Similarities in the Global trends of 2008 and 2021 (Insights by Nawaz Ali)

In a recent conversation questionnaire with Nawaz Ali, the Head of Insights at Western Union Business Solutions, we could draw few business insights which gave us a better plan for the year ahead.  Topics like Global trades in 2018 and the global trends now, what are the changes visible, what are the new challenges, etc. were discussed.

As we all know 2020 had been a wild year for the global trade sector and with many scenarios forced up to compare this crisis for that which took place in 2008. To which Nawaz Ali commented, “Though both crises were global in nature and had far reaching impacts worldwide, it is important to note that the dynamics of today’s global trade have shifted in the past 12 years. Today, faster digital transformation can help enable the global services trade to counterbalance some of the impact of the protectionist policies, which we typically witness in times of crisis, on the global goods trade. Even so, the recovery of global trade could still be very gradual as these more protectionist behaviors could also keep trade activity near to its lowest level over the past 10 years. Unlike in 2008, this time both global supply and demand factors are at play, so the effects could last longer. Furthermore, this time around the crisis is broad and impacting all sectors whereas in 2008, the crisis was more concentrated in the banking sector.” He also said that the recent vaccine developments had been a crucial turning point and that they had seen a positive impact from it. He said, “If you look towards the recent spike in commodity prices. However, global demand could still remain distressed in 2021 due to corporate insolvency risks and weaker purchasing power of consumers.” In comparison with 2008, the global interest rates had been cut to new historic lows by the central banks and that would underpin both the investment and the support for the recovery.

It is common that, when a crisis hit, the investors rush to safe haven currencies to ease their losses. To comment on this, he said that the Geopolitical difference between now and 2008 were at stark. “Today, the first signs of a capital rotation into risk-prone assets are emerging. With the US-Sino trade war, domestic mismanagement of COVID-19 in the US, and rising global geopolitical tensions, now could be the beginning of a major multi‑year global FX regime change as investors start to look for alternatives for the greenback. Despite the fact investors have failed to find a credible substitute for the dollar since 2010, in this volatile environment it is critical that businesses ensure they understand their FX exposure and have plans in place for every potential scenario.  There is a misconnection between stock markets and the economy.” He conveyed that the investors remaining optimistic about the economy on the horizon has surely helped but at the same time the reality is not the same. He believed that if the long term economic damage rose, this optimism was more likely to fade and weigh on risk‑friendly currencies, including Sterling, and boost safe-havens like the Japanese Yen and Swiss Franc.

“Many other seismic geopolitical issues that should be taken into account when planning for 2021, which will have significant impacts on currency markets, such as Brexit, US-UK trade negotiations and regime change following the US election result, a Joe Biden presidency could have a material impact on the global trade environment.” said when asked about the other pavilion events apart from the Corona virus pandemic which will be taking place in 2021.

To summarize, no matter the business goals, the understanding of their FX risk and exposure should be a part of every business strategy to pivot the speed of success.