A financial Crisis could emerge from Covid fallout, World Bank Chief Economist warn

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Vaccine distribution is expected to bring an end to the coronavirus pandemic, but households and companies will still face severe debt pressures, Carmen Reinhart, chief economist at the World Bank, said on Sunday, 24th January 2021.

The pandemic is on the cusp of its one-year anniversary, and its fallout is expected to linger until well after cases tumble. What started as a health crisis is now morphing into “your classic balance sheet problems,” Reinhard said. Those strains threaten to keep the global economy from staging a full bounce-back in the near-term.

“Don’t confuse rebound with recovery,” Reinhart said on Bloomberg TV. “A rebound this year still leaves per-capita income below where it was before the crisis. Calling it a recovery is misleading.

Yet Reinhart, who wrote a book on the 2008 financial crisis with famed economist Kenneth Rogoff, doesn’t expect the current downturn to come with a sudden-shock “Lehman moment.” A coronavirus-fueled financial crisis would likely emerge as a less dramatic event and more as a slow crawl, the economist said.

The length of the pandemic is also among Reinhart’s biggest concerns. The US continues to grapple with soaring daily case counts and its most lethal wave of the virus yet. Prolonged lockdowns have already cut into job growth and consumer spending, and the long-term impacts on individuals are becoming increasingly dire, Reinhart said.

“I am very concerned that the longer this goes on, the more strain on balance sheets of individuals, households, of firms, of countries. It’s a cumulative toll,” she added.

“Financial institutions across the globe in varying degrees have also agreed to grace periods. Periods in which businesses and households don’t repay their debts. What happens when those programs come to an end?” the economist said.

 

Credit: Mr Charles Ankomah Darko                               ( Dip.FM, CGIA, BA, MBA)

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