Make money easily available for companies with cash flow problems but make it convertible to equity at a penal rate if they can’t pay back in 18 months

March 10, 2020

Cebr analysis of the impact on world and UK Economy from the 2020 COVID 19 outbreak


Cebr’s Forecasting Eye from 31 January was amongst the first to warn that Coronavirus could cause a world recession this year. With equity values worldwide down a fifth from their peak and oil prices roughly halved (see chart) there is mounting evidence that our fears might be justified.


What should be done?


First, this is a time when central banks should ensure that there is no shortage of liquidity. The riskier end of the bond market has dried up and this is likely to spread to the mainstream. Authorities need to be cognisant of the pressures and prevent damaging runs in advance. Europe is in particular difficulties because of the weakness of its banks, many  of which will require substantial injections of public money.


Second, companies in the luxury goods sector, retail, tourism and catering as well as others were already hard pressed in many countries. There isn’t time for proper due diligence and our recommendation is that money should be made freely available BUT will be converted to equity at a penal rate if the loans can’t be repaid within an appropriate time, e.g. 18 months if the virus can be contained by the summer.


Third, is there a case for a tax cut as in Singapore and as is being considered by President Trump? On 10 November 2008 I wrote What is needed now is an early and possibly temporary tax cut. A reduction in VAT at least until the end of 2009 to 12.5% would be a good start. The gross cost would be £24 billion. But the net cost would be much less –possibly even nothing if the impact on confidence is sufficient to stop the recession from intensifying.’ The call was widely publicised and the Chancellor followed my advice in his budget a few weeks later.


Our view is the time for this is not yet but this is an option the Chancellor needs to keep under consideration and the time may come quite soon when it becomes the right thing to do.


Contact: Doug McWilliams  020 7324 2860



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