Global economy may face new crisis

Global economy may face new crisis

Most economists foresee a gloomy future for the global economy.

The coronavirus pandemic only increases the chance that the worst predictions will come true. There are only several positive forecasts. Almost all economists, including Carmen Reinhart, World Bank Vice President and Chief Economist, expect a new crisis.

“This did not start as a financial crisis but it is morphing into a major economic crisis, with very serious financial consequences,” Reinhart said after the G20 countries agreed to extend the suspension of debt payments by an additional six months to support the poorest countries in their fight against the coronavirus pandemic.

In fact, the situation is rather strange. China, where the coronavirus outbreak initially occurred, should have received 60% of all debt payments from the poorest countries in 2020. Countries most in need had to take a lot of loans despite untransparent conditions. Moreover, interest rates are much higher than in the World Bank.  That is why China’s refusal to participate in the debt relief program of the poorest countries causes a lot of questions. Zambia, one of the Chinese borrowers, may declare a default in the near future. This will surely happen if investors, which own the country’s obligations worth $3 billion, reject the authorities' request to suspend payments.


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