02:04 GMT29 May 2020
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    British Airways has announced that it will cut large numbers of its staff in response to the coronavirus pandemic.

    Dr Nafis Alam, Professor of Finance and Head of School of Accounting & Finance at Asia Pacific University of Technology & Innovation (APU), Malaysia, reflects on the possible impact of the coronavirus on both the British and global economies.

    Sputnik: Has the British government done enough to protect the UK’s economy from the impact of the coronavirus pandemic?

    Dr Nafis Alam: It’s a million-dollar question. It all depends on how long this crisis is going to stay, and at the moment there is no end and no hop, given that no vaccine has been created and that deaths are increasing every day. Coming back to the UK economy, it is in tatters, even though the government is trying to help, but it is having a domino effect. If the government doesn’t help individuals or doesn’t help the big corporations, it is going to take a toll on the world economy.

    Even though the Chancellor has promised bailouts for businesses and promised to get them from the banks, the banks are looking from a long term standing, and since there is no end in sight, banks will be reluctant to pay out the money to small and medium-sized businesses, given that many of them depend on logistics coming from all over the world, even from China.

    Until there is a clear insight into when this is going to end, banks will not be in a positive state of mind to lend any money to smaller companies, because the chances of them defaulting will be higher, so it all depends on how much risk the banks want to take, and what the agreement is between the government and the banks, and how much the bailout will be.

    Banks do not want to have a lot of bad loans in their books, so they will have to play it very smart and they will be looking at some type of collateral. It is going to have a catastrophic effect on small and medium-sized businesses, and it is going to continue for quite some time.

    Globally all the markets are suffering, we have seen all the stock markets and bond markets going below the levels of the 2008 crisis, so it is going to have a really damaging impact on the global economy, as well as the UK economy.

    Sputnik: How long can businesses survive for under coronavirus lockdown?

    Dr Nafis Alam: It all depends on how quickly the virus is being contained. We can see the example of Italy which is still going through the second month of its lockdown, China was locked down for two months, and most of the countries including in South East Asia and the subcontinent, are all going for at least three to four weeks in lockdown.

    Until there is a vaccine or there is news that it can be contained; there might be a long term impact, it might even go for the second quarter of the year, until the second half of the year, and maybe in the third quarter things will try to bounce back, but it all depends on how seriously the lockdown is taken.

    Even in the UK people are not taking it seriously, and you can see the magnitude of the daily growth in the UK and the US, it is exponential growth, so everybody has to play their part. What’s happening in the UK is that the government is trying to play its part, but individuals are not co-operating and they are not taking it seriously.

    In the short term the lockdown can be extended, and if it goes on; the chances of companies becoming bankrupt will be higher because they don’t have cash. The maximum small companies can sustain themselves for is for one or two months maximum, and medium-size companies can go for a maximum of three months, so if things don’t improve over the next two to three months; then we are looking at a lot of bankruptcies all over the world.

    Sputnik: Could the global economy bounce back from the coronavirus pandemic by the end of 2020?

    Dr Nafis Alam: Many countries are experiencing internal issues, and they also have to fight against the impact of the coronavirus. If you look into the oil-based economy; they have already experienced the impact of the oil prices, and the closing of the economy due to the Coronavirus.

    The same thing goes for the UK, they just finished officially leaving the EU, and they were looking to expand and negotiate their own trade deals, but given that the Coronavirus is impacting logistic movement across the world, it will have a bad impact on the UK economy.

    The UK was looking at inviting Huawei to establish its 5G technology in the country, but given what China is experiencing, and that people are still scared of dealing with Chinese companies, it is going to have a really devastating impact on the British economy.

    Whatever bailout we will eventually be looking at, these are unprecedented bailouts already, so we have to look at how long the UK can sustain these bailouts, but at the end of the day, it all comes back to saving your own people first.

    Economic activity can always recover, it’s the people of the country that have to be looked out for, so I don’t think any country will take a step backwards in not putting the money to save the people first, and a lot of resources will go towards the containment of the virus.

    If everything goes well, we are definitely looking forward to a good economy in 2021, and maybe by the second quarter of 2020.

    The views and opinions expressed in the article do not necessarily reflect those of Sputnik.

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    British Airways, business, United Kingdom, COVID-19
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