Question

What are some thoughts on how the global economy will be in the next two years because of the COVID19 global pandemic? Discuss your views from an international finance perspective.

Answer 1

It is a typical scenario where the the demand as well as supply is also on a lower side in the global economy, because COVID-19 pandemic has affected all major economies in the world, from China to USA. It is negatively affecting not only importing nations, but also the exporting nations as well. In the light of it and to save their economies, most of the nations have come up with stimulus package while keeping the interest rates to be at their lowest level. It has created a dilemma for investors and financial institutions. It means a lower interest rate will become and remain to be new normal for the international finance. So, in the coming period of 2 years, the financial capital flow will take place, beginning with a slow place and speed up gradually. During this period, the focus will not be the higher rates, rather it will be sound infrastructure, ability to cope up such unforeseen challenges and opening up of the sectors that are lucrative to the investors. International finance will show more orientation toward M&As & FDI using brown field investments where the good and promising firms are facing liquidity crunch and are available at lower price. For example, Chinese firms have acquired many Indian firms in recent lockdown in the India and it forced the country to change its FDI norms.

Portfolio investments in stocks and other capital, will be slow as there will also be liquidity, depth and breadth problem in the most of the capital markets for some time. After 6 months time, it can again grow up once the global economy starts recovering. So, international finance has to be more cautious and consider other fundamentals other than the interest rate.