Covid-19 impact: 195 mn full-time workers may lose jobs globally, says ILO

The coronavirus pandemic is expected to erase 6.7 per cent of working hours globally during July-December, 2020 - equivalent to 195 million full-time workers, which far exceeds the effects of the 2008-09 financial crisis, the International Labour Organization (ILO) warned on Tuesday.

Large reductions are foreseen in the Arab states (8.1 per cent, equivalent to 5 million full-time workers), Europe (7.8 per cent, or 12 million full-time workers) and Asia and the Pacific (7.2 per cent, 125 million full-time workers).

Huge losses are expected across different income groups, especially in upper-middle income countries (7 per cent, 100 million full-time workers), said the ILO.

"Workers and businesses are facing catastrophe, in both developed and developing economies. We have to move fast, decisively, and together. The right and urgent measures could make the difference between survival and collapse," Guy Ryder, ILO's Director-General, said in a statement.

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The sectors most at risk include accommodation and food services, manufacturing, retail, and business and administrative activities.

The eventual increase in global unemployment during 2020 will depend substantially on future developments and policy measures.

"There is a high risk that the end-of-year figure will be significantly higher than the initial ILO projection, of 25 million," said the ILO report titled "LLO Monitor 2nd edition: COVID-19 and the world of work".

More than four out of five people (81 per cent) in the global workforce of 3.3 billion are currently affected by full or partial workplace closures.

According to the new study, 1.25 billion workers are employed in the sectors identified as being at high risk of "drastic and devastating" increases in layoffs and reductions in wages and working hours.

Many are in low-paid, low-skilled jobs, where a sudden loss of income could be devastating, said the ILO report.

Worldwide, 2 billion people work in the informal sector (mostly in emerging and developing economies) and are particularly at risk.

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"This is the greatest test for international cooperation in more than 75 years," said Ryder.

"If one country fails, then we all fail.

We must find solutions that help all segments of our global society, particularly those that are most vulnerable or least able to help themselves," Ryder added.

The pandemic will also have a severe impact on India. The report added that about 400 million workers in India, working in the informal economy, are at risk of falling deeper into poverty during the Covid-19 pandemic crisis. ILO said that particularly in low- and middle-income countries, hard-hit sectors have a high proportion of workers in informal employment and workers with limited access to health services and social protection. Without appropriate policy measures, workers face a high risk of falling into poverty and will experience greater challenges in regaining their livelihoods during the recovery period.

The 'fire and ice' decade that changed everything on Wall Street

It started with animal spirits left for dead by the financial crisis. It’s set to finish with stocks near records, volatility vanquished and the credit supercycle on steroids. This is the tale of global markets over a decade of “fire and ice.”

In the 2010s traders braved everything from the sovereign meltdown in Europe and populist rage to “Volmageddon” and the shale revolution. Political earthquakes, shaky corporate earnings and credit shocks all came for the bull market. Central banks saved the day.

Meanwhile, Donald Trump began the era as a reality TV star and will finish it as president and Tariff Man, with his America First agenda whipsawing billions of dollars in investment flows around the world. It all leaves investors dodging political bombs, recession fears and disappearing yields even as they close out the decade with some of best gains in a generation. Here is how the past 10 years has transformed the major asset classes.

Bonds: return-free risk

From risk-free return to return-free risk: The world of fixed income got turned upside down as bears went into extinction and every sell-off proved little more than a head-fake.

At its peak a record $17 trillion stockpile of negative-yielding securities roiled global markets in 2019 — spurring capital gains for holders while saddling the likes of pension funds with loss-making investments down the road. Benchmark 10-year Treasury yields are a shadow of their former selves, with those in Germany and Japan at epic lows. Thank demographics, growth angst, vanishing inflation, or monetary interventions.

“These yields echo that the ghost of the Great Recession is still continuing to circulate through global capital markets,” said Jack Malvey, a debt veteran and former chief global fixed-income strategist at Lehman Brothers Holdings.

The Bloomberg Barclays Global Aggregate Treasuries index has returned some 5 per cent in 2019 alone through late December. It’s gained more than 19 per cent since the start of 2010. Today coupons are paltry, if they exist at all. Further price gains look unlikely given the fierce starting point for valuations at the close of 2019.

FX: King Dollar

The biggest danger in global finance this decade landed with the euro-area crisis, which threatened to wipe out the most ambitious currency project in history.

High levels of government debt, soaring bond yields and a collapse in confidence pushed nations in Europe’s periphery to the brink of bankruptcy. Greek yields soared past 40 per cent at one point in 2012 while those on Italian, Portuguese and Spanish securities also surged. It took a massive restructuring package and the famous “whatever it takes” declaration from then European Central Bank President Mario Draghi to stave off disaster. But big institutional frailties remain, like the conspicuous lack of a fiscal framework and full banking union. With high debt levels across much of the region and interest rates already at historic lows, the threat of another crisis remains very real.

By contrast the dollar’s status as the world’s premier reserve currency looks as strong as ever, defying post-crisis fears that the center of monetary gravity would shift from America to China. The greenback accounts for some 60 per cent of global foreign exchange reserves, around the same as late 2009 though below 2015 levels.

That’s little solace for traders who rely on price swings to make money. While the global currency market has grown by more than a third to $6.6 trillion since 2010, volatility has plummeted. “It was pretty much a decade of fire and ice,” said Ned Rumpeltin, European head of foreign-exchange strategy at Toronto Dominion Bank.

There were flare-ups: Flash crashes hit currencies including the British pound and the South African rand, prompting the Bank for International Settlements to warn of danger ahead when volatility roars back to life.

Stocks: Unstoppable Bull

Events like the 2015 yuan devaluation and the 2018 risk rout gave stock bulls a scare, but in the first decade to dodge a US recession since records began it wasn’t enough to break them. American stocks were ground zero for animal spirits, trouncing developed-market competitors. Adjusted for volatility risk, gains in the S&P 500 index since December 31, 2009 look poised to be the highest of any decade since at least the 1950s.

In dollar terms the Stoxx Europe 600 has posted only a third of the S&P 500’s total returns of more than 250 per cent this decade. The region’s large exposure to beleaguered value shares, political risk from Brexit to Italian populism, and the absence of hot tech companies all played a role. Europe has suffered the biggest outflows among major markets, losing about $100 billion this year alone.

Credit: Leverage Monster

Global corporate debt has nearly doubled this past decade, defying the oil-price crash and memories of the credit crisis. It became a seller’s market like never before: Negative-yielding corporate bonds surpassed $1 trillion in 2019, companies sold longer-duration debt and issuers dispensed with clauses to protect investors. Corporate bond buyers today are getting vanishing premiums, close to record interest-rate risk and hefty leverage to boot.

Crude: Awakening

Oil may have spent the first half of the decade dancing around $100 a barrel, but the crash in 2014 told the story that would define global commodity markets for years to come: The shale revolution is here to stay.

“The US has disrupted the industry in a way that was never expected,” said Abhishek Deshpande, head of oil market research at JPMorgan Chase & Co. American supply has bestowed the market with a game-changing buffer in the face of civil wars, terrorist attacks and military conquests.

A drone strike in September shut down half of Saudi Arabia’s production in the single biggest disruption in the oil market’s history, yet investor reaction was largely sanguine after the initial shock.

Citigroup recently pegged geopolitical risk at its highest in 15 years while WTI prices for 2019 are set for their fourth-lowest average of the decade. Looming over the market is China’s easing appetite for commodities to feed its export-led economic model.

Emerging Markets: Alpha Male

What unites Argentina, India, Ivory Coast, Pakistan, Philippines and Saudi Arabia? At first blush, very little. It takes India hardly any time to produce the full-year gross domestic product of Ivory Coast. The sky-high inflation rates of Argentina contrast with negative price-growth in Saudi Arabia. Pakistan has never enjoyed the leadership continuity common among peers. Yet global investors have made billions over the past decade casting these markets in a similar vein in a key respect: They are in effect one-man shows.

Think Narendra Modi of India, Mohammed bin Salman of Saudi Arabia, Rodrigo Duterte of the Philippines, Recep Tayyip Erdogan of Turkey, Vladimir Putin of Russia. These men and others helped set the terms for the asset class in the 2010s.

Despite progress made this decade to beef up fiscal, trade and currency regimes, developing economies remain acutely prone to capital volatility, social unrest, and inflation flare-ups. A year’s gains can be wiped out in a week. A stable leader can make all the difference in pushing through reforms and maintaining order, rewarding investors with triple-digit returns along the way. So-called key man dependence is not without huge risks given the endless political games — a threat looming over markets of all stripes in the 2020s. Meanwhile, the US stock indexes rose slightly on Friday, continuing a year-end record rally that has been fueled by optimism over a US-China trade truce and an improving global economy. The benchmark S&P 500 index is about half a percentage point shy of logging its best year since 1997.

Infra to banks: What will it take to fix Indian finance after the crisis

Thirty years ago, India endured its last big financial crisis when it had to send gold held in the central bank’s vaults over to London to borrow hard currency from the Bank of England. Luckily, the flights landed safely, and so did India.

The turnaround in economic thinking triggered by that balance-of-payments humiliation saw the state shed controls on production and imports. The emergence of a globally attuned software services industry as well as vibrant capital markets—which India opened up to the world faster than China—helped spawn entrepreneurship and create a middle class. Hundreds of millions were lifted out of poverty; the 1990-91 crisis became the starting point of two decades of rising prosperity.

All that progress is now at risk because of a very different failure. Growth is crashing. Jobs have gotten scarce. Investments have cratered. Profits have vanished. Tax collections are low; government deficits high. Debt has surged, but there isn’t enough loss-absorbing cushion either on corporate balance sheets or with financial intermediaries to allow orderly deleveraging. India isn’t in the midst of an external crisis. It’s grappling with a vicious internal cycle of defaults.

ChartMore crucially, what’s missing is the national determination of the 1991 reforms. Economist Manmohan Singh, then a newly appointed finance minister who later became premier, invoked Victor Hugo in his budget speech: “No power on earth can stop an idea whose time has come… the emergence of India as a major economic power in the world happens to be one such idea.”

Unlike Singh, current Prime Minister Narendra Modi is a career politician who won a resounding popular mandate in 2019 for a second five-year term. There’s no dearth of slogans and goals—such as a $5 trillion economy by 2024 from under $3 trillion now. Yet except for a recent move to make India a low-tax enclave for manufacturing units fleeing the U.S.-China trade war, there isn’t much of a plan in place. It’s not even clear if a search for enduring solutions will get under way in 2020, or if the economy will just muddle through.

Today’s problems result from past successes. In a withering critique of what he calls a “finance-construction growth model,” Princeton University economist Ashoka Mody has rightly blamed India for ignoring labor-intensive manufacturing. The country has shortchanged its blue-collar workers, especially women, whose participation rate in the workforce has swooned. A nation of 1.3 billion people is producing only what 150 million affluent customers want.

With rampant automation everywhere, a bulging low-cost labor force isn’t the advantage it once was. Even in software exports, cloud computing and digital technologies have diminished the value of work done by Infosys Ltd. and Tata Consultancy Services Ltd. engineers in maintaining bulky enterprise software for global corporations. Can India in the 2020s try to reinvent its finance-construction model so that it works for everyone and not just for a few thousand financiers in Mumbai? Here are some ideas.

First, India must reinvent infrastructure financing. The sudden collapse of highly rated infrastructure operator-financier-owner IL&FS Group in September 2018 was the last straw. The nation was already reeling under a disastrous 2016 ban on 86% of the currency in circulation. Modi’s demonetization failed in its goal of freezing out ill-gotten wealth: It depressed consumption and pauperized farmers and tiny businesses instead. Then came a botched-up goods and services tax in 2017. After IL&FS went under, the economy gave up.

IL&FS was a monster. To ensure a cash-strapped government never again allows another cabal to exploit India’s hunger for roads, power plants and sewage disposal units for private riches, the country should adopt the Australian model of asset recycling. This means privatizing existing infrastructure, including power grids, government land, roads and commercial real estate, with an explicit promise to use the proceeds to build new public assets. That will make privatization politically palatable.

Tap long-term money. Rather than being stuck with defaulted bonds of IL&FS, India’s Employee Provident Fund should be owning revenue-generating domestic hard assets alongside the likes of AustralianSuper Pty and the Ontario Teachers’ Pension Plan, and India’s own fledgling National Investment and Infrastructure Fund Ltd.

Having enough public funds to invest means being able to employ the private sector as contractors. Partnerships, in which the private sector shares the risk of building new assets, don’t have a great track record in India. They lead to inflated costs, corruption, and disputes. As a high court judge noted about an IL&FS-backed water supply project: “Water started flowing (or trickling down) to the common users, both industrial and domestic, in May 2005. What flowed thereafter appears to be only litigation.”

A new model for infrastructure, supported by more flexibility to companies when it comes to acquiring land or engaging labor, would give India a shot at large-scale manufacturing — for domestic markets as well as exports.

Chart

However, there’s a shortage of income and savings. Channeling meager resources to productive activity via deposit-taking banks may have been the only way after India disbanded its development finance institutions. That didn’t work well, as is clear from the $200 billion-plus pile of dud corporate loans on banks’ books. Nor did switching credit delivery to nonbanks—which rely on wholesale funding—produce desired results. Shadow financiers gave too many loans to developers for homes that never got built. Capital markets became casinos where brokers lure day-traders with additional leverage on already-leveraged derivative products.

Not many of India’s one dozen state-run banks will survive. Technology will render their deposit-taking privilege obsolete over the coming decade. A lender’s expertise will lie in using big data to find customers with stable cash flows, originating credit against those cash flows, and selling to investors. This is the model that shadow financiers, caught napping making loans for long-term assets using short-term borrowings, are gravitating toward. India should give them a nudge.

The part of India’s finance-construction growth that survives will be worth saving. It may be no less important to the country’s future than the software firms of the 1990s that had honed their skills on domestic projects like computerization of railway tickets. They hit the global scene once the Y2K millennium-change scare stoked demand.

Coming out of the current crisis is priority. But without trying to pick winners, India should also be getting its financial industry ready for the opportunities the 2020s may have in store.

Deutsche Bank's biggest overhaul to cost 7.4 bn euro; 18,000 jobs to go

Deutsche Bank is to axe vast swathes of its trading desks in one of the biggest overhauls to an investment bank since the aftermath of the financial crisis, in a restructuring that will see 18,000 jobs go and cost 7.4 billion euros.

The plan represents a major retreat from investment banking by Deutsche Bank, which for years had tried to compete as a major force on Wall Street.

As part of the overhaul, the bank will scrap its global equities business, scale back its investment bank and also cut some of its fixed income operations, an area traditionally regarded as one of its strengths.

The bank will set up a new so-called "bad bank" to wind-down unwanted assets, with a value of 74 billion euros of risk-weighted assets.

The depth of the restructuring shows that Deutsche is coming to terms with its failure to keep pace with Wall Street's big hitters such as Goldman Sachs and Goldman Sachs.

The cuts were foreshadowed on Friday, when the head of Deutsche's investment bank Garth Ritchie agreed to step down.

Chief Executive Officer Christian Sewing, who now aims to focus on the bank's more stable revenue streams, said it was the most fundamental transformation of the bank in decades. "This is a restart," he said.

"We are creating a bank that will be more profitable, leaner, more innovative and more resilient," he wrote to staff.

Sewing will now represent the investment bank on the board in a shift that illustrates the divisions's waning influence.

The CEO had flagged an extensive restructuring in May when he promised shareholders "tough cutbacks" to the investment bank. This followed Deutsche's failure to agree a merger with rival Commerzbank.

Some investors were cautious about the turnaround plan.

Michael Huenseler, head of credit portfolio management at Assenagon Asset Management, said a lot had to go right for the plan to be successful.

"The margin for error is...low," he said.

Union Investment portfolio manager Alexandra Annecke said the steps were long overdue and noted that the bank's aim to bring down its cost-to-income ratio to 70% was not ambitious compared with international competitors.

JOB CUTS

Soon after becoming CEO last year, Sewing started to cut jobs and promised to bring staffing "well below" 90,000. There were media reports from Reuters and others that Deutsche Bank could cut as many as 20,000 jobs -- more than one in five of its 91,500 employees.

In the event, the bank said it would reduce headcount to 74,000 by 2022.

Deutsche bank gave no geographic breakdown for the job cuts. The equities business is focused largely in New York and London.

A person with direct knowledge of the matter said job cuts would be distributed around the world, including in Germany.

Stephan Szukalski, head of the DBV union, told Reuters that the measures were in the right direction, echoing the sentiment of the Verdi labour union.

"This could be a real new beginning for Deutsche Bank," said Szukalski, who also sits on the bank's supervisory board.

The board met on Sunday to agree the proposed changes, one of the biggest announcements of job cuts at a major investment bank since 2011 when HSBC said it would axe 30,000 jobs.

Deutsche said it expects a 2.8 billion euro ($3.1 billion) net loss in the second quarter as a result of restructuring charges and loss for the full year.

Deutsche will have been in the red for four out of the five last years. Its shares fell to a record low last month.

Founded in 1870, Deutsche has long been a major source of finance and advice for German companies seeking to expand abroad or raise money through the bond or equity markets, a role which had the tacit backing of successive governments in Berlin.

Big cuts to its investment bank could make it harder for the bank to fulfil this role and would mark a reversal of a decades-long expansion that began with its purchase of Morgan Grenfell in London in 1989 and continued a decade later by a takeover of Bankers Trust in the United States.

The investment bank generates about half of Deutsche's revenue but is also a volatile business.

Revenue at the division was forecast to fall to 12.4 billion euros this year, according to a consensus of analysts ahead of Sunday's announced changes. That would mark a fourth consecutive year of decline, down more than 30% from 2015.

In the restructuring, Sewing let go two other members of the management board - head of regulation Sylvie Matherat and head of retail Frank Strauss - and brought in some newcomers.

He also created a corporate bank to streamline services offered throughout the bank, something Sewing called a "core strength".