May 28 - Daily Brief of World Finance & GCC News
1. Don’t Expect a Quick Recovery - Our Survey of Economists Says It Will Likely Take Years. 2. Without Guidance, Banks Won't Help Recover From Coronavirus. 3. Bitcoiners Go Wild After Goldman
World Finance News
Don’t Expect a Quick Recovery - Our Survey of Economists Says It Will Likely Take Years.
How long will we be stuck with a double-digit unemployment rate and a host of other historically bad economic indicators?
We asked the panel questions like what the shape of the recovery will resemble, when the gross domestic product will return to its pre-crisis levels, and what the unemployment rate will be at the end of the year. The survey was conducted from May 22 to 25.
The panellists believe, on the whole, that the recovery from this crisis is going to be a very, very lengthy process,” Timmermann said. “We’re going to be seeing serious effects for years and years.”
Economists thought it was more likely than not — with an average probability of 54 percent — that the next quarter to see positive real GDP growth in the U.S. (relative to the previous quarter) would be the third quarter of 2020.
But the economy almost has to grow [in the third quarter] because we’ll be starting from such a low base,” Wright said. “Unless, of course, things seem to be looking good right now and then in July or August there’s another wave and we go straight back to lockdown. Then you could have another negative quarter.”
The economists were presented with four specific options of how the trajectory of GDP might look as charted over 2020 and beyond: V-shaped, with a sharp fall and a sharp rebound; U-shaped, with a long period between the beginning of the recession and the recovery; W-shaped, with a sharp recovery followed by another sharp fall and recovery; or “Swoosh”-shaped, with a sharp decline followed by a very slow recovery (picture the Nike logo). More than half of respondents — 58 percent — thought the long, slow recovery of a “Swoosh” shape was most likely, with 19 percent predicting a U-shape and 13 percent calling for a W-shape with multiple declines and recoveries. Tellingly, only 1 out of 31 economists forecasted a V-shape, which would see a quick recovery after the sharp decline of the past few months.
But forecasting our economic future is a challenging business even when we’re not in the middle of a global pandemic. And as our respondents filled out their questionnaires, they were weighing a lot of unknowns and making their own assumptions about the trajectory of the virus and the economic crisis — including when a vaccine will be developed, how quickly businesses can get up and running, and even whether there will be a second wave of COVID-19 outbreaks.
Without Guidance, Banks Won't Help the UK Recover From Coronavirus
During the last crisis, central banks have prevented financial sector collapse, with the G7 nations injecting $2.5tn of new money into financial markets in March and April through quantitative easing and related liquidity programmes.
We need banks, asset managers and stock markets to take advantage of this liquidity by lending to productive and job-creating sectors of the economy. These
Currently, in the UK, only about £1 in every £10 lent by British banks goes to non-financial firms. Most credit flows into existing property and supports financial trading of one kind or another.
The good news is we can look to the post-second world war period for a playbook on how to do it. After 1945, advanced economies faced an epic recovery challenge, with public debts even higher than those predicted to arise this year (the UK’s debt-to-GDP ratio reached almost 250% in 1947). Finance
Banks played a key role in the recovery and “golden age” that followed. But central banks did not just create new money. They worked closely with governments to ensure the money was directed to the right parts of the economy.
“Credit Guidance” policies were employed to steer bank lending into priority sectors.
Development banks channelled both government and household savings into infrastructure and innovative high-growth sectors.
Financial Rents – profits from interest, speculation and capital gains – were minimised via the imposition of capital controls.
Low-interest rates enabled aggressive government spending programmes, which enabled full employment.
Bottom line: Central banks need to return to the credit-allocation and investment-led growth policies that reignited the economy after the second world war. The classic central bank defence of maintaining “market neutrality” or independence is looking increasingly weak.
Bitcoiners Go Wild After Goldman Revives Tulip Mania Comparison
Goldman Sachs Group Inc. just forged a lot of new enemies -- in the crypto world.
Goldman disappointed and upset many once details of its report were brought to light, with the bank blasting Bitcoin and other coins as unsuitable investments for its clients.
We do not recommend Bitcoin on a strategic or tactical basis for clients’ investment portfolios even though its volatility might lend itself to momentum oriented traders,” said the Goldman report,
The report compared Bitcoin’s run to the Tulip mania of the 1600s in the Netherlands, one of the most infamous instances of speculative bubbles.
One by one, Goldman laid out rebuttals against many of the merits frequently cited by crypto evangelists that aim to hold up the superiority of the digital tokens.
Cryptocurrencies, including Bitcoin, are not an asset class -- they do not generate cash flow or earnings and do not provide consistent diversification benefits. Nor is there evidence they are an inflation hedge, the report said.
Evangelists were quick to react to Goldman’s report on Twitter, with many calling it nonsense.
GCC NEWS
ADGM’s Position as Leading International Financial Centre Strengthened With Changes to Its Founding Law
Abu Dhabi Global Market, ADGM, the International Financial Centre in Abu Dhabi, today announced amendments to its founding law.
Amendments reflect not only the alignment of ADGM’s framework and operations with international best practice and standards, but they also demonstrate the close and collaborative partnerships that ADGM has formed in its early years with governmental partners, in particular, the Abu Dhabi Judicial Department (ADJD) and the Department of Economic Development (DED).
The development will be welcomed by the local and global business and investor communities. The importance of these amendments, from a commercial regulatory perspective, include: formalising the dual licensing regime created with the DED which enables ADGM entities to establish branches, subsidiaries or representative offices in Abu Dhabi without needing a place of residence outside ADGM.
The majority of the amendments relate to the enhancement and strengthening of ADGM’s dispute resolution framework, particularly the jurisdiction of ADGM Courts.
Courts have published a Guide to the amendments and the policy behind them in order to provide a deeper understanding and appreciation of these amendments to ADGM’s dispute resolution framework.
Dubai’s Sheikh Hamdan Announces New Covid-19 Award for Firms Battling Pandemic
The new category – Innovative Practices in Handling the Covid-19 Pandemic – will be a part of the fourth edition of the Hamdan bin Mohammed Award for Innovation in Project Management (HBMAIPM), the results of which will be declared in November.
The award category has two sections. The first is for SMEs and the second for large enterprises such as government, semi-government and private organisations too.
Registration for the HBMAIPM opens on June 1, with submissions received on the awards’ website, and will and close on August 31, 2020.