The COVID-19 crisis will likely lead to de-globalisation and a fall in US dollar’s dominance in the world, according to Japanese bank Nomura, which recently said some of the global supply chains will move out from China and will shift mostly to Asian nations, with India poised to be the top beneficiary.
Eight of the top 10 countries that would potentially benefit from the dislocation from China are situated in Asia, with India topping the list. India, Singapore, Vietnam, Malaysia and Indonesia rank in the top five, the bank said.The COVID-19 crisis will likely lead to de-globalisation and a fall in US dollar's dominance, according to Japanese bank Nomura, which said some of the global supply chains will move out from China and will shift mostly to Asian nations, with India poised to be the top beneficiary. Emerging markets might face a more challenging medium-term outlook, it said.#
The two non-Asian countries in the top 10 are Poland and the Czech Republic, “owing to their favourable investment climate”.
However, the top losers due to the dislocation would again be Asian countries, with the top 8 potential losers in the world coming from the continent. Textiles, leather and footwear and machinery and equipment sectors in Taiwan, South Korea and Malaysia are the most exposed, said Nomura.
There could be a vacuum in global leadership, tense US-China relations and deglobalisation might continue, and emerging markets might face a more challenging medium-term outlook, the report, titled ‘The world after Covid-19’, noted.
The current US-China tensions will most likely compel some multinational companies to diversify part of their production to other emerging market countries such as Vietnam, India and Cambodia because of their much cheaper labour forces. This move was evident even before the COVID-19 crisis, as China’s labour cost was on the rise and the tax sops of the companies were also ending one by one, the bank said.
While global inequality could rise alongside food shortages at the same time, the climate will get a breather and there could be a renaissance in productivity, the bank said.
It also expects inflation to remain low and sees the possibility of an even lower real rate of interest. Unconventional monetary policies would be the new normal, reducing the urgency for fiscal austerity.
There is also a danger of moral hazard that could lead to excessive risk taking and asset price bubbles, a news agency reported.
"Income inequality should worsen substantially, and we flag the danger of a global food crisis in coming years. Conversely, Covid-19 could be a blessing in disguise in uniting efforts to tackle climate change," the bank said.
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