The coronavirus may be the unlocking factor for economists’ projected new global financial and economic crisis for at least two years.
Panic over the coronavirus epidemic has led to crashes on the global stock markets today, accounting for their worst week since the 2008 global financial crisis. Stocks’ deletion has already reached $ 5 trillion, Reuters reported.
Concerns are growing that the epidemic could be a shock to the global economy by the bankruptcy of Lemon Brothers Investment Bank on September 15, 2008.
Unlike the previous crisis, the causes of the possible crisis are now triggered by the Covid-19 epidemic measures announced by many countries around the world – bans or restrictions on flights and travel, closure of schools, postponement of major sporting events and business events.
For the evil part of the eurozone, the virus hit Italy hardest, which is the most financially troubled country in the monetary union at the moment because of the huge sovereign debt and the highly vulnerable banking system, supported mainly by support from the European Central Bank.
Stock market turmoil – 12-13% decline in a week
Stock exchanges around the world marked solid declines on Thursday and Friday.
London FTSE 100 registered a near 13% crash during the week, the most significant decline since the time of the severe global crisis in 2008. The situation is similar with the US indices – a decline of about 12% a week.
The situation worsened on Thursday. Stock exchanges in the US marked their biggest one-day decline in a decade. It is difficult to say whether these are short-term fluctuations or the beginning of a long-lasting negative trend, but if no signs of improvement in the epidemic situation appear soon, the tension is likely to increase.
The industrial Dow Jones on Thursday lost 4.4% or 1,190 points, the strongest one-day decline in the index for many years. On Friday, the decrease was another 4.11%.
The technological decline Nasdaq was 4.6% – the worst daily loss since 2011.
London FTSE 100 on the other hand, it fell 3.5% on Thursday. For comparison, on Monday, after the bankruptcy of Leman Brothers, the index fell by 3.9%.
Hong Kong Hang Seng on Thursday it fell from 2.42 percent to 26 129 points.
On Friday, major indices of the leading European stock exchanges continued to accumulate losses following the collapse in Asia and yesterday on Wall Street.
The Parisian CAC 40 it narrowed 2.73 percent to 5345.81 points shortly after today’s auctions began. The Frankfurt DAX lost 3.35 percent to 11 953.44 points. London FTSE 100 sank another 4 percent.
Corporations already consider losses
Long is the list of multinationals that have already announced they expect the epidemic to have a serious impact on their finances if it is not stopped soon, according to the Guardian.
Goldman Sachs warned that the virus would wipe out US companies’ earnings growth for 2019 if the epidemic continued to spread at the same rate.
Microsoft and PePal said they expected disappointing profits. Facebook canceled its annual California developer conference, where the company typically announces new products to thousands of software engineers and developers.
The automaker Aston Martin predicted falling sales. The owner of the beer Budweiser reported a $ 170 million blow to its sales. The cosmetics company “Loreal” banned all 86,000 people from traveling. Shoe manufacturer Crox said the event in Asia would cut $ 30 million from the company’s revenue.
A bunch of international companies have temporarily suspended production in Asia – Airbus, Toyota, General Motors, Volkswagen. Others have had to close sites in Asia – “Nike”, “Adidas”, “H&E”, “Ikea”, “McDonald’s”, “Starbucks”.
Disneyland near Tokyo closes by March 15, the company said on Friday.
Also on Friday, it became clear that traditional the Geneva Motor Show, which is one of the largest and was scheduled to take place from March 5 to 15, is being canceled. This was reported after the Swiss government banned all major events due to the coronavirus epidemic.
British low cost company IzJet warned on Friday that it had seen a significant decline in demand for flights to and from its bases in northern Italy, as well as a decline in European markets due to the coronavirus, Reuters reported. The owner of British Airways announced that the coronavirus would hit the airline’s profit, but did not know how much.
The automotive concern Hyundai reported on Friday that his employee had tested positive for the coronavirus. This forced production to be halted at one of the company’s South Korean plants.
Shares of Hyundai collapsed more than 5 percent after the news. The drop in quotes is a new blow to the concern, which has gradually resumed production in its South Korean plants, which has been affected by a shortage of Chinese units caused by restrictive measures against the epidemic.
Among the disturbed companies is the giant Samsung.
The stroke of tourism it will still have to be calculated all over the world.
Coronavirus looks like Lemon Brothers
“Businesses around the world now understand how fragile the global manufacturing system is,” Gabriel Velbermeyer, president of the Keel Institute for World Economics, told Deutsche Welle. He is one of many economists who say the impact of the coronavirus epidemic is similar to the 2008 Lemon Brothers bankruptcy.
The impact of the epidemic will come through restrictive measures against the virus by governments and corporations around the world, Velbermeier said.
“For weeks, there has been a strange split between those trying to predict the effects of the coronavirus on the financial markets and the global economy. People in the global supply chain have warned that there will be a gap in their businesses, with health experts talking about a serious spread. However, financial markets and economic analysts thought it would not do much harm, the Standard & Poors Index even climbed to a new peak last Wednesday, but this week’s news brought more pessimism n look at what’s ahead “, commented on the New York Times.
S&P has been down 7% since last Wednesday, with yields on 10-year US bonds falling to record lows.
“The financial world is already aware of how much is at stake and how different the situation is from other fluctuations in the global economy of recent years, such as the US-China trade war,” the New York Times also commented.
The “irresponsible” and “unreasonable” dependence on China
French Finance Minister Bruno Le Mer sees the epidemic as “an event that changes the rules of the game” for globalization because it shows how vulnerable the global manufacturing system is. According to Le Mer, the virus has revealed “irresponsible and unreasonable dependence on China.” “We cannot continue to depend on 80-85% of China for active pharmaceutical ingredients,” the minister said.
Italy is heading for a fourth recession
The coronavirus has brought serious problems for the most vulnerable economy in the euro area – the Italian one. The activity of many companies in the rich northern regions of the country is almost paralyzed, and the hotels report a wave of cancellations.
The epidemic is likely to plunge the already suffering Italian economy into its fourth recession since 2008, Reuters and Bloomberg reported.
In the fourth quarter of 2019, the country reported a 0.3% decline in GDP, leading to just 0.2% economic growth for the year.
Italy is the fifth most visited country by tourists in the world, with the sector producing 13% of Italy’s GDP.
“The state of the Italian economy was scary enough. Then came the coronavirus,” begins its Washington Post publication.
The Milan Stock Exchange fell on Friday, with the Mib core index down over 3%. Shares of the largest Italian company – energy giant “Annie” are listed in the red zone. The stock lost 4.3 percent and fell to 11.25 euros per share. The negative trend has been observed since the company published its results for 2019, reporting a net profit collapse of nearly 28 times to EUR 148 million.
There has been a negative trend on the Milan Stock Exchange since the start of the week after two local coronavirus outbreaks in northern Italy were identified.
Against the backdrop of the epidemic, the so-called spread continues to grow, a crisis indicator that takes into account the difference in the price of German and Italian government bonds. The spread between 10-year Italian-German bonds rose to 178 basis points, its highest value since August, Reuters said.
A negative trend is also observed in the bonds of Spain and Portugal, in which their spread with German 10-year debt securities rose to a nine-month high.
Difficult times for the euro area, the ECB does not have many moves
There is a chance European Central Bank (ECB) to convene an emergency meeting because of the coronavirus crisis, Lithuanian central banker Vitas Vassilauskas told reporters in Brussels, quoted by Reuters.
Vassilauskas, who is a member of the bank’s board of directors, said the bank’s approach was to wait and see. The bank also monitors the effects of the coronavirus epidemic on supply chains. An extraordinary meeting of the Governing Council of the ECB for a coronavirus may be held if necessary depending on the situation, he said.
In the face of negative interest rates, the ECB does not have many moves to respond to more serious economic problems. Economists have long argued that, in the new environment, monetary policy is already impotent in the face of economic shocks.
German economy may not be able to meet the already lowered growth forecasts this year after the coronavirus epidemic hit demand and supply from China, Bundesbank Governor Jens Weidman said on Friday. In December, the Bundesbank halved its forecast for Germany’s gross domestic product for 2020 to 0.6 percent.
Consumer spending in France unexpectedly dropped sharply in January, according to official data from the National Institute for Statistics and Economic Research (INSEE). They reflect a poor start to the year even before the coronavirus epidemic begins to spread. According to French statistics, consumer spending, the traditional driver of the second largest economy in the euro area, fell 1.1 percent in January compared to December.
The situation is not rosy outside the euro area and the EU. Bank of England manager Mark Carney said that Great Britain it needs to prepare for a blow to the economy as the effects of the coronavirus epidemic are mounting.
The central bank has already identified a supply chain problem that may lead to a downgrade, but it is still too early to say how severely the UK will be affected.
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