Covid-19 Effect |IMF report says: Global growth is in worst situation than earlier financial crisis.

Covid-19 Effect |IMF report says: Global growth is in worst situation than earlier financial crisis.

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An exceptional situation emerged in global economy due to Covid-19 pandemic world wide. Most of the countries have to shut their corporate operations and lockdown their cities due to Covid-19 outbreak. This resulted in world wide down fall of economy and financial crisis.   

As per the latest Global Financial Stability Report (GFSR) of IMF, Global growth is now expected to decline by 3 percent in 2020, which is the worst performance than the earlier global financial crisis.

What is more dangerous is that IMF stated that the future recovery from this downfall is highly uncertain. The time period and shape of this crisis recovery is undefined right now.

Covid-19 Effect on Equity Markets

As per IMF equity markets faced their fastest drop in the history and asset price decreased up to about half of the scale seen in the 2008 financial crisis.

Price earning ratios in equity markets has reached highest level than 2008 financial crisis. The IMF report states that equity valuation has gradually stretched than the October 2019.

Covid-19 Effect on Emerging and Frontier markets   

The extraordinary circumstances created due to Covid-19, decline in oil prices, amplified global risk dislike resulted in broad based sell-off in emerging and frontier markets.

Decreased in emerging market equity prices is reported 20 percent. Commodity producing economies like Russia, Mexico, Colombia, South Africa and Brazil had faced 20 percent decreased in their currency value against the US dollar in first three months of 2020.  

Covid-19 Effect on Asset Managers

Asset managers might have to sell assets, which can result in huge asset price declines.

Since the coronavirus outbreak Invest funds have faced huge losses in portfolios.  As a result of this actual and anticipated redemption have been affected and raised a serous concerned.

Covid-19 Effect on Countries like India.

Countries like India, where Banks have high nonperforming loans and huge holdings in government bonds might have to face weak performance in their financial sector.

Africa might face hard time in trade financing if the cross border and correspondent banking relations are affected with this situation of Covid-19.

What could be the step to deal with situation in financial sectors?

IMF has provided several guide lining principles to handle this situations. As per IMF regulatory and supervising bodies of countries needs to maintain the balance between preserving financial stability, keeping the financial institutions sound and supporting the Economic activities. Here are the few highlights:

Loan Restructuring:

Regulators must encourage banks to renegotiate loan terms with companies and households facing issues in service their debts.

Banks:

Existing Capital and Liquidity buffers should be used to absorb the financial cost of any loan defaults.

Banks funding and liquidity pressure should be decreased by regulators.

Asset managers:

Risk management framework should be implemented in very strong and effective manner.

Asset managers should effectively and wisely use liquid management tools in the interest of unit or fund holders.

Financial Markets:

The Financial markets should be managing the tools like circuit breaker, volatility controls measures effectively and implemented with better communications.

Conclusion

The uncertain and unexpected situation of Covid-19 has created and unhealthy difficult situation for the global economy. It has led us to worst financial crises and we are also not sure about the recovery time and shape from this situation.

However we cannot let this crisis to demolish what we have created and achieved so far as a global economy and we can definitely take some measures to sustain our growth as much as we can.

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