TEHRAN (Iran News) Forecasts indicate a drop in U.S. growth to the range of 1.7% to 2.2%, and in the Eurozone to around 1.5%. Moreover, corporate debt has reached $22.1 trillion, with nearly half of that debt at risk of a credit downgrade. In the United States, consumer debt has risen to $16 trillion, and credit card debt has reached $1 trillion. The debt-to-income ratio has climbed to 145%, indicating growing financial pressure on households.

Although global inflation is projected to decrease from 4% in 2024 to 3.6% in 2025, it remains above the historical averages for the global economy. Food inflation, especially in developing countries, has reached double-digit levels, exacerbating inequality. In the U.S., core inflation remains at 2.8%, and new tariffs may further intensify inflationary pressures.

Stock markets in Europe and the U.S. have experienced sharp declines, while investors have shifted towards safe-haven assets such as gold and the dollar. The cryptocurrency market is also under selling pressure, with many investors liquidating their assets. The trade war between the United States and China, along with heavy tariffs on imports, has disrupted global supply chains and increased production costs. Tensions in the Middle East and the war in Ukraine have also negatively impacted energy markets and economic stability.

Central banks are caught between controlling inflation and preventing economic recession. Some, like the Federal Reserve in the U.S., may consider lowering interest rates, but inflation driven by tariffs is slowing this process. Countries such as Canada and Mexico are at risk of recession due to their dependence on trade with the U.S. China is also facing a slowdown, with growth dropping to around 4%. In Europe, the automotive and banking industries are under growing pressure due to tariffs and the debt crisis.

Under these conditions, the above evidence suggests that the global economy is on the verge of a multidimensional crisis. The combination of heavy debts, high inflation, trade tensions, and financial volatility has created a situation reminiscent of the 2008 crisis. However, monetary and fiscal policies by governments may partially alleviate the severity of the crisis in the consumer sector. If this trend continues, the current crisis could become deeper than previous ones and result in an economic deterioration not seen in the past 80 years.

Iran has only one viable path to escape this crisis: promoting a culture of austerity, reducing household consumption, and cutting government expenses.

Spreading awareness and understanding of the situation will lay the groundwork for national comprehension and cooperation.

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The President made the remarks in the context of Iran’s rights for membership in the World Trade Organization.

The development of non-oil exports is an effective tool for achieving policies on the Economy of Resistance underlined by the Supreme Leader of the Islamic Revolution to fight the US unjust and illegitimate sanctions, the president added.

He stressed that the Government could successfully foil the enemies’ plot to cause famine and economic hardship in the country.

Referring to new conditions created for the process of talks with the countries which had frozen Iranian assets due to the US pressure, the president expressed hope that the conditions would lead to stability in the forex market.

The former US President Donald Trump withdrew unilaterally from the July 2015 nuclear deal in May 2018 and re-imposed sanctions lifted by the UN Security Council Resolution 2231.

Last week, Hassan Rouhani has defended his administration’s deal with the International Atomic Energy Agency after conservatives in parliament called for the judiciary to open a legal case against the president.

Rouhani said that the deal with the IAEA was “artful” in that it fully implemented parliament’s bill restricting IAEA access without opening Iran to accusations of not cooperating with the nuclear watchdog. He accused anyone of “distorting” Iran’s accomplishment in this deal of aiding Iran’s enemies.

Iran’s Supreme Leader Ayatollah Ali Khamenei warned members of the Assembly of Experts about divisions. While he publicly backed the legislation, referring to it as a “good bill,” he said of the parliament’s disagreements with the administration, “These differences are solvable and the two sides must cooperate to resolve them. The differences must not widen, which would show division”

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Trading Market Outlook 2020

It is clear that until the end of 2020, markets will have hinged on COVID-19 spread. Just a few months ago, experts anticipated moderate recovery across the world. Washington finally struck a ‘phase 1’ trade deal with Beijing. Then, economies suffered unparalleled disruption.

The outbreak shocked national systems as one economy after another closed down. Today, borders are shut and markets are panicky. Nobody knows for sure how long the threat will persist. Meanwhile, monetary policies seem to have reached their limits. What are investors to expect?

The Core Question

Medical experts voice different opinions regarding the longevity of COVID-19. Generally, financial growth may resume in the second half of the year. Everything depends on the real duration of the outbreak. We are yet to see grounds for confident predictions.

Currency trading future

Once the virus begins to subside, the US dollar may no longer be a safe haven. On the other hand, currencies like AUD, NZD, CAD, and GBP are expected to get a boost. Right now, they are generally undervalued. Therefore, currency traders may capitalize on the changes by selling their US dollars. Traders looking for opportunities may follow effective FXTM Iran strategies that make trading available even for beginners.

Chinese experience giving hope

Beijing has managed to contain the insidious virus with tough measures. Between March 1 and 18, only ten cases per day were recorded outside of the Hubei province. Similar dynamics are seen in South Korea. Moreover, the fatality rate is mostly correlated with pre-existing conditions and old age, and it is estimated to be under 1%.

If COVID-19 is transitory and contained by July, the world economy may experience recovery in the second half of 2020. Signs of this were already seen in indicators before the pandemic. The previous year had brought loosening in fiscal policies by global central banks. In fact, it was the strongest since 2008. This easing continued even after the outbreak.

To help national economies stay afloat, governments are taking serious fiscal stimulus measures. For instance, the U.S. Treasury is considering a $1.2 trillion stimulus package. This equals 5.5% of the country’s GDP.

UK: FTSE 100 falling

The country has important advantages in comparison with other virus-hit states. First, the government was able to launch fiscal easing without delay. The Bank of England reached the zero-lower-bound. Secondly, over 1% of GDP will be spent on stimulus measures. The FTSE 100 has declined due to three powerful factors:

1. The shift of the Brexit deadline until late 2020,
2. Large involvement of multinational corporations,
3. Big role of energy firms that suffered from the oil price decline.

The market for equity has been showing unimpressive results since the 2016 referendum. This is now exacerbated by the virus, which has caused FTSE 100 to decrease to exceptional lows. This means those who trade market indices may capitalize on the fall.

Eurozone: General Outlook

Outside of Asia, no region has been hit harder. The strong connection to global trade plays a part. Another factor is the inability of the European Central Bank to impose rigid controls. Stimulus measures present a challenge due to the EU fiscal regulations.

With Italy, Spain, and France suffering substantial damage from quarantine, the prospects are bleak. It is likely that other European states will take similar containment steps. All these conditions have caused the Eurozone stock index to plunge. By the middle of March, it had already lost over 35%.

However, there is an upside. Not only is the region likely to dive into a deeper recession than the US. It is also likely to recover sooner. When the virus is finally contained and economies reopen, the Eurozone will be the key global trade beneficiary. During the recovery period, European stocks could show impressive growth. This means stock trading may bring hefty returns closer to late 2020.

US: Credit Crunch Ahead

Based on the containment approach, the nation is poised for a technical recession. In the first two quarters of 2020, a negative growth of GDP is logical. As cash flows weaken, indebted firms will go bankrupt, triggering a credit crunch nationwide. As for now, the pain is moderate. For instance, on March 19, the S&P 500 was 29% lower than this year’s peak. CFDs on the index will eventually gain value, so it is advisable to hold, rather than sell.

The Federal Reserve has announced a set of measures to offset the recession. These include emergency easing, asset purchases, and the alphabet soup of lending programs expected to improve financial conditions. Additionally, the U.S. Treasury and Congress could agree on emergency funding channels to help industries where liquidity is most needed.

Japan: Temporary Index Jump

The national economy is shaky due to the colossal typhoon and VAT increase. With pandemic in full swing, the recession is inevitable. The government has started stimulus measures.

The Bank of Japan is buying more bonds and ETFs. Emergency fiscal measures are expected soon. Overall, Japan is likely to suffer substantial damage due to constant deflation. However, the Chinese trade deal has had favorable effects. In mid-April, the Nikkei 225 reached its highest close since March 10. Exports and imports have fallen less than expected.

Gross Domestic Product

Globally, GDP is unlikely to turn positive soon. Moreover, it may remain negative until late  2020. Containment schemes have essentially shut down entire economies. Therefore, it is hard to say when a positive range will be reached.

We are seeing more and more cases of infection and deaths daily. This may call for imposing more severe measures. Meanwhile, pressure in the credit market could trigger a default domino effect. Liquidity is also likely to deteriorate across investment markets.

The key takeaway

Some experts say this is the best time to buy stocks. Given the extensive market decline, the approach sounds reasonable. In the coming weeks and months, we are likely to see further dips and low-range fluctuation. However, in the long-term, markets do revert to their average. Hence, buy-and-hold scenarios look solid. Meanwhile, day traders may capitalize on momentary ups and downs.

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Since then, COVID-19 risks have been priced so aggressively across various asset classes that some fear a recession in the global economy may be a foregone conclusion.

Business leaders are asking whether the market drawdown truly signals a recession, how bad a COVID-19 recession would be, what the scenarios are for growth and recovery, and whether there will be any lasting structural impact from the unfolding crisis.

In truth, projections and indices won’t answer these questions. Hardly reliable in the calmest of times, a GDP forecast is dubious when the virus trajectory is unknowable, as are the effectiveness of containment efforts, and consumers’ and firms’ reactions. There is no single number that credibly captures or foresees COVID-19’s economic impact.

Instead, we must take a careful look at market signals across asset classes, recession, and recovery patterns, as well as the history of epidemics and shocks, to glean insights into the path ahead.

What markets are telling us

Last week’s brutal drawdown in global financial markets might seem to indicate that the world economy is on a path to recession. Valuations of safe assets have spiked sharply, with the term premium on long-dated US government bonds falling to near record lows at negative 116 basis points — that’s how much investors are willing to pay for the safe harbor of US government debt.

As a result, mechanical models of recession risk have ticked higher.

Yet, a closer look reveals that a recession should not be seen as a foregone conclusion.

First, take valuations of risk assets, where the impact of COVID-19 has not been uniform. On the benign end, credit spreads have risen remarkably little, suggesting that credit markets do not yet foresee funding and financing problems. Equity valuations have conspicuously fallen from recent highs, but it should be noted that they are still elevated relative to their longer-term history.

On the opposite end of the spectrum, volatility has signaled the greatest strain, intermittently putting implied next-month volatility on par with any of the major dislocations of the past 30 years, outside of the global financial crisis.

Second, while financial markets are a relevant recession indicator (not least because they can also cause them), history shows that bear markets and recessions should not be automatically conflated.

There is no doubt that financial markets now ascribe significant disruptive potential to COVID-19, and those risks are real.

But the variations in asset valuations underline the significant uncertainty surrounding this epidemic, and history cautions us against drawing a straight line between financial market sell-offs and the real economy.

What would a COVID-19-induced economy recession look like?

Though market sentiment can be misleading, the recessionary risk is real. The vulnerability of major economies, including the US economy, has risen as growth has slowed and the expansions of various countries are now less able to absorb shocks. In fact, an exogenous shock hitting the US economy at a time of vulnerability has been the most plausible recessionary scenario for some time.

Recessions typically fall into one of three categories:

• Real recession: Classically, this is a CapEx boom cycle that turns to bust and derails the expansion. But severe exogenous demand and supply shocks — such as wars, disasters, or other disruptions — can also push the real economy into a contraction. It’s here that COVID-19 has the greatest chance to infect its host.
• Policy recession: When central banks leave policy rates too high relative to the economy’s “neutral” rate, they tighten financial conditions and credit intermediation, and, with a lag, choke off the expansion. This risk remains modest — outside of the US, rates are already rock bottom or even negative, while the Federal Reserve has delivered a surprise cut of 50 basis points. Outside of the monetary policy response, the G7 finance ministers have also pledged fiscal support.
• Financial crisis: Financial imbalances tend to build up slowly and over long periods of time, before rapidly unwinding, disrupting financial intermediation and then the real economy. There are some marked differences globally, yet in the critical US economy, financial crisis risks are difficult to point to. Some commentators point to the bubble in corporate credit, as seen in significant issuance and tight spreads. Yet, we struggle with the subprime analogy of the last recession, as corporate credit neither funds a real economy boom (as subprime did with housing) nor is the debt held on banks’ balance sheets. Both factors limit the systemic risk of a potential shakeout in credit, though this risk can’t be dismissed entirely. It’s difficult to see COVID-19 contributing to financial imbalances, but stress could arise from cash flow strains, particularly in small and medium enterprises (SMEs).

Looking at this taxonomy, and again at history, there is some good news in the “real economy” classification. Though idiosyncratic, real recessions tend to be more benign than either policy recessions or those induced by the financial crisis, as they represent potentially severe but essentially transient demand (or supply) shocks. Policy recessions, by contrast, can be, depending on the size of the error, severe. In fact, the Great Depression was induced by perhaps the largest policy error ever. And financial crises are the most pernicious kind since they introduce structural problems into the economy that can take a long time to be corrected.

What is the likely recovery path?

Whether economies can avoid the recession or not, the path back to growth under COVID-19 will depend on a range of drivers, such as the degree to which demand will be delayed or foregone, whether the shock is truly a spike or lasts, or whether there is structural damage, among other factors.

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TEHRAN (Iran News) – The central bank of Singapore on Sunday said it had advised financial institutions in the city-state to take additional measures and precautions after the government raised its virus alert level.

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TEHRAN (Iran News) – With tens of millions of Chinese people quarantined inside their cities and thousands of factories closed, it is already clear that the coronavirus is about to sideswipe the global economy.

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TEHRAN (Iran News) – The head of the International Monetary Fund has warned that the global economy risks a return of the Great Depression, driven by inequality and financial sector instability.

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The world is facing three existential crises: A climate crisis, an inequality crisis and a crisis in democracy. Will we be able to prosper within our planetary boundaries? Can a modern economy deliver shared prosperity? And can democracies thrive if our economies fail to deliver shared prosperity? These are critical questions, yet the accepted ways by which we measure economic performance give absolutely no hint that we might be facing a problem. Each of these crises has reinforced the fact that we need better tools to assess economic performance and social progress.

The standard measure of economic performance is gross domestic product (GDP), which is the sum of the value of goods and services produced within a country over a given period. GDP was humming along nicely, rising year after year, until the 2008 global financial crisis hit.

The global financial crisis was the ultimate illustration of the deficiencies in commonly used metrics. None of those metrics gave policymakers or markets adequate warning that something was amiss. Though a few astute economists had sounded the alarm, the standard measures seemed to suggest everything was fine.

Since then, according to the GDP metric, the US has been growing slightly more slowly than in earlier years, but it’s nothing to worry about. Politicians, looking at these metrics, suggest slight reforms to the economic system and, they promise, all will be well.

In Europe, the impact of 2008 was more severe, especially in countries most affected by the euro crisis. But even there, apart from high unemployment numbers, standard metrics do not fully reflect the adverse impacts of the austerity measures, either the magnitude of people’s suffering or the impacts on long-term standards of living.

Nor do our standard GDP measures provide us with the guidance we need to address the inequality crisis. So what if GDP goes up, if most citizens are worse off? In the first three years of the so-called recovery from the financial crisis, about 91 percent of the gains went to the top one percent. No wonder that many people doubted the claims of politicians who were then saying the economy was well on the way to a robust recovery.

For a long time I have been concerned with this problem — the gap between what our metrics show and what they need to show. During the Clinton administration, when I served as a member and then chairman of the Council of Economic Advisers, I grew increasingly worried about how our main economic measures failed to take into account environmental degradation and resource depletion. If our economy seems to be growing but that growth is not sustainable because we are destroying the environment and using up scarce natural resources, our statistics should warn us. But because GDP didn’t include resource depletion and environmental degradation, we typically get an excessively rosy picture.

These concerns have now been brought to the fore with the climate crisis. It has been three decades since the threat of climate change was first widely recognized, and matters have grown worse faster than initially expected. There have been more extreme events, greater melting of glaciers and greater natural habitat destruction.

It is clear that something is fundamentally wrong with the way we assess economic performance and social progress. Even worse, our metrics frequently give the misleading impression that there is a trade-off between the two; that, for instance, changes that enhance people’s economic security, whether through improved pensions or a better welfare state, come at the expense of national economic performance.

Getting the measure right — or at least a lot better — is crucially important, especially in our metrics- and performance-oriented society. If we measure the wrong thing, we will do the wrong thing. If our measures tell us everything is fine when it really isn’t, we will be complacent.

And it should be clear that, in spite of the increases in GDP, in spite of the 2008 crisis being well behind us, everything is not fine. We see this in the political discontent rippling through so many advanced countries; we see it in the widespread support of demagogues, whose successes depend on exploiting economic discontent; and we see it in the environment around us, where fires rage and floods and droughts occur at ever-increasing intervals.

Fortunately, a variety of advances in methodology and technology have provided us with better measurement tools, and the international community has begun to embrace them. What we have accomplished so far has convinced me and many other economists of two things: First, that it is possible to construct much better measures of an economy’s health. Governments can and should go well beyond GDP. Second, that there is far more work to be done.

As Angel Gurría, secretary general of the Organization for Economic Cooperation and Development, has written: “It is only by having better metrics that truly reflect people’s lives and aspirations that we will be able to design and implement ‘better policies for better lives’.”

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