The Organisation for Economic Cooperation and Development (OECD) has warned that expected worldwide economic growth for 2020 could fall to as little as 1.5% from the previously forecast 2.4%. While this is seen as a worst-case scenario, it is now recognised that the coronavirus is the single largest threat to the worldwide economy since the financial collapse of 2008. Indeed, some experts believe that the reverberations as a consequence of the coronavirus could be more wide reaching.
Weak economies getting weaker
When you bear in mind that worldwide economic growth hit 2.9% 2019, what was seen as a weak year, 2020 could be even worse. While Chinese economic growth is expected to fall below 5%, compared to 6.1% in 2019, many people are already sceptical of these figures. Even this would be the weakest growth rate in China for nearly 30 years and cast a serious doubt on prospects for the worldwide economy. China and the Far East are extremely important to the worldwide economy and as we know the coronavirus has already had a huge impact in this area.
There is obviously never a good time for this type of scenario but from an economic point of view the timing could not be worse. China has been struggling after a trade war with the US, the EU (led by Germany) nearly dipped into recession and Brexit trade talks have not started well. All in all there is a lot of hard work for governments around the world to do in order to bring the worldwide economy back onto a more stable footing.
V shaped recovery
Over the next few weeks and months you will hear talk of a “V shaped recovery” which effectively means that some experts predict a sharp bounce in worldwide economy once the coronavirus threat recedes. This may well be the case but there are a number of issues to take into consideration such as:-
• Severely weakened company balance sheets
• Low consumer confidence
• Weakened central banks
• Growing household debt
If the coronavirus had happened years before or years after the 2008 financial crisis we would probably be looking at a different scenario. The current situation is not good. After the 2008 crisis central banks across the globe were forced into a period of quantitative easing to maintain liquidity in money markets. This took up a huge chunk of their financial strength amid suggestions many would struggle to repeat the same actions today.
Moving onto investment markets, we have already seen a significant fall in worldwide stock markets. Confidence is shattered, investors are running for the hills and unfortunately amid ongoing uncertainty it is difficult to say when the sell-off will end. There is also the fact that many technology-based companies had previously been pushed to levels which were unsustainable in bull markets never mind bear markets. These have become the target for shorters keen to encourage as much confusion and concern as possible to push prices lower and lower.
The outlook for the worldwide economy at the moment is not good, investor confidence is shot to pieces and stock markets around the world are struggling to find a balance. A period of consolidation would be perfect at this juncture but that would appear unlikely as the coronavirus continues to sweep across the globe bringing lockdowns to country after country. The next threat is the possible threat of contagion.