Recession inevitable as coronavirus affects trade

Friday, April 3rd, 2020 00:00 |
Coronavirus affects trade.

Lewis Njoka @LewisNjoka

Investment and financial specialists are warning of a global recession as supply chain shocks hit investments, household consumption and international trade, on the back of the Covid-19 scourge.

According to a report by the Institute of Certified Investment and Financial Analysts (Icifa), analysts say Kenya’s supply chain will bear the highest impact, followed by declining company revenues.

The report, which paints a gloomy picture of economies, further notes that uncertainties over the virus, decline of stock prices, weakening of domestic currency, sectoral decline of demand for products and volatility of interest rates are also shaking the outlook.

“From the respondents’ views, there was a general concern on the supply chain disruptions that may be occasioned by the Covid-19 crisis.

The concerns raised pointed to a state where trade of any kind would decline due to closure of international borders thereby causing traders not to be able to access supplies or export their produce,” the report reads in part.

Trade relations

In a world which is highly interconnected, with countries forced into lockdowns, closed factories, cancelled flights, and closed borders, the global supply chains will never be the same again hence affecting businesses. Kenya’s close trade relations with China come into focus.

Most of the analysts in the country feel that a global recession will occur after the Covid-19 pandemic.

The Icifa report shows that 98 per cent of investment and financial analysts in the country expect a global recession to occur with only two per cent saying that the recession is unlikely to occur.

A global recession is an extended period of economic decline around the world characterised by factors such as reduced gross domestic products (GDPs), lower employment rates and reduced purchasing power among others.

Of those who feel it will occur, 29 per cent rate the possibility at normal likelihood while 69 per cent said there was a high likelihood.

About 86 per cent of the respondents believe the global recession will last less than two years while 12 per cent said it would last more than five years.

“More than half of the respondents (53.7 per cent) estimated that the recovery period from the global recession would last less than one year while 31.7 per cent of the respondents estimated a period of between one and two years.

Only two per cent of the respondents estimated that the recovery period would take three to four years, which was the least ranked period,” says the Icifa report.

Since World War II, there have been four global recessions that meet the International Monetary Fund criteria. These were in 1975, 1982, 1991 and 2009.

Global economies

Unlike the upcoming recession, which analysts attribute to the effect of Covid-19 pandemic on global economies, the last one (2009) was brought about by deregulation in the financial industry.

The Icifa study was carried out in March and involved 93 respondents, all members of the institute.

Of these, 55 per cent were from private sector, 31 per cent from public sector, while the remaining 14 per cent came from other sectors such as commercial, non-profit, education and others.

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