Credit Suisse: pandemic causes changes in world order

Exchange Rates 25.12.2020 analysis

Experts at Credit Suisse, one of the largest Swiss financial conglomerates, suppose that the pandemic has boosted the development of tendencies in the world order that appeared before the outbreak. This mainly concerns the strengthening of the state by means of budgetary expansion and growing control over citizens.

Can we avoid global inflation?

The global economy has entered a deep recession during the pandemic. Almost all countries have been suffering the economic slump. However, analysts at Credit Suisse think that the economic consequences are not that grave as during the previous pandemics. Of course, the coronavirus led to a smaller number of deaths than, for example, plague or Spanish flu. Young and middle-aged people usually carry the disease much easier than old people. Moreover, nowadays, medicine and science have reached high levels. Notably, mass vaccination was launched just several months after the outbreak. That is why the consequence will hardly be so disastrous as analysts initially thought.

Exchange Rates 25.12.2020 analysis

Nevertheless, leaders of most countries of the world have resorted to various restrictive measures in order to protect the population from the virus. The global economic crisis caused the allocation of a huge amount of fiscal and monetary stimulus. Thus, according to October data from the IMF, states have allocated about $12 trillion to support the economy during the crisis. Many economists believe that such a decision will inevitably lead the world economy to the overall inflation. This view is supported by the fact that the assets of such central banks as the US Fed, the European Central Bank, the Bank of Japan and, the People’s Bank of China jumped by as much as 41.5% in annual terms by November of this year, reaching about $27.9 trillion. Thus, the global money supply M2, namely cash and non-cash funds, as well as other monetary aggregates, suddenly increased against the background of the existing crisis.

Nevertheless, Credit Suisse believes that the growth of the money supply and the consumer price index have not been correlating for more than 30 years. Moreover, it is unlikely that this ratio will recover in the near future. If authorities continue increasing monetary expenditures and the degree of transformation of budget expenditures into consumption, the overall inflation will be inevitable. Credit Suisse experts believe that after the pandemic, the world will recover at a slow pace, and inflation will be barely noticeable. Nevertheless, analysts do not deny that the world may face higher inflation due to the demographic changes or political factors.

Intention to limit dependence between countries

International economic relations as well as the role of multilateral institutions began to disappear even before the pandemic. To date, we can see how this trend has only intensified. That is why President of the United States Donald Trump withdrew American troops from Iraq, Syria, and Afghanistan. He also planned to reduce the military presence in Germany and left several international agreements. At the same time, China is becoming the main opponent of the United States. Thus, it is obvious that economic relations between these countries are becoming sourer.

In other words, most countries are trying to obtain independence from each other. This policy makes countries move back their firms from countries with more lucrative conditions. This, in turn, causes changes in supply chains. As part of this policy, China plans to reduce some projects in Latin America and the Middle East, focusing its influence on Southeast Asia.

States strengthening and “subcutaneous control”

States have expanded their powers during the crisis. In this situation, some state leaders began to make decisions, bypassing parliaments. Credit Suisse experts believe that at the end of the crisis, some political leaders will not want to change their policies. This global practice contributes to the creation of a certain type of citizens who will eventually lose the incentive to compete, expecting financial assistance from the state.

Exchange Rates 25.12.2020 analysis

During the pandemic, most countries began using technologies for control and mass collection of personal data. Thus, even companies began possessing a huge amount of personal information about citizens. Many experts suppose that governments may introduce the so-called “subcutaneous control” over their citizens. We are talking about special technologies that will allow you to collect and analyze information about people’s health. Such technologies may also be used as an influence on voters during democratic elections.

Rising interest in small towns. Social inequality.

During the pandemic, the remote work has become very popular. With a huge number of people in many countries working at home, small towns will be in much greater demand than before.

In addition, in many countries, there is a significant number of vacancies in the informal sector. Such organizations do not provide people with basic social guarantees. During the pandemic, workers in these spheres were primarily at risk of losing their earnings. Credit Suisse experts believe that the need to overcome social inequality will lead to new redistributive taxes.


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