Foreword
While the health crisis we are confronted with supersedes all other topics in this year’s annual report, the core principle of value creation during the economic disruption as we deal with the spiraling effects of this pandemic remains of top priority in the Bank’s agenda. We have vowed to keep clients at the absolute center of everything we do as we go all out in delivering tailored services, adapted advice and consequential capital to path our clients towards success and their ultimate well-being.
On 1 September 2020, of the 25,298,875 cases reported globally so far, 53% are in Americas. This is followed by Europe and South East Asia with 4.2m cases respectively. The number of deaths stood at 847,602 which were mainly caused by community transmission.
Coronavirus has already impacting global markets, with economic impacts felt beyond China and other effected countries. Stock indices tumbled, spooked by reports that the coronavirus outbreak that emerged in China is spreading to countries including Italy, Iran and South Korea. Trading in stocks across world markets remained choppy, reflecting hope that the economic fallout might be manageable. The markets’ movements mirror the uncertainty that prevails and persists not just in the U.S. but all over the world. Several weeks into the coronavirus outbreak that has brought the world’s second-largest economy to its knees, some of the most basic aspects of the virus remain unknown.
In its June 2020 report, the IMF projected that the global growth will shrink to –4.9% in 2020, as compared to 2.9% in 2019. The COVID-19 pandemic has had a negative impact on activity in the first half of 2020, and the recovery speed is uncertain.
However, it is important to acknowledge that the global economy was already facing some difficulties prior to the COVID-19 pandemic.
Since 2019, there was a perceived sentiment that a recession might be underway. The global 2019 growth rate was forecast to be 3.2%1 , but the actual rate was 0.3% lower. In addition, there were escalating tensions between the United States of America and China on multiple fronts and widespread social unrest posed challenges to the global economy. Due to the slowdown of several economies, central banks across the globe began to reduce interest rate to stimulate consumption and investment. For example, the 3-months USD Libor decreased from 2.26% to 0.31% in one year (as shown below).
1 https://www.imf.org/en/Publications/WEO/Issues/2019/07/18/WEOupdateJuly2019
With the emergence of the COVID-19 pandemic and as a result, many countries went into lockdown, global activities came to a near standstill. This has induced an economic recession worldwide. The synchronized nature of the downturn has amplified domestic disruptions around the globe. Trade contracted by close to –3.5 percent (year over year) in the first quarter of the calendar year. This reflects the weak demand, the collapse in cross-border tourism, and supply dislocations related to shutdowns (exacerbated in some cases by trade restrictions).
https://www.imf.org/en/Publications/WEO/Issues/2019/07/18/WEOupdateJuly2019
In most recessions, consumers dig into their savings or rely on social safety nets and family support to smooth spending, and consumption is affected relatively less than investment. But this time, consumption and services output have also dropped markedly. This is due to lockdowns needed to slow transmission of the disease, steep income losses, and a general weaker consumer confidence. Firms have also cut back on investment when faced with precipitous demand declines, supply interruptions, and uncertain future earnings prospects. Thus, there is a broad-based aggregate demand shock, compounding near-term supply disruptions due to lockdowns.
Hence, this pandemic required a high level of state intervention that the world hasn’t even seen in wartime. Governments worldwide implemented several support and relief measures coupled with regulatory forbearance measures to assist their economic operators. There have been numerous fiscal measures to support ailing business, the self-employed and employees who have been (partly) laid off because of the virus. For instance, the United States of America support package was equal to 12% of its GDP.
The Financial Markets
Due to the liquidity concerns and the general uncertainty about the magnitude of the crisis, equity markets plunged at the beginning of the crisis (Refer to graph below). However, the recent rebound in financial market appears to be ahead of the economic prospects. Yet, the environment remains volatile and uncertain.
The Ongoing Health concern
COVID-19 continues to impact several countries and medical breakthroughs with therapeutics and changes in social distancing behavior might allow health care systems to cope better without requiring extended, stringent lockdowns. Vaccine trials are also proceeding at a rapid pace. Development of a safe, effective vaccine would lift sentiment and could improve growth outcomes in 2021.
Beyond the pandemic, policymakers must cooperate to resolve trade and technology tensions that endanger an eventual recovery from the COVID-19 crisis.
The unanticipated COVID-19 virus has created much havoc, not only in our personal lives but also on the financial standing of the corporate world including the banking sector. Despite this unparalleled situation, the Bank ensured that it maintained the delivery of services to clients on the back of fast-tracked roll-outs of digital applications.
