Question

write in maximum 2 pages What happened to debt and equity market in Middle East in general and Saudi Arabia in particular during corona virus? support your answer by using evidence and charts

Answer 1

Covid 19 virus pandemic which began in Wuhan, China in Nov 2019 has as of today spread to countries. More than 1million people infected and death toll almost 10k, this virus has been the most deadliest one seen in the modern times. Along with the impact on the lives of people, this pandemic has had huge impact on trade and business leading to huge economic losses worldwide including Asia Pacific. As per S&P projection, the economic impact due to Covid 19 for Asia Pacific is supposed to be $620bn as per the latest reports. The loss projections are from multiple sectors spread across financial, manufacturing, airlines etc where majority of impact is seen.

Specifically about the financial sector, Moody’s have pointed out that "The sudden and sharp increase in risk aversion, fed by fear that economic activity will be severely curtailed for months, has the potential to propel a self-fulfilling vicious cycle of deteriorating confidence, weak earnings expectations, lower business investment, retrenchment in employment and a further pullback in consumer spending.”

As per the World bank report on East Asia and pacific in the time of Covid 19, "Global GDP is expected to decline by 2.1 percent, while developing countries’ GDP is expected to decline by 2.5 percent and high-income countries by 1.9 percent Figure I.2.12 The biggest GDP losses under the global pandemic scenario are expected in EAP countries due to their relatively deep integration through trade and direct impact on tourism, e.g., Cambodia (3.2%), Singapore (2.1%), Hong Kong, SAR, China (2.3%), Thailand (3%), Vietnam (2.7%), and Malaysia (2.1%)". They have also opened that "World GDP is expected to decline between 0.1 to 1.5 percent, while global trade is expected to decline between 0.2 to 3.75 percent. The biggest impacts are reported in the extreme scenarios by McKibbin and Fernando (2020) with Chinese GDP declining by up to 6 percent, with GDP declines in the US and Japan reaching respectively 8 and 10 percent".

Although the impact of Covid 19 on all Asian countries is huge, the impact on Saudi is a bit higher considering the fact that their main exports have been oil for which the demand has seen a sharp decline considering the travel ban, lockdowns and decline in use of petroleum based products. Moreover the increase in production of petrol declared by Saudi Arabia and Russia have led to sharp decline in the oil products leading to even further losses.

Projected losses in Saudi Arabia is also due to the world slowdown due to virus but also due to decrease in demand for their main export, their main source of income, Oil.