boys tend to outperform girls on math tests in the U.S. In a recent paper, it was shown that the math education of girls significantly affects their career outcomes as women.
Since this math gap is not across all cultures, it isn’t simply a biological advantage in boys. Other studies revealed deeply engrained stereotypes against women when it comes to math, in which men were twice as likely to get hired over a woman with the same proficiencies.
Fortunately, changing social attitudes work against those obstacles and more and more women enter the world of finance. Most big firms have started to make an active effort to recruit more women. Check out their websites to find exclusive career events, mentorship programmes and more accomodating working conditions to give female applicants a leg up.
Considering the above it is safe to say that even though some of the ancient obstacles for women in finance remain in place, the tide is turning in their favour.
At the IFSA Network, we also aim to promote gender equality. Check out our past events like the “Women in Private Equity” and stay tuned for upcoming sessions of internship talks and other events to hear from women who made it into finance.
Imagine that you own a booming business with record profits being recorded. You are confident that that you have a strong year ahead. And then, out of nowhere, 90% of your customers disappear. Poof! Just like that, they are all gone. This may sound absolutely absurd, but it isn’t a fake scenario. This is exactly what has happened to the airline industry in the past few months.
In the decade after the financial crisis of 2008, airlines have finally been posting record profits. As an example, Delta stated that 2019 had been their most successful year in history and shared over 1.6 Billion USD with their employees (a decision I’m sure, they were soon to regret). Emirates too, stated that they had seen a 21% increase in profits in 2019 and back in 2016, the Oracle of Omaha himself, Warren Buffet, could not resist the large profits airlines were raking in and made one of very few investments in the industry, which he has commonly shunned. Nevertheless, as March came along, and the pandemic hit full swing, with lockdowns and travel restrictions being lifted across the globe, it’s hard to imagine very many industries getting hit harder for longer than airlines. After the September 11 attacks for example, it wasn’t until July 2004, almost three years later, that airline traffic reached its peak pre-September 11 levels. People were afraid to travel after such an event and polls are showing, the same is true now. In the US, one projection estimates that up to 60% of people would most likely not fly even if restrictions were lifted.
The question of course, is how long will this carnage last, and how will the industry look like post-pandemic? As for the first question, the short and unsatisfying answer is nobody knows. Given that there is still no pandemic solution in sight and that people’s fear of flying might extend long after the pandemic is gone, airlines are bracing for the worse, so much so that even Warren Buffet has completely divested from airlines, taking a loss in the process. As for the second question, the short answer is, it’s tricky to say. The slightly longer answer is it will probably look quite different. Travel has currently plunged by 95% for domestic US flights and 90% for Europe-US intercontinental flights. But airline expenses haven’t disappeared, meaning that airlines are bleeding cash, Southwest is losing 30-35 million USD a day, American Airlines? 50 million USD a day. On the Brightside, they aren’t bankrupt, yet. But many have fallen, Flybe and Virgin Australia have already gone into bankruptcy proceedings. Most prominently, Colombia’s Avianca, the second largest airline in Latin America and one of the oldest in the world, has also filed for bankruptcy in a New York court after revenues collapsed by over 80% since March.
Some airlines, however, will most certainly survive. Although it is hard to predict which ones, most major airlines in the US such as United, Delta, Southwest and American will likely not be allowed to collapse, as the recent 58 billion USD bailout package suggests. In Europe, major airlines such as Air France-KLM, IAG and Lufthansa are also receiving government aid and are unlikely to fail. Other airlines may also survive without government support, global demand for air cargo fell 15% due to the pandemic, but capacity fell by 23% because commercial airlines that are now grounded accounted for 45% of the world’s cargo. This is why commercial airlines are now repurposing their planes to fly cargo around the globe, especially the much-needed medical supplies. So much so in fact that Anchorage, in Alaska, now has the most highly trafficked airport in the world as it is a popular refuelling stop for planes from China to the US and vice versa.
So, how different will the post-pandemic airline industry look like? Given the large amount of bankruptcies that will likely hit the industry, something they are already quite accustomed too, it is likely that the industry will see even further mergers and consolidation. The lucky few airlines that do survive are likely to find the post pandemic world to be relatively free of competitors, and they will probably purchase defunct airlines, merge with other pandemic-stricken airlines and take a larger market share of the industry. How far will consolidation go will depend however, on how long the pandemic shutdowns last, how long do people refrain from travelling post-pandemic and to what extent will governments accept mergers of the world’s largest airlines.
Working in finance is boring. Or is it? Financial professionals' take on essential to exotic roles in the economy.
Posted on Thursday, May 8, 2020.
A common misconception that people have about working in the finance sector is that the work is boring. While the term finance sector encompasses an immense array of different jobs and sub-sectors, that also means that everyone is going to find something he does not find interesting. However, the importance, complexity and breadth of the tasks taken on by finance professionals are often underestimated.
From making sure that your grandma’s retirement money is outgrowing inflation, to helping a start-up to raise the capital it needs for further growth. Finance professionals are the ones greasing the wheels of our global economy.
Without the capital allocated through the finance sector, your local bakery would not have been able to afford the new bigger oven and the big car producer could not have built his new factory, creating thousands of well-paying jobs.
Next to these essential functions, there are also more exotic roles taken on by finance professionals. Be it unlocking hidden potential in firms through a so-called LBO or figuring out how to help poor countries pay for disaster relief. There are incredible ways that finance professionals create value not only for their company but for all of us.
Bear in mind that the relatively high salaries earned in the financial sector are in most cases accompanied by long hours. As a consequence, most professionals are motivated by their passion for what they do rather than the money they can earn. Of course, there are other perks as well, to be covered in further editions of this new column.
how the corona virus has exacerbated the european union's north-south divide
Posted on Monday, May 4, 2020.
There has always been a cultural and economic divide between southern and northern Europe. While the coronavirus is often touted as an enemy we should all unite against, it seems as though it has actually brought Europe further apart. Firstly, the impact of the virus seems to be significantly harsher in the south where Italy, Spain and now France have seen draconian measures put in place as they have experienced the most cases and deaths. Recent polling shows that 88% of Italians now believe that the EU is not doing enough to help Italy in the crisis. This is likely partly due to France and Germany’s export bans of medical supplies early on in the pandemic, all of which have since been lifted. However, the elephant in the room is the economic problem dividing the north from the south.
While it is unclear when the virus will end, what is certain, is the gargantuan recession that Europe is going to suffer (and well, already is suffering) as a result of the virus. Much of the crisis will have to be paid with large amounts of debt, the problem however, is that southern European countries already have massive levels of debt. You see in 2008, when the recession hit, there was also a debt crisis in Portugal, Italy, Greece and Spain because their high levels of debt led to large interest rates when they tried to raise further money as a result of the crisis. This was of course unsustainable for the already ravaged economies and hence they sought to emit Eurobonds, wherein debt would be issued jointly by all member states of the EU. You can see Eurobonds as a way for low-debt northern European countries such as Germany and the Netherlands to promise to pay part of southern European countries’ debt. Thereby lowering borrowing rates for southern EU nations and raising them for the northern EU nations, closing the spreads.
The problem with this solution, however, is that northern European countries are not exactly keen on being a piggybank for their southern counterparts and they see this as way for southern Europe to continue to spend recklessly on the north’s account. The same is happening now, with the coronavirus renewing calls for joint-debt emission. Germany and the Netherlands are once again not very keen on the idea, with Angela Merkel saying that they (‘coronabonds’) “are never going to appear”. Germany and the Netherlands believe that this is a slippery slope that will lead to further reckless spending from the south. The south in part, is stating that in this case, it’s not their fault that there is a crisis and that northern countries should show their solidarity.
These problems are being exacerbated in Italy whose economy has not yet recovered from the 2008 crisis. Italy already had a problem with high debt levels pre-pandemic and new borrowing will be very expensive for the country, which is why it is pushing heavily for ‘coronabonds’. However, Christine Lagarde said that it wasn’t the ECB’s job to close the spreads. Although this has since been backtracked and a new economic stimulus packaged was announced, Italians were not exactly thrilled by the comments. They view this as the European Union abandoning them during a time of crisis. However, Europe does have a bailout fund called the European Stability Mechanism (ESM) through which Italy and other cash-strapped southern European states could borrow at low rates. The problem? They also require Italy to allow Brussels to closely supervise what they do with the money. The ESM has low economic costs, but high political costs.
Remember how Italy was already in a spat with Brussels over their budget before the pandemic? Well they certainly won’t be allowing them to give them orders on how to run their finances now. This is why Italy and other southern EU nations insist on ‘coronabonds’, as they offer all of the benefits with none of the compromises. The financial austerity measures Europe would impose over Italy if it borrowed from the ESM would not go down well with the Italian public, but the north’s refusal to accept ‘coronabonds’ is also frowned upon in the south. Italy’s anti-European sentiment has now grown 47 percent since November 2018 with 67% of Italians today viewing EU membership as a disadvantage. Will the coronavirus lead to another political crisis in Europe?
The Disconnect between the economy and stock market
Posted on Tuesday, April 28, 2020.
The world economy has certainly seen better days. Unemployment figures are at record highs, retailers and airlines are facing bankruptcy and economic activity is at a record low, with the US’ economy contracting 4% (annualized) from January to March and the EU’s economy contracting 3.4% (annualized) over the same period. And stocks? Well, stocks are in a bull market. The S&P 500 has now risen 29% from its record-low over a month ago, what was initially dismissed as a bear market short-lived rally, has not stopped. Global stocks? They have rallied 23% since their record lows in late February, which also qualifies as a bull market. It is easy to see how this may be baffling investors; how can some of the direst economic indicators since the great depression be accompanied by a massive stock rally?
Many are now pinpointing to the central banks and their massive liquidity injections. The biggest central banks around the world are expected to buy up to 5 trillion US dollars in bonds amongst other liquidity injections such as stimulus checks and small business loans. Technology stocks seem to be leading the rally, with Amazon, which now accounts for 40% of the value of the S&P consumer discretionary sector, up 30% year-to-date. Microsoft, another technology behemoth, is also up 9%, mostly due to their cloud services. Automated trading strategies are also said to have had an impact on the stock rally along with banks’ hedging.
Nevertheless, there is another important factor to keep in mind, the stock market is not the economy and they don’t always move in tandem. This is because the stock market moves based on future expectations, whilst economic data is based on past occurrences. Therefore, stock markets move up and down not based on whether the data is good or bad, but rather, on whether it is better or worse than expected. From march to December of 2009, the US stock market rose over 56%, even as economic data kept getting worse due to the financial crisis. This was because the market had expected worse and initially over-reacted. The same may be happening now; as dire as the economic data may seem, stock markets may have initially expected worse, leading to the bottom-out in February and the subsequent stock rally as data was better than expected.
As the coronavirus fallout is expected to continue, and market volatility will most likely persist, it is important for investors to understand the quite crucial distinction between the stock market and the economy. Good economic results and bad stock market returns are nothing new, just like bad economic results and positive stock returns are also fairly common. In truth, unless you can perfectly know what the economic data will look like and what the market is expecting it to look like, you cannot predict the wild ride that the market will take you on. Market timing is tough precisely because it doesn’t matter If economic data is looking good, bad or ugly. It never has, and most likely never will.
The market is its own phenomenon, and in the short run, there’s really no telling to what it is going to do. As Mathew McConaughey said in the 2013 hit movie The Wolf of Wall Street: “Nobody… and I don’t care if you’re Warren Buffet or if you’re Jimmy Buffet. Nobody knows if a stock is gonna go up, down, sideways, or in circles.”
For some time, China’s economic growth has been slowing down and the country was becoming a victim of its own success. As China has gotten wealthier, manufacturing there has become more expensive. However, China’s population is not wealthy enough to transform into a service-based economy, yet. This puts China in a perfect collision course with the middle-income trap - a place familiar to many Latin American economies, such as Brazil, Peru, Mexico and Colombia.
Therefore, the rising costs of producing in China along with the realization that the world’s supply chains are heavily dependent on them has led to ‘a perfect storm’. Reports are coming out that companies are now looking to move manufacturing out of China. Japan went as far as to pay their companies to move and there are talks that the US might do the same. A perfect storm? Maybe so, but China knows what is happening and they are not sitting down with their arms crossed.
Firstly, a significant portion of China’s population is still poor. Moreover, they also have lax environmental and other regulations, which they will loosen even further due to the coronavirus. This should keep China cheap enough so that, alongside their expertise and manufacturing infrastructure, it is still too expensive to move supply chains abroad. This should restrain China’s ‘manufacturing exodus’ for long enough to let their ‘other plans’ come into action.
The Belt and Road Initiative has been hailed by China as the response to growing protectionism around the world. However, it has also been marred with accusations of land-grabbing and debt-trap diplomacy. In recent years, China has been lending obscene amounts of money to poor nations for them to build infrastructure. However, these loans usually come with several stipulations, such as that a Chinese firm must build the project, meaning that the money lent will be going straight back to China. Most of these countries struggle to pay back the loans, and when they default, China takes control of the asset. These are usually strategic ports and other infrastructure assets, such as Sri Lanka’s Hambantota port, which China took control of.
Djibouti owes China more than 70% of its GDP in debt. If you don’t know much about Djibouti, one thing to keep in mind is that it is in a very strategic location; at the entrance of the red sea, where 10% of global oil exports and 20% of commercial goods flow through. The U.S. has had a military base there for decades. Now, China has a base there too, it is very close to the American base and to a strategic port that Djibouti built by taking on Chinese debt. With the coronavirus crippling global economies and halting trade, Djibouti has a high probability of defaulting on its debt to China, at which point they could sweep in and take control of the port.
This is likely to be the case in Pakistan, The Maldives and other developing nations that are heavily indebted to China. The coronavirus has only sped up the defaults and hence, China’s ability to take control of more strategic assets around the globe. China has denied any and all accusations of land-grabbing and debt-trap diplomacy and their real intentions remain a mystery. However, regarding the question of whether the novel coronavirus will help or hurt China, it hard to argue for the latter. China’s economy will not be worse hit than any others, but they will gain many strategic overseas assets. China, it seems, will come out of this crisis holding all the cards.
How will the economy recover from the coronavirus?
Posted on Tuesday, April 14, 2020.
With most of the world’s economies shut down, President Trump and others have touted that there will be a rapid recovery after the novel coronavirus pandemic is contained. However, others have been, ironically, more conservative, stating that that the impact may last for a few years. So how will the economy get back on its feet? And what will be the long-lasting impacts?
China, ground zero for the outbreak, has seen new infections drop to almost zero. Although their numbers are dubious and many believe the situation to be worse than stated, the country is already restarting its economy. With GDP expected to drop by ≈9% according to Goldman Sachs, China is lifting restrictions in some provinces, encouraging workers to return to work in a bid to save its economy. The country is also investing heavily in infrastructure, healthcare systems and cutting taxes on small businesses. Nevertheless, as many nations around the world are beginning to take a closer look at China’s control of global supply chains, countries like Japan are starting to pay their companies to move production out of China.
However, as western governments plot on how to restart their economies, looking at China’s state-owned company’s fuelled economy may not provide useful answers. Since western governments rely heavily on the private sector, they may need to take a different approach. Austria is one of the first European companies to begin lifting restrictions. Germany is also said to be planning a slow reactivation of its economy - with GDP said to drop by 20%, the European powerhouse is already launching a 750€ billion rescue package. Moreover, the country will first prioritize reopening the telecommunications and auto industries along with nurseries and schools. Hotels and restaurants will be opening in a “carefully and controlled manner”, while clubs and other large events will remain closed for the foreseeable future. New York and surrounding states are also said to be looking at a slow reactivation, however, fears of a second wave of infections are still present.
After the virus has been contained, many are beginning to speculate what the long-term effects may be. Todd Tucker, Director of Governance studies at the Roosevelt institute and economist Dambisa Moyo both believe that the virus will lead to stronger domestic supply chains. This is because companies will begin to look into whether the cost reduction of a global supply chain justifies sacrificing the robustness of a domestic supply chain. Moreover, politicians are expected to push for production to move back home in order to prevent geopolitical tensions from cutting off their access to vital supplies; this can already be seen in the U.S. and Japan. Theda Skocpol, professor of government and sociology at Harvard, has stated that she believes the virus will exacerbate global inequality. This is due to wealthier groups being able to weather the economic blow while lower income groups will suffer as they usually hold jobs that cannot be done online, and this will lead to more job losses for those that live paycheck-to-paycheck.
After the recent surge in public equity markets, the question many are asking is if the new bull market has finally arrived or will the coronavirus continue to ravage through the economy? The answer seems to be inconclusive.
On the one hand, the market has recently rallied in spite of dire economic indicators and WTI crude oil has seen a spike in price over the past few days, a strong indicator that stocks may be due for a rebound. Moreover, in many countries, such as Italy and Spain, cases of the novel coronavirus have finally begun to decline, showing that the strict lockdown measures may finally be having an effect.
Nevertheless, there are still worrying signs out there. The virus is still spreading fast in other countries and many cases in developing economies have not been identified. Moreover, it has been reported that already, 14 Latin American nations have requested financial support from the IMF to help fight the upcoming recession. Ecuador, one of the worst hit countries in the region was already receiving help from the IMF before the virus hit, due to its weak financial position.
Moreover, US Hedge funds and investment bank Goldman Sachs have warned that the market has always experienced several (up to 5-6) aggressive rallies before the market bottomed out in a recession. Finally, rating agency Moody’s have stated that it had 84 downgrades in March, on par with the great recession of 2008. The agency stated that the worst hit industries would be Oil & Gas, Casino’s, Hotel’s, Restaurants, Airlines and non-food Retail. In turn, it noted that the businesses with the least exposure to the crisis are Food & Beverages (including supermarkets), IT Software & Services, Telecom, Packaging and Waste Management.
As coronavirus cases top 770,000 and economic activity continues to decline, President Trump, other world leaders and economists are beginning to pose the question: At what point does the cure become worse than the disease?
In the U.S., the impacts have been severe with the S&P 500 dropping 30% in only 22 trading days, the fastest 30% drop in history. Nevertheless, stocks have recovered slightly after the gigantic $2 trillion-dollar rescue package, the largest injection of federal cash into the U.S. economy in history. This package will send money directly to Americans, small businesses, airlines and other big firms that are particularly hit hard by the crisis. However, this has not been able to stop the soaring unemployment, as weekly figures soared past the estimated 1.6 million, coming in at 3.28 million. This is five times larger than the largest weekly increase in unemployment during the 2008 financial crisis.
On the other side of the Atlantic, European countries will almost certainly enter a recession. Germany estimates that the shutdown will likely cost its economy 7.25% to 20.6% of GDP. Other European economies are likely facing similar scenarios. Multiple EU countries have called for the emission of so called ‘corona bonds’. These are joint-issued debt by all member states of the EU to finance the fight against the virus. Nevertheless, the EU failed to agree on the emission of the ‘corona bonds’ as the Netherlands, Germany, Austria and Finland opposed the bill, worried that their voters might see it as the richer northern countries footing the bill for their poorer southern neighbours. The disagreement has led to intense discussions and strong words being exchanged amongst various EU leaders, deepening the divide.
Finally, resource-rich developing countries will also be particularly hard-hit by the crisis as their economies depend significantly on commodity exports. These will slow down significantly, as the U.S. Dollar strengthens due to investors seeking a safe haven for their money. All-in-all, the UN estimates that the COVID-19 crisis may cost the world economy up to $2 trillion U.S. Dollars in 2020.