Commentary: Credit Guarantee comments on the G20

Plans and verbal commitments to global stabilization packages are all well and good, but such actions will require time before confidence ultimately improves. The World Bank expects the volume of global trade to fall by 6.1% in 2009 whereas the OECD expects a contraction more than double that; an unparalleled outcome and the worst in 80 years. Note too that the value of such trade will plummet by significantly more, given the sharp fall-off in commodity prices. This is going to extract huge pain across all borders, and fears of enormous job losses are well founded. The OECD sees industrialized country unemployment rising from 6% last year to almost 10% in 2010, with the bloc seeing the greatest and most rapid augmentation to unemployment since WWII. Such people and indeed those who will retain their jobs, are set to remain extremely uncertain as to their futures and such confidence unfortunately may take years to rebuild.

Of the $1.1 trillion in new resources that was pledged at the G20 London meeting towards supporting the global economy, $250bn is a trade finance package to support global trade flows while the World Bank has also announced a $50bn trade financing injection. Banks have been reticent to extend new lines of credit and trade financing has consequently suffered. The speed with which these funds will be applied is critical because, as mentioned, demand has fallen off a precipice and factory output has commensurately been severely curtailed, resulting in the increase in job losses alluded to above. Global exports / imports too need to be vigorously revived in order to support the greater scheme, but be under no illusion that commercial defaults are going to continue to rise – the issue is when these will be assuaged by the return of confidence and indeed credit lines.