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America is getting ready to fire the biggest “bazooka” in history as it seeks to contain the economic and financial effects of the coronavirus outbreak. The rest of the world, including the Middle East, has to hope it will find its target and be powerful enough to prevent further market meltdown.
Congress is being asked to approve a $2 trillion stimulus package that dwarfs any other such measure by a big margin — double what it spent during the global financial crisis of 2009 and amounting around 10 percent of the GDP of the biggest economy in the world.
The stimulus will include hundreds of billions of dollars’ worth of financial assistance to banks, businesses and smaller enterprises threatened by collapse because of the huge falls in asset values of the past two weeks. It will also include, President Donald Trump has said, big personal checks made out to American households to ensure they get through the coming weeks, and to save the consumer-based US economy.
This idea — so-called “helicopter money” — has been gaining traction in some economies, like Hong Kong, affected by the virus. But it is a novel move for the US, traditionally distrustful of any big intervention in the economy by the federal authorities. It is a measure of the seriousness of the deteriorating health situation that it is now being considered.
Other countries, including in the Middle East, have already introduced stimulus packages to combat the coronavirus emergency. Over last weekend, Saudi Arabia announced an SR120 billion raft of measures to support the economy, which is also dealing with the effects of lower oil revenues. The UAE has also brought in substantial stimulus measures.
All the experts already predict that the world economy will enter a period of recession in 2020, but how long that persists, and whether it sparks a general economic depression, will depend very much on the financial markets’ reaction to the forthcoming American package.
Frank Kane
But the US is the big one, on which the future of the global economy is staked for the coming few months. If the bazooka goes wide of its target, the big stock market losses of recent weeks — which have wiped out nearly all the gains of the Trump presidency — could become even more severe, putting bigger pressure on global debt markets and the financial system in general.
All the experts already predict that the world economy will enter a period of recession in 2020, but how long that persists, and whether it sparks a general economic depression, will depend very much on the financial markets’ reaction to the forthcoming American package.
Against that background, the relatively small losses on regional stock markets on Sunday were pretty insignificant. The indices in Riyadh, Abu Dhabi and Dubai all showed losses, but that is not necessarily a verdict by investors on the stimulus packages put in place by Saudi Arabia and the UAE.
The coronavirus crisis has coincided in the region with the end of the OPEC+ oil pact, the halving of global crude oil prices, and consequent decline in revenue for the regional oil exporters. It is significant that, even as Riyadh was putting the final touches to the stimulus package, the Kingdom’s finance minister was talking on international media of the need to control and reduce government spending on some projects. There has been no talk yet of Saudi “helicopter money.”
Nobody knows how long the standoff in international oil markets will last. On the one hand, the Americans are making unusual noises about the need for stabilization and regulation of supply in the supposedly free market.
On the other, Saudi Arabia appears to have all the preparations in place for a long campaign to win market share with good-value energy products, and could benefit big time from a recovery in the global economic situation.
In the present gloom, that may seem a long way off, but it will start when workers and consumers can leave their homes again for work and resume spending.
The challenge for American policymakers — in finance and in health care — is that they have to take the critical measures now to ensure we can all hold on long enough to see that recovery. The bazooka is loaded and aimed. We will know whether it has hit the spot when Wall Street opens on Monday.
• Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai