With demand collapsing and not about to return to pre Covid-19 levels any time soon, most seen by the historic decline in oil prices and the massive rise in unemployment, deflation will increase the risk of insolvency, Lim Mah Hui writes.
That is the million dollars question to which no one can provide a definite answer.
However, we can outline the variables that determine this answer by providing an analogy. Suppose a Category 5 storm were to hit a house, will the house stay intact, collapse, or be partially destroyed? The answers depend on the intensity and duration of the storm, on the one hand, and the strength and foundation of the house, on the other hand. A third variable is what builders or architects can do to shore up the house.
Covid-19 is a health calamity of great intensity that has hit humankind with colossal speed. Within a matter of three months, every country in the world is affected. Over 3 million people have been infected and over a quarter million have died. Half the world’s population remain in some kind of lockdown exacting huge economic costs. This has caused not only an initial breakdown in the global supply chain, but more ominously a close to total collapse of demand globally in many industries and services. Full article on MIER website