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Monday, March 23, 2020

Economic Effects of COVID-19 Around the World

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As the world grapples with the coronavirus, the economic impact is mounting - with the OECD warning the virus presents the biggest danger to the global economy since the 2008 financial crisis.
UNCTAD, the UN trade agency, warned of a slowdown of global growth to under 2% this year, effectively wiping $1 trillion off the value of the world economy.
Effects of COVID-19 Around the World

A poll of economists by the London School of Economics found 51% believed the world faces a major recession, even if COVID-19 kills no more people than seasonal flu. Only 5% said they did not think it would.
There are now some 170,000 confirmed cases of COVID-19 globally, the new coronavirus that emerged in Wuhan, China, in December and is spreading around the world.
Businesses are dealing with lost revenue and disrupted supply chains due to China’s factory shutdowns. Weeks after China imposed travel restrictions on millions of its people, Italy placed quarantine measures on its entire population, with France and Spain imposing similar measures and many other European countries restricting movement and business activity. On 11 March, some key industries in Wuhan were told they can resume, a day after Chinese President Xi Jinping visited the city for the first time since the outbreak began.
Here are a few ways the outbreak is sending ripples around the world.

Predicted slump

China is the world’s second-largest economy and leading trading nation, so economic fallout from COVID-19 also threatens global growth.
Economists polled by Reuters on March 3-5 said the outbreak likely halved China’s economic growth in the current quarter compared with the previous three months.
The poll of more than 40 economists, based both in and outside mainland China, forecast growth to fall to a median of 3.5% this quarter from 6.0% in the fourth quarter of 2019, a full percentage point lower than predicted in a Feb. 14 poll.
“If you’re in a city which has been basically closed down or put (under) virtual house arrest, you’re not going to go out to the streets, you can’t go to the cinema, the restaurants...with all those sorts of things, economic activity will be substantially negatively affected,” said Rob Carnell, head of Asia-Pacific research at ING.
The Chinese economy is likely to be hit further by reduced global demand for its products due to the effect of the outbreak on economies around the world.
Data released on 16 March showed China's factory production plunged at the sharpest pace in three decades in the first two months of the year - something which could mean an even greater economic slowdown than predicted in that poll.
"Judging by the data, the shock to China's economic activity from the coronavirus epidemic is greater than the (2008) global financial crisis," said Zhang Yi, chief economist at Zhonghai Shengrong Capital Management.
"These data suggest a small contraction in the first-quarter economy is a high probability event. Government policies would need to be focused on preventing large-scale bankruptcies and unemployment."
To combat the economic fallout, the US Federal Reserve on 15 March cut its key interest rate to near zero.
But the move, coordinated with central banks in Japan, Australia, and New Zealand in a joint-effort not seen since the 2008 financial crisis, failed to shore up global investor sentiment, with oil prices dipping below $30 a barrel on 16 March, and a renewed stock slump predicted when Wall Street opens.
China is the world’s biggest oil importer. With coronavirus hitting manufacturing and travel, the Internationa Energy Agency (IEA) predicted the first drop in global oil demand in a decade.
"Covid-19 (coronavirus) has spread beyond China and our 2020 base case global oil demand forecast is cut by 1.1 Mb/d. For the first time since 2009, demand is expected to fall year-on-year, by 90 kb/d," the IEA said in its monthly report for March 2020.
On 9 March, oil prices lost as much as a third of their value - the biggest daily rout since the 1991 Gulf War, as Saudi Arabia and Russia signaled they would hike output in a market already awash with crude after their three-year supply pact collapsed.
“A WHO declaration of global emergency and U.S.-EU traffic ban is dampening the global energy demand outlook, in conjunction with an intensified price war between Saudi and Russia,” Margaret Yang, market analyst at CMC Markets in Singapore, told Reuters.
“Bears are dominating the oil market and there might be more downside before a bottom can be reached.”
Anyone hoping cryptocurrencies might prove a safe haven was disappointed. Bitcoin lost more than 30% of its value in the five days to 12 March, Reuters reported, outpacing losses for stocks and oil.
“We’ve seen de-risking across all asset markets,” said Jamie Farquhar, portfolio manager at London-based crypto firm NKB. “Bitcoin is certainly not immune to that."

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