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Best of the Web - Feb '20

Executive Summary

Developments on the Coronavirus or Covid19 and its potential impact on the global economy dominated global sentiment in February.

How will Covid19 impact the global economy in 2020?

The outbreak of the coronavirus has now spread well beyond China’s shores, with 6 major hotspots outside of Mainland China: Singapore, Japan, South Korea, Italy, Iran and the Diamond Princess cruise ship docked in Yokohoma, Japan.

Weak global growth: The global economy could see growth slowing down to around 3.2% in 2020 according to the IMF in their most likely scenario of containment, denting the fragile recovery expected for the year. Most of the weakness is likely to be seen in the first quarter, but further outbreaks in different countries could make the disease even harder to contain, and compound the economic weakness.

Disrupted supply lines: Beyond the immediate hit on growth, supply chains across the world have been heavily disordered. This could extend the period needed for a recovery in growth even if the disease outbreak is contained early.

Possible recession: If the outbreak isn’t contained within the 2nd quarter, analysts warn of the likelihood of an imminent recession.The global economy was already weak from geopolitical tensions and a weakening industrial sector in 2019, and sustained negativity could push the world into recession.

What about the direct impacts on individual economies?

Weak consumption, a labour force reluctant to get to work, and persistent fears of the virus are driving most direct impacts on individual economies.

Chinese economy: As key areas in the country remain in lockdown, consumption and manufacturing have seen some of the largest slowdowns in recent years. China is expected to add stimulus in the 2nd quarter to avoid the negative implications of this, but even the Chinese government expects a “relatively big” hit on the country’s growth.

US economy: US companies are seeing their supply chains affected, and companies such as Apple have begun to experience weaker revenues as a result of the virus. The services sector has also fallen to levels associated with the 2008 financial crisis, and if the outbreak isn’t contained, the US economy could tip into recession.

Developing world: Most impacts on developing world economies have been as a result of supply chains being disrupted, as export performance across the board declined this month.

How have commodities been performing?

Oil prices fell in February, but saw a mid-month correction:

Gold prices rose across February:

  • Investors flocked to safe haven assets as risk rose in February due to Covid19 and subsequent weak economic data out of the US. Prices rose from a low of US$ 1550.40 per ounce on the 04th of February to a high of US$ 1668.25 per ounce by the 23rd of February.


Top 5

Coronavirus poses risks to fragile recovery in global economy: IMF

The economic impact of the coronavirus could derail a weak recovery in the global economy according to the IMF. While impacts on China could remain subdued due to stimulus in the 2nd half of the year, the disruptions that the virus has already had on global trade and consumption could easily put the world on the edge of a downturn. Such a situation would mean that any further shock, such as an escalation of trade tensions, could put the global economy in reverse gear.

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Global Economy Teeters Toward Recession

The global economy could once again be at the edge of a recession. Key economies in the world such as Japan and Germany are likely to fall into recession this year. Other economies, such as the US, China, and the UK are also facing large weaknesses of their own, and now with the added impacts of the coronavirus, a recession could be imminent

Global Economic Policy Direction Now Hinges on China’s Next Move

Economic policy all over the world is now waiting to see how China responds to the economic fallout over the coronavirus outbreak. Increases in short term credit could raise interest rates across Asia in the medium term, reducing the space for monetary policy action by other countries. On the other hand, not stimulating the economy enough could have near catastrophic consequences for developing market growth rates.

Coronavirus Is Grinding the U.S. Economy to a Halt – Here’s the Ugly Proof

The US economy is starting to feel the negative economic impacts of the rising global epidemic, as both services and manufacturing showed some of the weakest performances in 6 years. This weakness could even point to an outright contraction in GDP for the first quarter, and if the situation continues, might push the US into recession for the year as well.

As ‘do-or-die’ IMF talks draw to a close, Argentina faces prospect of another default

Analysts believe a default is likely for Argentina. The Argentine economy is having crucial talks with the IMF this week as it looks to restructure $100 bn in debt in order to avoid its 9th sovereign default. Analysts believe that a default is likely as the ruling coalition lacks the cohesion required for the political backing on the restructuring terms.

Compiled by: Chayu Damsinghe

Disclaimer: This information has been compiled from sources believed to be reliable but Frontier Research Private Limited does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment as of the date of the material and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The recipient of this report must make their own independent decision regarding any securities or financial instruments mentioned herein. Securities or financial instruments mentioned herein may not be suitable to all investors.


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