(Bloomberg) -- The global economy hasn’t looked this fragile since the Great Depression of the 1930s, according to Harvard University economist Carmen Reinhart.
That was the last time the world witnessed a sustained downturn in both emerging markets and their developed-nation counterparts, she said. As a result, it would be difficult to bet on a short-term rebound in assets, like when riskier securities snapped back after the 2008 global financial crisis or when developed markets performed relatively well during the Latin American debt crises of the 1980s, she said.
“Today is reminiscent of the 1930s,” Reinhart said in an interview on Tuesday from her home in St. Petersburg, Florida, where she relocated after Harvard pivoted to online learning. “The slump in commodities, the crash in global trade and synchronization of recessions is more like then than any time.”
The Cuba-born economist said she expects China’s growth rate to turn negative, meaning the world’s second-largest economy will be less willing to lend to nations in Latin America, Africa and Asia. Emerging markets already appeared weaker as a whole than the global financial crisis based on their reserves, growth rates and commodity prices.
She said the double whammy of the coronavirus and the Saudi-Russia oil price war is the “kiss of death” for producers like Ecuador, Angola and Algeria. It will also inevitably delay debt restructuring processes from Argentina to Lebanon and lead corporate defaults to “skyrocket,” according to Reinhart.
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On Monday evening, Ecuador’s Finance Minister Richard Martinez said the government would pay bonds maturing today while putting close to $200 million of interest payments on hold, using grace periods to spend the money instead in response to the coronavirus.
“Ecuador will be defaulting,” Reinhart said. “The finance minister’s words are extremely reasonable, but you’re basically hoping oil prices will be higher and the coronavirus will be waning.”
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