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We Forecast a Severe Global Recession

We Forecast a Severe Global Recession

ICEF held a round table on Global Economy Challenges in 2020. Senior Vice-President of Edmond de Rothschild Bank (EdR) in Switzerland, Mr. Thanassis Gontikas was an invited speaker.

The main topic of the round table naturally became the Covid-19 virus, that is currently changing the development scenarios of global economy in 2020. Until Covid-19 was not spreading outside China, economists did not give pessimistic estimates of virus’ aftermath. However, since the end of February, experts almost unanimously agree that recession in global economy is unavoidable. After a series of “minor heart attacks” on the stock market and a rapid decline of Federal Reserve System rate there is a cause for concern about the consequences of economic impact of coronavirus on the USA and other leading Western countries.

It is now obvious, that the largest economies (which is the USA and China) will suffer because of the epidemic. Face-to-face service sector lose thousands of clients that are worried about the virus, and the shopping is made mostly online. Gyms, dentists, molls, spa and travel industry suffer losses measured in billions.

Experts here draw a common analogy that the way the virus is most dangerous to senior people, in the same way it is most dangerous to mature economy.

What do Edmond de Rothschild’s experts think?

The global scenario according to EDR is as follows: total uncertainty in elections in the USA and oil price downturn: “We forecast a severe global recession” - confirmed Thanassis Gontikas. The expert has also given following forecasts that are based on EdR studies:

· China slowdown must exert pressure on other countries with developing markets, even if they loosen their monetary policy;

· Investments of business in the USA might keep slowing down;

· Stabilization of Industrial production in Eurozone in 2020 can limit the GDP growth slowdown in Russia;

At this point, the most evident problem that will concern everyone without any exceptions will be the consequences of global supply chain disruption — from spare parts to medicine and iPhones, that are being sold out. These and other obvious signs of the crisis make analysts speak about recession, that might face us in the nearest months due to the closing of “global marketplace”. For example, automotive industry can reduce its capacity level to around 7,5 million items this year.

Further points discussed on the round table:

· There is a problem of private investments’ shortage and investor’s fear of projects that lie beyond real estate area. Maybe investors find investments in portfolio securities traded on the financial market “unsexy”? - assumed Thanassis Gontikas.

· Investments in ecological projects is a very big risk.

· Chinese government made solar energy attractive for private investors through subsidies. But there are still two insolvable questions left: how much to invest and for how long.

· Gas and oil today are not just a part of world economy, but a “highly political issue”.

· Demographic problems in Europe are an existential issue. According to Gontikas, in the face of the loss of cultural continuation, that have been forming social and economic background in Europe for centuries, business now exists under constant pressure and uncertainty.

· Taking into account the great leap that that European economy made after the Second World War, the round table participants made an analogy with the loss that had happened due to the coronavirus epidemic. Possibly, the situation will cause a reverse effect and economy will grow rapidly. Moreover, it is a chance for Russia to start forward while the USA undergoes the crisis.

Who participated in the round table?

One of main Gontikas’ opponents was Martin Gilman, ex-director of the IMF’s Moscow Office, he had been the Head of HSE Center for Advanced Studies for several years. ICEF representatives also took active part in the discussion – Maxim Nikitin, Vladimir Sokolov, Alexey Boulatov, Oleg Zamkov, First Deputy Dean of the Faculty of Economic Sciences Sergey Merzlyakov and students that showed great interest in the round table.

About the speaker:

Thanassis Gontikas is a Senior Vice President at Edmond de Rothschild Private Bank in Geneva since 2002. Before that he was a member of board of directors at YMCA World Alliance and HSBC BANK PLC. He is a Boston University alumnus.