December 02, 2022
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    Major virus threat to the world economy

    February 01, 2020

    The spread of coronavirus is the biggest international issue today. Health-wise there are 160 fatalities in China alone with more than 6,000 cases reported, at the time of writing. The view of experts in China and elsewhere is that the cases would rise further in the coming two weeks, with all regions in China having cases. It has also spread to several other countries and has now infected persons in the Middle East. There is also concern about the situation in Africa, which has much Chinese investment.

    Apart from the serious issues of health, there is now growing concern on how this will impact on the global economy. The coronavirus has as its epicentre an economy as large as China and strikes the world economic cycle at a time when a large number of Chinese travel to celebrate the Chinese New Year.

    It seems that there is currently an accelerating daily increase in the number of people being infected, and by now the virus has travelled well beyond China’s borders to even many countries.

    When the SARS outbreak broke out in 2003 the Chinese economy was growing around 11 per cent and would have reduced the Chinese GDP by 2 percentage points. The Chinese economy is now growing at barely 6 per cent or at its slowest rate in the past three decades. The blow being dealt with China’s economy by the coronavirus epidemic is coming on top of those recent heavy blows that it has received from the U.S.-China trade war and from the Chinese government’s attempts to wean the economy from its addiction to rapid credit growth.

    The coronavirus will have a major negative impact on the world travel trade and tourism, with China being among the largest exporters of tourists to the world tourism industry. It has badly impacted internal tourism in China, with so many cities locked down, including Hong Kong. In the coming weeks, it will also affect many foreign countries that have been planning for large tourist arrivals from China, especially in Europe and many parts of Asia.

    Worse yet, in an effort to halt the virus’s spread, it appears that the Chinese authorities have extended the New Year vacation by a full week. It also appears that foreign workers are leaving China in droves, foreign companies are curtailing their Chinese activities and foreign airlines are halting their flights to China.

    Economic analysts are of the view that the last thing that a vulnerable world economy needs now is a further marked economic slowdown in China, the world’s second-largest economy. Germany and the United Kingdom now seem to be on the cusp of an economic recession, the Indian economy is experiencing a major economic slowdown and South America is being roiled by social and political unrest that is casting a dark cloud over that continent’s economic outlook. Even the United States is experiencing a manufacturing slump.

    The main economic risk to the United States from the coronavirus shock is that it might induce lenders around the world to be more cautious in extending credit, and it might cause global investors to become very much more risk-averse. That, in turn, could unsettle global financial markets, which could have a meaningful impact on U.S. domestic investor and consumer confidence.

    It is observed that U.S. economic policymakers may want to downplay the economic risks associated with the coronavirus for fear of creating a self-fulfilling prophecy, vis-a-vis trade issues with China, in the context of the coming presidential poll in the US.

    The world prices of petroleum are coming down due to the fall in demand from China, the drop in air travel, and the cancellation of holidays and business meetings. The international hotel industry is also facing a major threat with the fall in tourism. The overall decline in the patterns of trade are also pointers to a drop in the global economy.

    Mid-East Peace Plan

    President Donald Trump has unveiled the Middle East peace plan with no Palestinian support.

    The long-awaited ‘peace plan’ for the Middle East, relating to Israel and Palestinians has had a divided response from the parties directly involved, with Israel wholly supportive of it, and Palestine condemning it outright.

    President Trump announced the plan, drafted by his son-in-law Jared Kushner, at the White House in the presence of Israeli Prime Minister Benjamin Netanyahu. It gives Israel sovereignty over the Jordan Valley, and the principal Jewish settlements, in the Palestinian region, widely considered illegal under international law, and in compensation for the loss of West Bank territory, offers the Palestinians a large chunk of desert region linked to Gava near the Egyptian border.

    The Israeli leader Netanyahu was praised by President Trump for “having the courage to take this bold step forward” in embracing the plan. Netanyahu called it a “great plan for peace” that will change history, and described Trump as “the greatest friend that Israel has ever had in the White House”.

    The Palestinians territory on offer is a series of cantons linked by bridges and tunnels but surrounded by Israeli sovereign territory – with the exception of a small strip of Gaza. Israel is also to retain “security control” over the entire area west of the West Bank border with Jordan, with the possibility of a military presence inside whatever is left of a future Palestine.

    Palestinian President Mahmoud Abbas wholly rejected the Middle East peace plan stating the Palestinians remain committed to ending the Israeli occupation and establishing a state with its capital in east Jerusalem. “After the nonsense, we heard today we say a thousand no’s to the Deal of the Century”, he said. “We will not kneel and we will not surrender, he said, adding that the Palestinians would resist the plan through peaceful and popular means are open” in responding to Trump’s plan.

    The Islamic militant group Hamas rejected the ‘conspiracies’ announced by US and Israel and said, “We are certain that our Palestinian people will not let these conspiracies pass. So, all options are open. The Israeli occupation and the U.S. administration will bear the responsibility for what they did,” senior Hamas official Khalil al-Hayya said as he participated in one of several protests that broke out across the Hamas-ruled Gaza Strip.

    Khaled Elgindy, a former peace negotiator and adviser to the Palestinian leadership in the 2000s, said the intent was not to end the conflict but to legitimise Israel’s occupation. There is a considerable division in the ME over this peace plan. Iran is wholly opposed to it. Iranian Foreign Minister Mohammad Javad Zarif dismissed the plan as ‘delusional’ and said it will be ‘dead’ on arrival.

    The Gulf States are divided on the plan, with Saudi Arabia and pro-US states supportive, but others being largely silent with concerns about the consequences.

    This peace plan comes while Donald Trump is facing the hearings in the US Senate over impeachment, and will also face a presidential election later this year. The Israeli leader is facing serious charges on bribery and corruption, which he strongly denies, but is also due to face a general election on March 5, the third in less than one year. He expects the peace plan to be supportive of his election campaign in March.

    The EU has called for negotiations on the proposed peace plan, and remains supportive of the UN agreed plans for the two-state solution between Israel and Palestine. PM Boris Johnson of the UK is supportive of the Trump plan.

    The peace situation in the ME is now strongly related to two election campaigns in the US and Israel and could bring about increased conflicts in the region, away from the call for peace.

    Britain’s exit from the EU

    A major change in Western political history was enabled this week when Britain’s departure from the EU this Friday, January 31, was confirmed as Members of the European Parliament in Brussels ratified the withdrawal agreement between the EU and UK, before breaking out in a rendition of Auld Lang Syne.

    President of the European Parliament, David Sassoli, announced the result of the vote, with 621 in favour to 49 against, with 13 abstentions. The vote brings to an end the UK’s 47 years of membership of the EU, after years of troubled talks and uncertainty.

    Sassoli concluded the session by quoting the murdered British MP Jo Cox, who was killed during the 2016 referendum campaign: “We have a lot more in common than divides us.”

    This saw the end of the huge political divide in the UK over membership in the EU, leading to the recent huge electoral victory of the Tories led by Boris Johnson, with a promise to exit from the EU. It opens a whole new phase of European relations, with the EU trying to strengthen its membership, and the UK moving closer to the US.

    Nigel Farage, the leader of the UK’s Brexit Party, one of the strongest advocates of the UK leaving the EU, had left the chamber earlier after being reprimanded for waving a union jack and speaking in terms of his “hate” for the EU, in an intervention. In his final statement to the parliament, where he has been an MEP for 21 years, Farage said: “Once we have left we will not be coming back and the rest is detail … When I walked in here, you all thought it was terribly funny. You stopped laughing in 2017.”

    The debate was emotional at times, and notable for an outpouring of praise for British politicians and civil servants working in the EU’s institutions for driving enlargement and breaking down barriers to trade.

    Ursula von der Leyen, the European Commission president, described Arthur Cockfield, a British Commissioner in the 1980s, as the “father of our single market”. She celebrated the former Labour Chancellor Roy Jenkins for his role in paving the way for the founding of the single currency.

    Discussions between the EU and UK over the future relationship are due to start on March 3, and Von der Leyen made an appeal for the British prime minister to listen to the calls of the UK’s car industry and aerospace to maintain EU standards outside the bloc. It is reported that the EU’s chief negotiator on Brexit, Michel Barnier, had been urged by France during an internal meeting of EU27 diplomats to demand that the UK sign up to dynamic alignment across the board on state aid, environmental, social and labour standards.

    The French argued that the UK could not be given a competitive advantage from which they would reap dividends in the future. Barnier has emphasised that protecting the single market was more important than achieving tariff-free access to the British market for EU goods.

    The issue of competition between the UK and the EU on matters of trade is of rising importance now, and EU Commissioner Von der Leyen has said the EU was offering an unprecedented “zero tariffs, zero quota” deal, but suggested that Britain needed to align on basic standards for that to be achievable.

    “We will certainly not expose our companies to unfair competition. And it is very clear the trade-off is simple...“The more the United Kingdom does commit to upholding our standards for social protections and workers’ rights, upholding our guarantees on the environment and fair competition,” she said.

    The commission president concluded by quoting George Elliot: “Only in the agony of parting do we look into the depths of love. We will always love you and we will never be far,” Von der Leyen said.

    Guy Verhofstadt, the former Prime Minister of Belgium who led for the parliament during much of the last four years since the referendum result, asked MEPs to reflect on what had gone wrong.

    “It is sad to see a country leaving that twice liberated us, (that has) twice given its blood to liberate Europe,” he said. “I think … in this debate we cannot escape a key question: how could this happen?”


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