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What Comes After The “Deepest Economic Crisis Since The Great Depression”

What Comes After The "Deepest Economic Crisis Since The Great Depression"



What Comes After The "Deepest Economic Crisis Since The Great Depression" Tyler Durden Tue, 06/09/2020 - 19:25

Authored by Huge Erken, head of International Economics at Rabobank

Coronavirus causes deepest economic crisis since the Great Depression


  • COVID-19 is expected to result in contraction of the global economy by 4.1% in 2020

  • This means that the corona crisis will be the deepest economic crisis since the Great Depression in the 1930s

  • We expect a relatively limited recovery in 2021, as many countries will continue to be bound to a ‘six-foot economy’ for a long time

  • Businesses in these countries will not be able to offer as many goods and services as they did previously, and demand will remain low for a long time Political tensions between the US and China have flared up again, and we expect the truce in the trade war to come to an end

  • Downside risks such as a second wave of infections or a financial crisis continue to dominate

The global economy will contract by 4.1% The rapid succession of developments relating to the coronavirus (see Figure 1a and 1b) is leaving deep scars in the global economy. We have therefore had to downgrade our estimates several times (here and here and here).

We are currently forecasting that the global economy will contract by 4.1% in 2020, and then grow by 4.3% in 2021 (Table 1). This means that the corona crisis will be the deepest economic crisis since the Great Depression in the 1930s (Figure 2). The sharp contraction in mainly Western Europe and Latin America will be offset by more moderate GDP declines in Asia, where stronger underlying growth in China in 2020 and in India in 2021 will go some way to limiting the damage.

The deepest economic crisis since the 1930s For France, Italy, Spain and the United Kingdom we are even forecasting a contraction in gross domestic product (GDP) of more than 10% in, mainly due to the long and stringent lockdowns in these countries. Another factor is that the sectors that are the worst hit by the corona crisis, such as tourism, recreation and hospitality, are relatively strongly represented in these countries compared to other eurozone countries.

In the United States, we expect a more limited contraction of 5.7%, again followed by a relatively modest recovery in 2021. In the US, this relates to the flexible labor market, which lead to a rapid rise in unemployment which started to come down again recently (Figure 3). April saw the highest post-war unemployment figure of 14.7%, although figures for May show that it is coming down again. Corrected for classification errors, unemployment was as much as 19.5%. With a fifth of the American working population temporarily out of work, private consumption will be slow to pick up after the hard lockdown period, and these effects will continue to be felt into 2021. This expected weakness in the demand side of the economy will be intensified by the fact that the US economy was already in pretty poor shape before the advent of the corona crisis, something we have been warning about since the beginning of 2019.

Reopening the economy is proving difficult

The US is not the only country where we expect lower growth in 2021 than we previously forecast. We currently expect the recovery to be more moderate in virtually all countries. Despite the easing of the lockdown in many countries, economic activity is increasing only marginally. On the one hand this is due to lack of demand, as people continue to avoid restaurants, cafés and stores, and also due to economic uncertainty and loss of income. On the other hand, there are limitations in the supply side of the economy as businesses and entrepreneurs are forced to adapt to the six-foot economy. A recent academic study argues that social distancing will be needed until 2022 to prevent a resurgence of the virus.

A lengthy period of social distancing and lower potential growth

Countries will be stuck with the six-foot economy for many months yet. For the Netherlands, we have calculated that there could be adaptation problems for 16% of jobs in this economy, while in the US this figure is 23% (see this report). In this situation a V-shaped economic recovery will be hard to achieve and a U-shaped recovery may be more likely (see this study for a detailed discussion on the possible shapes the recovery might take). We have calculated that the corona crisis could also damage the long-term growth potential of countries, so that the effects could continue to be felt even after 2022. For the Dutch economy, we forecast that annual potential economic growth in 2022-2030 will fall from 1.4% to 1.2%, and in the US we foresee a decline from 1.6% to 1.4%.

Political tensions between the US and China are flaring up again

Following the long-awaited truce between the US and China in the form of the ‘Phase 1 deal’ on January 13 and the subsequent outbreak of the corona virus, a period of quiet broke out in the trade war between the two superpowers. However, diplomatic relations between the US and China have now taken a rapid and serious turn for the worse. This started in March, with accusations from both sides regarding the approach to the virus.

US measures

The US is working on legislation to use grants and tax breaks to persuade foreign businesses in China to transfer their operations to the US and on measures to reduce dependence on China in areas such as medical and defense-related products. President Trump has also instructed his administration to remove Hong Kong’s special status in response to a Chinese security law that the Americans believe threatens Hong Kong’s autonomy. Withdrawing this status would mean that Hong Kong, which is a major trading hub in Asia, would face higher trade tariffs and that access to US dollars by businesses and banks in Hong Kong could be restricted. Finally, Trump has signed a presidential executive order, under which US businesses are no longer permitted to use products from the Chinese telecoms giant Huawei.

Anti-China rhetoric as a lightning conductor

All these measures are part of President Trump’s ‘America First’ doctrine, and address what he sees as unfair trading practices on the part of China. This view is starting to gain traction with the US public (see Figure 8). Trump seems to be using anti-China rhetoric as a diversion from his domestic problems. Trump has lost much needed popularity in the polls due to his handling of the corona crisis, the rapidly worsening economy and his threat to deploy the military to subdue recent demonstrations and social unrest.

With the presidential elections upcoming in November, Trump is trying to make electoral gains with his tried and tested anti-China tactic. Trump is indeed not alone in this stance, as his Democratic opponent Joe Biden is also planning to act against China, albeit in cooperation with Europe.

Chinese measures

China has not been sitting on its hands either. It expelled several American journalists in March, and state-run food companies (Cofco and Sinograin) have been instructed to buy fewer products from the US. This fits the view that China is apparently not ready to observe the trade agreements in the Phase 1 deal, as available import data for the first three months of 2020 are showing a negative rather than a positive trend (see Figure 9). This also confirms that China’s import commitment was always highly unrealistic right from the start. In combination with the recent political tensions between the two countries, we believe the deal is likely to break down before the year is out.

Downside risks

Despite our heavily downgraded economic forecasts and rising geopolitical tensions, there are several risks that could make the outlook even worse. Four of these risks are discussed below. A second wave of infections Countries around the world are currently easing their lockdowns. There is a possibility that this easing will open the door to a new wave of infections, forcing countries to impose a new period of lockdowns to restrict the spread of the virus. Previously we published estimates of the additional economic damage if lockdowns were to be extended by a further three months. A return of the virus in emerging markets is potentially a much greater risk than in developed countries. It remains to be seen whether it is realistic that people in densely populated countries such as Indonesia, India and Brazil will be able to maintain adequate social distancing. There is also the question of whether these countries have sufficient testing capabilities to identify a resurgence of the virus at an early stage.

A financial crisis

The current economic crisis could turn into a financial crisis, in which financial institutions get into difficulties. For instance, if there is a second or third wave of infections that leads to a sharp increase in bankruptcies, a rapid deterioration in bank balance sheets and liquidity issues for banks themselves. The consequence could be that lending to businesses comes to a halt, putting more businesses in trouble and creating a vicious circle.

At this time we do not expect any friction in the financial system, partly because the banks have generally improved their buffers since the Great Financial Crisis and partly because central banks around the world are providing sufficient liquidity to the banks. The volatility in the financial markets that marked the start of the corona crisis has therefore also waned.

Zombie companies

Another risk in the longer term is that the proportion of what are known as ‘zombie companies’ will increase in some countries. Zombie companies are businesses that are barely profitable now and their outlook for future profitability is bleak. These companies thrive in an environment of low interest rates and a financial system that rolls over loans to loss-making companies. Even more loose monetary policy by central banks encourages this ‘zombification’ process. We saw the number of zombie companies increase rapidly in the wake of the Great Financial Crisis. In the US, the proportion of zombie companies among listed companies rose to 15% in 2019 (figure 10). In Japan as well, the proportion of zombie companies among SMEs is now 21% according to some estimates. Zombie companies represent a problem for the post-crisis recovery as they are less productive and innovative than healthy businesses. According to the BIS, a one percentage point increase in the proportion of zombie companies in a country leads to a decline of 0.3% in annual GDP growth.

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Four burning questions about the future of the $16.5B Novo-Catalent deal

To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.
Beyond spending billions of dollars to expand…



To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.

Beyond spending billions of dollars to expand its own production capacity for its weight loss drugs, the Danish drugmaker said Monday it will pay $11 billion to acquire three manufacturing plants from Catalent. It’s part of a broader $16.5 billion deal with Novo Holdings, the investment arm of the pharma’s parent group, which agreed to acquire the contract manufacturer and take it private.

It’s a big deal for all parties, with potential ripple effects across the biotech ecosystem. Here’s a look at some of the most pressing questions to watch after Monday’s announcement.

Why did Novo do this?

Novo Holdings isn’t the most obvious buyer for Catalent, particularly after last year’s on-and-off M&A interest from the serial acquirer Danaher. But the deal could benefit both Novo Holdings and Novo Nordisk.

Novo Nordisk’s biggest challenge has been simply making enough of the weight loss drug Wegovy and diabetes therapy Ozempic. On last week’s earnings call, Novo Nordisk CEO Lars Fruergaard Jørgensen said the company isn’t constrained by capital in its efforts to boost manufacturing. Rather, the main challenge is the limited amount of capabilities out there, he said.

“Most pharmaceutical companies in the world would be shopping among the same manufacturers,” he said. “There’s not an unlimited amount of machinery and people to build it.”

While Novo was already one of Catalent’s major customers, the manufacturer has been hamstrung by its own balance sheet. With roughly $5 billion in debt on its books, it’s had to juggle paying down debt with sufficiently investing in its facilities. That’s been particularly challenging in keeping pace with soaring demand for GLP-1 drugs.

Novo, on the other hand, has the balance sheet to funnel as much money as needed into the plants in Italy, Belgium, and Indiana. It’s also struggled to make enough of its popular GLP-1 drugs to meet their soaring demand, with documented shortages of both Ozempic and Wegovy.

The impact won’t be immediate. The parties expect the deal to close near the end of 2024. Novo Nordisk said it expects the three new sites to “gradually increase Novo Nordisk’s filling capacity from 2026 and onwards.”

As for the rest of Catalent — nearly 50 other sites employing thousands of workers — Novo Holdings will take control. The group previously acquired Altasciences in 2021 and Ritedose in 2022, so the Catalent deal builds on a core investing interest in biopharma services, Novo Holdings CEO Kasim Kutay told Endpoints News.

Kasim Kutay

When asked about possible site closures or layoffs, Kutay said the team hasn’t thought about that.

“That’s not our track record. Our track record is to invest in quality businesses and help them grow,” he said. “There’s always stuff to do with any asset you own, but we haven’t bought this company to do some of the stuff you’re talking about.”

What does it mean for Catalent’s customers? 

Until the deal closes, Catalent will operate as a standalone business. After it closes, Novo Nordisk said it will honor its customer obligations at the three sites, a spokesperson said. But they didn’t answer a question about what happens when those contracts expire.

The wrinkle is the long-term future of the three plants that Novo Nordisk is paying for. Those sites don’t exclusively pump out Wegovy, but that could be the logical long-term aim for the Danish drugmaker.

The ideal scenario is that pricing and timelines remain the same for customers, said Nicole Paulk, CEO of the gene therapy startup Siren Biotechnology.

Nicole Paulk

“The name of the group that you’re going to send your check to is now going to be Novo Holdings instead of Catalent, but otherwise everything remains the same,” Paulk told Endpoints. “That’s the best-case scenario.”

In a worst case, Paulk said she feared the new owners could wind up closing sites or laying off Catalent groups. That could create some uncertainty for customers looking for a long-term manufacturing partner.

Are shareholders and regulators happy? 

The pandemic was a wild ride for Catalent’s stock, with shares surging from about $40 to $140 and then crashing back to earth. The $63.50 share price for the takeover is a happy ending depending on the investor.

On that point, the investing giant Elliott Investment Management is satisfied. Marc Steinberg, a partner at Elliott, called the agreement “an outstanding outcome” that “clearly maximizes value for Catalent stockholders” in a statement.

Elliott helped kick off a strategic review last August that culminated in the sale agreement. Compared to Catalent’s stock price before that review started, the deal pays a nearly 40% premium.

Alessandro Maselli

But this is hardly a victory lap for CEO Alessandro Maselli, who took over in July 2022 when Catalent’s stock price was north of $100. Novo’s takeover is a tacit acknowledgment that Maselli could never fully right the ship, as operational problems plagued the company throughout 2023 while it was limited by its debt.

Additional regulatory filings in the next few weeks could give insight into just how competitive the sale process was. William Blair analysts said they don’t expect a competing bidder “given the organic investments already being pursued at other leading CDMOs and the breadth and scale of Catalent’s operations.”

The Blair analysts also noted the companies likely “expect to spend some time educating relevant government agencies” about the deal, given the lengthy closing timeline. Given Novo Nordisk’s ascent — it’s now one of Europe’s most valuable companies — paired with the limited number of large contract manufacturers, antitrust regulators could be interested in taking a close look.

Are Catalent’s problems finally a thing of the past?

Catalent ran into a mix of financial and operational problems over the past year that played no small part in attracting the interest of an activist like Elliott.

Now with a deal in place, how quickly can Novo rectify those problems? Some of the challenges were driven by the demands of being a publicly traded company, like failing to meet investors’ revenue expectations or even filing earnings reports on time.

But Catalent also struggled with its business at times, with a range of manufacturing delays, inspection reports and occasionally writing down acquisitions that didn’t pan out. Novo’s deep pockets will go a long way to a turnaround, but only the future will tell if all these issues are fixed.

Kutay said his team is excited by the opportunity and was satisfied with the due diligence it did on the company.

“We believe we’re buying a strong company with a good management team and good prospects,” Kutay said. “If that wasn’t the case, I don’t think we’d be here.”

Amber Tong and Reynald Castañeda contributed reporting.

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Petrina Kamya, Ph.D., Head of AI Platforms at Insilico Medicine, presents at BIO CEO & Investor Conference

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb….



Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

Credit: Insilico Medicine

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

The session will look at how the latest artificial intelligence (AI) tools – including generative AI and large language models – are currently being used to advance the discovery and design of new drugs, and which technologies are still in development. 

The BIO CEO & Investor Conference brings together over 1,000 attendees and more than 700 companies across industry and institutional investment to discuss the future investment landscape of biotechnology. Sessions focus on topics such as therapeutic advancements, market outlook, and policy priorities.

Insilico Medicine is a leading, clinical stage AI-driven drug discovery company that has raised over $400m in investments since it was founded in 2014. Dr. Kamya leads the development of the Company’s end-to-end generative AI platform, Pharma.AI from Insilico’s AI R&D Center in Montreal. Using modern machine learning techniques in the context of chemistry and biology, the platform has driven the discovery and design of 30+ new therapies, with five in clinical stages – for cancer, fibrosis, inflammatory bowel disease (IBD), and COVID-19. The Company’s lead drug, for the chronic, rare lung condition idiopathic pulmonary fibrosis, is the first AI-designed drug for an AI-discovered target to reach Phase II clinical trials with patients. Nine of the top 20 pharmaceutical companies have used Insilico’s AI platform to advance their programs, and the Company has a number of major strategic licensing deals around its AI-designed therapeutic assets, including with Sanofi, Exelixis and Menarini. 


About Insilico Medicine

Insilico Medicine, a global clinical stage biotechnology company powered by generative AI, is connecting biology, chemistry, and clinical trials analysis using next-generation AI systems. The company has developed AI platforms that utilize deep generative models, reinforcement learning, transformers, and other modern machine learning techniques for novel target discovery and the generation of novel molecular structures with desired properties. Insilico Medicine is developing breakthrough solutions to discover and develop innovative drugs for cancer, fibrosis, immunity, central nervous system diseases, infectious diseases, autoimmune diseases, and aging-related diseases. 

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Another country is getting ready to launch a visa for digital nomads

Early reports are saying Japan will soon have a digital nomad visa for high-earning foreigners.



Over the last decade, the explosion of remote work that came as a result of improved technology and the pandemic has allowed an increasing number of people to become digital nomads. 

When looked at more broadly as anyone not required to come into a fixed office but instead moves between different locations such as the home and the coffee shop, the latest estimate shows that there were more than 35 million such workers in the world by the end of 2023 while over half of those come from the United States.

Related: There is a new list of cities that are best for digital nomads

While remote work has also allowed many to move to cheaper places and travel around the world while still bringing in income, working outside of one's home country requires either dual citizenship or work authorization — the global shift toward remote work has pushed many countries to launch specific digital nomad visas to boost their economies and bring in new residents.

Japan is a very popular destination for U.S. tourists. 


This popular vacation destination will soon have a nomad visa

Spain, Portugal, Indonesia, Malaysia, Costa Rica, Brazil, Latvia and Malta are some of the countries currently offering specific visas for foreigners who want to live there while bringing in income from abroad.

More Travel:

With the exception of a few, Asian countries generally have stricter immigration laws and were much slower to launch these types of visas that some of the countries with weaker economies had as far back as 2015. As first reported by the Japan Times, the country's Immigration Services Agency ended up making the leap toward a visa for those who can earn more than ¥10 million ($68,300 USD) with income from another country.

The Japanese government has not yet worked out the specifics of how long the visa will be valid for or how much it will cost — public comment on the proposal is being accepted throughout next week. 

That said, early reports say the visa will be shorter than the typical digital nomad option that allows foreigners to live in a country for several years. The visa will reportedly be valid for six months or slightly longer but still no more than a year — along with the ability to work, this allows some to stay beyond the 90-day tourist period typically afforded to those from countries with visa-free agreements.

'Not be given a residence card of residence certificate'

While one will be able to reapply for the visa after the time runs out, this can only be done by exiting the country and being away for six months before coming back again — becoming a permanent resident on the pathway to citizenship is an entirely different process with much more strict requirements.

"Those living in Japan with the digital nomad visa will not be given a residence card or a residence certificate, which provide access to certain government benefits," reports the news outlet. "The visa cannot be renewed and must be reapplied for, with this only possible six months after leaving the countr

The visa will reportedly start in March and also allow holders to bring their spouses and families with them. To start using the visa, holders will also need to purchase private health insurance from their home country while taxes on any money one earns will also need to be paid through one's home country.

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