Global economy will shrink due to coronavirus

Coronavirus pandemic is not only a threat to human health but to global economy as well. Prof. Ayla Oğuş Binatlı, Lecturer at Department of Economics, Izmir University of Economics (IUE), pointed that economic growth, in countries affected by the pandemic, would decrease. Prof. Binatlı said, “Economy will shrink more as the battle against the pandemic continues. Unemployment rates will increase despite the precautions. As the unemployment increases, shrinking industries will not grow again, and profitability will decrease.”

Prof. Binatlı, who stated that the turbulence in financial markets was a reflection of the current negativities and uncertainties, said that the stock markets in major economies in USA and Europe experienced 20-25% decrease in the last month. Indicating that major stock markets have closed trading floor due to increase in coronavirus caused death toll, Prof. Dr. Binatlı reminded that New York Stock Market experienced the worst single-day point drop in U.S. market history.

‘Investors are turning to gold and silver’

Prof. Binatlı reported that the investors turned to precious metals such as gold, silver, etc. as they do in every global uncertainty. “Gold prices started to increase in the beginning of March, but the gold market started to experience issues later. We have seen the biggest weekly drop in the nearly 7 years. As the global flights have been cancelled, the gold could not travel either. Gold mines stopped their activities. In the past, prices in the gold futures contract were very close to spot prices. Now, there are significant price differences. There is a price difference of $70 between a gold forward rate traded at New York Stock Market in March and a spot price of gold in London. This is a historic difference. The amount of difference shows us how great the risk is being perceived as,” said Prof. Binatlı.

Prof. Binatlı, who said that precautions taken by governments would cause short-term optimism, however, it would not continue for a long time due to the devastation caused by the pandemic, stated the following:

“If not the entire global economy, but a huge portion of the global economy would temporize at least for another couple of months. This pandemic will have massive impact on health systems. All economies are subject to a great shock. I believe that countries, who have taken the most extensive precautions, will come out of this shock with minimum damage.”

‘Unemployment is our soft spot’

Prof. Binatlı stated that based on official statistics the epidemic in Turkey has not reached high. Prof. Binatlı said, “Unemployment is already our soft spot. The government should take inclusive economic precautions immediately. Pandemic will eventually come to an end. When that happens we will see if our economy will pull itself together or not.”