EsadeGeo Daily Digest, 17/03/2020

Foreign Policy – Keith Johnson / Another big market collapse heightens fears of global recession

  • Global markets collapsed again on Monday, dismissive of the U.S. Federal Reserve’s dramatic weekend rate cut and huge new round of quantitative easing, as the near-term economic carnage from the new coronavirus outbreak is coming into sharp relief.
  • “It’s started to dawn on people—we’ve seen the demonstration of the president’s understanding of the problem, which was worrisome—that there is nothing between us and the worst-case scenario,” said Austan Goolsbee, a professor of economics at the University of Chicago’s Booth School of Business.
  • Goldman Sachs said over the weekend that the United States could see economic contraction of 5 percent in the second quarter, a sharp reversal that would likely qualify as a recession. Manufacturing data from New York state just showed the biggest monthly drop on record. Chances of a recession are nearly 100 percent, with big job losses on the horizon.
  • And that’s scary, because the latest economic data from China, where the outbreak (and the economic shutdown) first began, is especially dire, with double-digit declines in factory output and retail sales. Forecasters now expect the world’s second-largest economy to shrink in the first quarter, the worst performance since the days of Mao Zedong.
  • Financial Times / Eurozone’s biggest economies grapple with virus fallout

The New York Times – Mujib Mashal, Asadullah Timory and Najim Rahim / In Afghanistan, coronavirus complicates war and peace

  • When the coronavirus began spreading, many Afghans were in denial even after it became an obvious and deadly crisis in neighboring Iran. Some touted their piety as a shield — they already washed and prayed five times a day. Others joked that the health system had been so bad, the country already so infested with germs and bacteria, that a new invading virus simply could not make it far.
  • That denial is crumbling now, as the 21st positive case has been announced in the country. Testing remains extremely limited — only roughly 250 tests have been conducted thus far — so Afghan officials and lawmakers fear that the number of infected is much higher in the absence of capacity to detect and slow the spread of the virus.
  • The virus is spreading at a time of raging war and a political crisis that has stalled governance in Afghanistan. Impoverished, with its health and nutrient systems gutted by the conflict, the country has always been extremely vulnerable. The virus could also derail efforts to start direct talks between the Afghan government and the Taliban.
  • The direct negotiations were scheduled to begin on March 10, with Qatar, Norway, and Germany talked about as likely hosts of the talks. Now, between the ongoing political crisis in Kabul and the advent of travel restrictions around the world because of the coronavirus, it is unclear when the talks could start even if the Afghan government side got back on track.
  • Foreign Affairs – James Dobbins / Peace hasn’t broken out in Afghanistan

The Economist / The low price of oil will test governments in the Middle East and Africa

  • Politicians love oil. Selling it generates easy money for governments; much easier than taxing citizens, who might then demand services, democracy and good governance. Petrodollars also lubricate patronage networks. They can be used to buy votes, silence rivals or, if that fails, fund a comfortable retirement abroad.
  • So when the price of oil fell by about 30% on March 9th, to below $32 a barrel, many politicians were aghast. Oil prices crashed because covid-19 cut global demand and Saudi Arabia opened its taps to crush high-cost producers. The consequences for other oil-pumping nations will be economic pain and hard choices. The pain will be felt in broad swathes of the Middle East and Africa.
  • The most immediate impact will be on government budgets. Start in Nigeria, where oil accounts for roughly 90% of exports and two-thirds of government revenue. Its budget was based on an oil price of $57 a barrel. Oman’s 2020 budget predicted a deficit of 8% of GDP even with oil at $58 a barrel. Prices at $30 would send the deficit as high as 22%.
  • Bahrain, a middling producer that nonetheless relies on oil for around 75% of public revenue, had hoped to balance its budget by 2022. Low oil prices will be even more painful in Iraq, which relies on the black stuff for 90% of government revenue. The country is gripped by political paralysis.
  • Middle East Eye – Amandla Thomas-Johnson / Coronavirus: Africans accuse Europeans of ‘coronising’ continent

Bloomberg – Ewa Krukowska / Viral crisis puts Europe’s Green Deal ambitions to shock test

  • The economic shocks coming from the coronavirus outbreak are likely to push European Union’s green ambitions down the political agenda. The project to make Europe the first climate-neutral continent requires an unprecedented overhaul of the economy and energy system that will take years. That’s up against immediate risks to public health and the risk of a deep recession.
  • The viral crisis may well complicate and overshadow the 27-nations union’s effort to set tighter environment targets and channel of billions euros into green projects this year. “I see risks and opportunities,” said Simone Tagliapietra, researcher at the Brussels-based Bruegel think-tank.
  • “The risk is that, in order to respond to this crisis, governments will need to massively scale up their fiscal expenditure and therefore direct resources that potentially in peaceful times could have been utilized for decarbonization toward the solution of this more urgent issue.” Europe wants to eliminate greenhouse gas emissions by the middle of the century under its far-reaching Green Deal strategy.
  • The news isn’t different outside Europe, with the United Nations canceling all face-to-face climate meetings at least until the end of April. Five years on from the Paris climate agreement, 2020 was expected to be the year of action. The virus and ensuing economic crash might cause a temporary dip in global emissions, but that’s no substitute for long-term planning.
  • The Guardian – Jillian Ambrose / Global Witness accuses UK of ‘rank hypocrisy’ on fossil fuel projects

Today’s analysis:

The selected pieces do not necessarily reflect the views of Javier Solana and EsadeGeo. The summaries above may include word-for-word excerpts from their respective pieces.

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