COVID-19 Crisis Poses Threat to Financial Stability

Coronavirus has struck mankind like lightning. The cases are increasing with every passing day. All nations are taking safety measures to protect their people from this deadly disease but on the other front, this is hampering the economy severely.

The latest report on the financial system has depicted the depreciation of the economy worldwide because of this pandemic scenario. At this point, we are facing war-like consequences. These consequences will sustain for a long time.

The pandemic has brought recession similar to the 1930s and every nation is fighting against this crisis on their own terms.

In a report by the world economic forum, it is stated that as the economies are crashing fiscal backing, regulatory flexibility and liquidity expenses are helping the economy to get on the feet again.

The FDFC also evaluated the present global economic scenario and financial resilience issues. The biggest setback is faced by banks and finance corporations, because of no capital flow.

A WEF report stated that for the time being the emphasis should be on liquidity assistance and the government should also provide capital to some firms to keep them up during this crisis. When the crisis turns from liquidity to solvency phase, the governments need to look for policy methods to stabilize the economy and support private firms to stand firm.

An extended duration of financial fluctuation will lead to burden monetary firms which will in turn head to credit for borrowers. Central banks are vital to protect the economy from falling hard, they need to maintain the flow of credit. This crisis needs a solution with financial, monetary, and fiscal policies to provide full stability to the economy.

This pandemic has taken borrowing rates higher than before. Due to this, the creditors are unable to pay off the debt and with time the credit demand will stiffen.

The low demand for supplies has forced companies to shut down completely. The tourism and service industry is under casualty. The nations are trying their best to stop the spread but still, the contagion cannot be prevented. The shutdown did help the virus slow down a little but this also resulted in a slow down economy.

Developed countries are in a better state than underdeveloped countries. Half of the world’s population is on the verge of being unemployed. This will lead us to a similar recession as in the 1930s. The depression period is very hard for a nation to deal with because people will die of hunger and lack of monetary help.

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To avoid consequences, every country should help the private and small industries to stay afloat. This will help to stop unemployment to some extent.

Recovering from such a big crisis will be hard and time-taking but if every nation targets to increase their per capita income, GDP will surely witness substantial growth.

Revamping the economy will not merely need liquidity but also monetary, fiscal, and financial policies to undergo massive changes. Except for the food and beverage industries, every other firm is under huge losses.

The need of the people is restricted as per the guidance issued by governments. For stabilizing the economy, we have to win the war against this deadly disease, and only then the economic conditions can be improved.

Originally published at https://www.emeriobanque.com.