Typical trends in economic downturns

Deficits and their corollary risks: debt and default

At a time when public debt levels in many countries are already high, if not unsustainable, responding to the crisis The policy would mean a significant increase in the fiscal deficit - equivalent to 10% of GDP or more. To make matters worse, many households and companies are experiencing a decline in income, which means private sector debt levels will also become unsustainable, potentially leading to massive defaults and bankruptcies. Coupled with soaring public debt levels, this will only make the economic recovery even weaker than the period after the Great Recession a decade ago.

②The demographic time bomb of developed economies: the aging problem

The epidemic crisis has shown that more public spending must be allocated to the health system, and that universal health care and other Related public products are necessities, not luxuries. However, with most developed countries facing an aging crisis, funding such spending in the future will further expand the implicit debt of currently unfunded health and social security systems.

③Growing risk of deflation

In addition to causing a severe economic recession, this crisis has also caused a large amount of idle goods, large-scale unemployment of personnel, and oil and industrial metals. Wait for commodity prices to plummet. This makes debt deflation possible, increasing the risk of insolvency.

④Currency depreciation

As central banks work to combat deflation and guard against the risk of soaring interest rates (and with them the accumulation of massive debt), monetary policy will become more Unconventional and far-reaching. In the short term, governments need to monetize fiscal deficits to avoid depression and deflation. Over time, however, permanent negative supply shocks from accelerated deglobalization and new protectionism will make stagflation all but inevitable.

⑤ Digitization causes wider disruption to the economy

As millions of people lose their jobs or have less income from work, the income and wealth gaps in the 21st century economy will further widen. To protect against future supply chain shocks, companies in advanced economies will shift production from low-cost regions to higher-cost domestic markets. But instead of helping workers at home, this trend will accelerate the pace of automation, put downward pressure on wages, and further fuel populism, nationalism, and xenophobia.

⑥Deglobalization

The epidemic is accelerating the trend of Balkanization and fragmentation that is already underway. Most countries will adopt more protectionist policies to protect domestic businesses and workers from global economic turmoil. The post-pandemic world will be marked by tighter restrictions on the flow of goods, services, capital, labour, technology, data and information. This is already happening in the pharmaceutical, medical device and food industries, where governments are imposing export restrictions and other protectionist measures in response to the crisis.

⑦ Economic weakness leads to the rise of populism

Populist leaders often benefit from economic weakness, mass unemployment and rising inequality. Amid heightened economic insecurity, there will be a strong tendency to blame foreign countries for the crisis. Blue-collar workers and the broad middle class will be more susceptible to populist rhetoric, especially proposals to restrict immigration and trade.

⑧Geostrategic deadlock

A worse scenario after the epidemic is that diplomatic divisions will pave the way for a new Cold War between the United States and its opponents. As the U.S. presidential election approaches, there is every reason to expect a significant increase in covert cyber warfare. As technology is a key weapon in controlling future industries and fighting epidemics, the U.S. private technology sector will become increasingly integrated into the national security and industrial complex.

⑨Environmental damage

As the epidemic crisis has shown, environmental damage may cause far greater damage to the economy than financial crises

Recurring epidemics Like climate change, it is an essentially man-made disaster, resulting from poor health and hygiene standards, the misuse of natural systems, and the increasing interconnectedness of a globalized world. In the coming years, pandemics and many of the morbid symptoms of climate change will become more frequent, severe and costly.

Economist Nouriel Roubini warned that these nine risks were already imminent before the epidemic hit and now threaten to trigger a perfect storm that will drag the entire global economy into a decade of despair.

In another decade, as we move into the 2030s, technology and more capable political leaders may be able to reduce, resolve, or minimize these problems, resulting in a more inclusive, cooperative, and stable international order. But the prerequisite for any happy ending is that we find a way to survive the coming Great Recession.

If the global economy really enters a long-term Great Depression as predicted by Nouriel Roubini!

This is undoubtedly a major negative factor for the financial market. In this case, choosing a relatively cautious strategy may be more appropriate for investors. The holdings of gold ETFs have continued to increase recently. The holdings of SPDR, the world's largest gold ETF, hit a new high last week since May 2013. This implies that medium and long-term investors still prefer to increase the allocation of gold assets, and are expected to have a long-term investment in gold. Providing support for gold prices may also limit the short-term downside of gold prices.