Although the outbreak of novel coronavirus Covid-19 pneumonia has been well controlled in China, it has begun to show a large outbreak in the world, and has spread to more than 200 countries and regions worldwide.
Although the outbreak of novel coronavirus Covid-19 pneumonia has been well controlled in China, it has begun to show a large outbreak in the world, and has spread to more than 200 countries and regions worldwide.
More than 60 countries have entered a state of emergency, and the United States has the highest number of confirmed cases in the world, and Europe has become a devastated area of the epidemic.
The global spread of the epidemic has worsened the already fragile world economy.
01 Global financial market turmoil
As a barometer of the economy, the capital market responded rapidly to the epidemic, which spread widely around the world.
The global stock market began to decline significantly since late February, 2020, and in March, when the epidemic spread, there was a very exacerbated shock, especially in Europe and the United States stock market showed a substantial decline.The U.S. stock market collapsed four times in March.
In addition to the U.S. stock market fuses, the stock markets of Brazil, Canada, Thailand, Philippines, Pakistan, South Korea, Indonesia, Mexico, Colombia, Sri Lanka and other countries also suffered from the fuses.
From early 2020 to March 27, 2020, the MSCI global market index fell by more than 22%, making it the worst performing quarter since the 2008 global financial crisis.
As the epidemic spread globally, demand weakened, and international commodity markets shocked dramatically, with some commodities falling at a record rate.
In the first quarter of 2020, under the influence of Geopolitics in the Middle East, Saudi Arabia announced that it would expand its production capacity and reduce the price of oil exports, resulting in a sharp drop in international oil prices.But gold, favored by hedge funds, has become one of the few highlights in the commodity market.
In early March, the international gold price once refreshed its highest level of $1703 since the end of 2012, and although it has fallen since then, it has risen by more than 5% in the year.
02 The world economy is facing a recession
The overall outbreak time of the global epidemic was one month later than that of China, while that of Europe and America was one and a half months later.On the economic side, the economic impact of the outbreak on these countries has begun to emerge from some data shortly after it was released.
1. The U.S. 's economy
Since the global financial crisis in 2008, the ultra-low policy interest rate implemented by the Federal Reserve has kept the market interest rate center at a low level and supported the long-term prosperity of the capital market. The U.S. stock market has experienced a bull market for 11 consecutive years, accumulating greater risks.
The novel coronavirus Covid-19 pneumonia epidemic and falling oil prices triggered the expectation of worsening economic fundamentals, which in turn led to a substantial recovery of the overvalued capital market.The decline in the stock market will lead to a decline in investment and consumer willingness, further strengthening pessimistic expectations about the economic outlook.
If enterprises encounter financing difficulties again at this time, it may be difficult to continue borrowing new debts and repaying old debts, and the U.S. economy will inevitably fall into recession.
The unemployment rate rose to 4.4% in March from 3.5% last month.Meanwhile, the number of people applying for unemployment benefits in the United States has risen sharply, hitting an all-time high.Without vigorous policy intervention, the U.S. economy could fall into a deep recession.Market agencies generally expect negative second-quarter economic growth in the United States.
The Federal Reserve has learned a lesson from the subprime crisis. Since the outbreak spread in the United States, and in the face of financial market panic, the Federal Reserve has opened a new round of open quantitative easing after two emergency sharp interest rate cuts.
In less than a month, the Fed's monetary policy toolbox has been exhausted after competing debuts of zero interest rates, zero reserves, enhanced discount support, liquidity support tools, and open quantitative easing.
In addition to monetary policy, active fiscal policy has played an important role in past economic recessions.Since the outbreak in the United States, the United States has launched three rounds of economic stimulus bill, the scale and intensity of which is unprecedented.
It should be said that the economic stimulus plan of the United States is necessary for the U.S. economy under the impact of the epidemic, which can alleviate the dramatic decline in resident consumption and compensate for the damaged cash flow of enterprises to a certain extent, and help protect the economy and boost market confidence in the short term.
2. The European's economy
Europe is the worst affected area of this epidemic, among which Italy, Spain, France and other confirmed cases are more.
The Italian epidemic broke out early, Italy learned from China's practice of capping the city, these measures will not be easily lifted until the epidemic is effectively controlled.
Spain has the second largest number of confirmed cases in Europe after Italy, and the Spanish government has declared a state of captivity, restricting the movement of the entire Spanish population, who must stay at home in addition to activities such as food purchase, medical treatment and work.
Relatively speaking, Germany is currently better than most European countries in terms of medical conditions and mortality, and there is reason to believe that Germany can control the epidemic better than most European countries.
Measures taken to control the epidemic have seriously affected economic activities.According to the statistics of European governments, under the large-scale social isolation measures, the actual economic activity is only 60%-70% relative to the normal level.
After the outbreak, many factories in Europe began to shut down and shops closed down.
In the eurozone, the initial PMI of manufacturing industry was 44.8 in March, while that of service industry plunged to 28.4, setting a new low since the global financial crisis in 2008.The initial PMI of French manufacturing industry in March was 42.9, slightly better than expected 40; that of German manufacturing industry in March was 45.7, also better than expected.PMI in the UK manufacturing sector fell by 3.7 percentage points and in the service sector by 17.5 percentage points.
The anticipated downturn shows a lack of confidence in the economy, which has declined compared with the previous value, although the data are better than expected.Together with the severe outbreaks in Italy and Spain, the major economies of the eurozone are in a downward trend, making it difficult to get better in the short term.
3. Emerging market economy
Although the outbreaks in emerging market countries are not as severe as those in Europe and the United States, due to the close links between emerging market economies and developed countries, the overall performance of emerging market assets during this crisis was similar to that of risky assets.
It is reported that during the outbreak, nearly $90 billion of investment was withdrawn from emerging economies.This pattern may persist for some time as shortages of liquidity in developed markets continue to put pressure on emerging markets.Financial stimuli may also help support fundamentals in the short term.
But the crisis is likely to continue until the global epidemic begins to decline.Until then, capital outflow and tight liquidity will remain a key factor in emerging markets and deserve our close attention.
Although emerging markets face greater challenges in the current crisis, it is possible for emerging market countries to adopt positive monetary and financial initiatives to support fundamentals.
Many emerging market economies have large current account deficits that are compensated by capital account and foreign direct investment (FDI) flows.
FDI has remained stable in many emerging market countries.South Africa, Chile, Colombia and Indonesia are in greatest need of foreign capital inflows, based on current account balances and FDI.
From a trade balance perspective, among emerging market countries, South Africa, Chile, Colombia and Indonesia are also most dependent on liquidity.
The current crisis facing emerging market countries is very similar to the situation during the global financial crisis of 2008-2009 and the panic reduction of 2013.
