Acting in the Storm

The Coronavirus is hitting the world economy in a devastating way, with repercussions that are still difficult to quantify. Let’s see what could be the effects on the economies of the United States, China, Europe and finally Italy, and what could be the cure for our country.

by Stefano Scuratti

The virus storm has hit our country’s health and economy terribly with effects that are still difficult to measure in the medium term. The best comparison is often linked to the sub-prime mortgage crisis of 2008 when a single sector actually infected the world economy. In today’s case, the situation would seem even more dangerous as multiple factors contribute to the present crisis.

What is likely to happen in the USA?

After ten years of uninterrupted growth, as was the case in 2001, the multiples of the US market as of April 14 are overvalued: the Wilshire 5000, an index considered the most valid representation of the industry as a whole, capitalizes $ 27,647 billion, about 127% of the US GDP level as of December 31, 2019. The US elections are approaching and the decision-making cycle for new investments will be postponed in part until the new year. These two factors alone could be enough to bring about a global slowdown while internally the Federal Reserve Bank forecasts an unemployment rate of around 15% in the US.

… and in China

China’s economic momentum in 2008 was strong enough to drive global recovery, while today it faces a fall in GDP growth as early as 2019, a decline in foreign direct investment in the first quarter of 2020, a contraction in the world market and increased pressure from international competitors ready to attract new investments such as Vietnam, Cambodia and India in Asia and Mexico in the American continent. The very fact that China represents a larger share of the world’s GDP will be a further factor of uncertainty and contamination to growth at a later date when, for example, the unemployment rate would accelerate internally.

… and in Europe

Europe, on the other hand, seems once again divided both in political choices that underestimate the pressing need to issue Eurobonds, for the non-implementation of European fiscal reform and finally also for the closure of markets in themselves starting from health care supplies. Just think that one of the first debt issues of the United States was that of 25 March 1815 for a nominal value of $10, Treasury Note of the United States Treasury Department; the Federal Reserve was established only in 1913, almost one hundred years later. The European Central Bank was established in 1998 and there are many countries that would like to see a more effective role.

…and finally in Italy

Finally, as far as Italy is concerned, it is good to consider that if the pressure of layoffs were equal to that expected for the USA, the unemployment figure could go from 10% to 20%, an unsustainable level with a debt of 135% compared to a sharply declining GDP in 2020. What cure? Act immediately by restoring productivity in every sector with the necessary health precautions, obtain the necessary capital to keep the country stable, even outside Europe and attract more and more Foreign Direct Investment from the U.S. to Europe. It would be interesting to compete with the Netherlands, the country that first among European economies obtained $883.2 billion of foreign direct investment from the USA in 2018. l

Reference: https://www.bea.gov/news/2019/direct-investment-country-and-industry-2018