Oliver Mangan: Only time will tell how long this crisis will last
It is now clear that the coronavirus will result in a major hit to global growth in 2020, with many economies entering recession in the first half of the year.
Sharp falls in output can now be expected over the next few months at a minimum.
The hospitality and travel sectors are being hardest hit – the hospitality sector alone accounts for around 7% of employment in western economies.
Much of normal economic activity has already ground to a halt in countries where quarantines have been introduced.
More generally, consumer spending will be hit as unemployment rises and with shoppers also reluctant to go to the major retail centres.
Uncertainty, reduced cash flow and a tightening of credit conditions will restrict investment.
Manufacturing will be impacted by the disruptions to supply chains and a fall-off in demand.
The depth and duration of the downturn in activity will depend on a number of factors – how quickly countries can bring the virus outbreak under control, the extent to which governments load up on expansionary fiscal measures to offset some of the hit to private demand and avoiding the coronavirus morphing into a broad financial crisis.
The latter factor will be also important in terms of ensuring that the global economy can rebound quickly from the coronavirus.
However, the lessons of history are that the scars of a financial crisis take a long time to heal.
Central banks have a key role to play in this regard and have started to inject large amounts of liquidity into markets.
This was very much to the fore of the actions announced by the
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Markets have been in complete turmoil over the past couple of weeks.
Last Thursday was particularly grim, with some stock markets registering their biggest one-day falls since Black Monday, 1987.
Indeed, all asset classes have registered price falls in the past week, with even safe-haven government bonds declining in a mad dash by investors and corporates out of all markets and into cash.
Trading is also very volatile with large swings in prices.
Most stock markets are now in bear territory, having fallen by over 20%.
Risk-averse sentiment will continue to dominate until there are signs that the coronavirus is being brought under control.
This appears to be at least a couple of months away.
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Europe is now at the epicentre of the virus outbreak.
The lessons from Asia are that aggressive action early on can halt the spread of the virus.
There have been positive trends in a number of Asian countries in this regard.
A close eye should be kept on
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There have been doubts about whether the populaces in western democracies will tolerate some of the measures introduced by Asian countries and be willing to endure the severe economic and social disruption and costs involved.
European governments, though, are clearly moving in this direction.
The jury is still out on whether or not this is a short-lived pandemic that will abate after a few months, allowing the world economy to begin recovering in the second half of the year.
In this regard, the Fed in its move to cut rates to zero on Sunday, also promised that it would keep rates low until it is confident that the economy has weathered recent events.
The extent of the dislocation in nervous financial markets suggests they fear that this crisis will last for the full year, with the global economy entering a recession that endures for all of 2020.
Only time will tell, as we have entered unchartered territory for the world economy.
