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Best of the Web - Mar '20

Executive Summary

Developments related to the Coronavirus Covid-19 outbreak, its potential impact on the global economy and action being taken by countries dominate global news in March.

How will Covid19 impact the global economy in 2020?

Covid-19 has been declared a global pandemic, and with over 400,000 recorded cases, most countries that have been impacted are now undergoing varying levels of lockdown.

Catastrophic second quarter: Most of the world is now in lockdown, with some countries already expected to continue in this path for at least another month. Even countries that earlier avoided such measures have now begun to initiate them. With the world close to an economic standstill, the second quarter is expected to be extremely negative for the global economy, with some estimates seeing double digit contractions in GDP.

Likely recession in 2020: With the impacts of Covid-19 expected to continue throughout the year even if lockdowns are later lifted, the damage already caused is very likely to push the global economy into a recession, with the IMF warning that this could even be worse than during the global financial crisis.

Recovery depends on medical scenarios: While there is an overall consensus that 2020 will be far worse than 2019, analysts differ on how soon a recovery can be expected. These differences tend to be driven by different medical scenarios, and the longer it takes for the virus to be contained, the longer and slower any recovery will end up being.

What about the direct impacts on individual economies?

Chinese economy: After a 1st quarter spent mostly in lockdown, the Chinese economy is starting to restart gradually. While output is nowhere near pre-Covid levels and supply lines for Chinese manufacturers remain disrupted, China is expected to move to a new normal much earlier than other economies.

US economy: Following a series of imposed lockdowns, the US economy is also expected to suffer this year. Unemployment claims are expected to rise to record highs, while most analysts think the year could easily end in recession.

Developing world: Emerging markets have been seeing significant risk-off sentiments, with high levels of outflows, as investors move into safer assets to safeguard their portfolios in the midst of the crash seen in global equities. Combined with other economic impacts of the virus, the developing world is also likely to see a substantial slowdown in growth.

How have commodities been performing?

Oil prices tumbled in March:

Oil prices started from highs of US$ 54.95 per barrel on February 25th, but a combination of low global energy demand and a price war between Saudi Arabia and Russia brought prices of Brent Crude down to an 18-year low of US$ 24.88 per barrel by the 18th of March, before recovering slightly to US$ 27.15 per barrel by the 24th of March.

Gold prices seesawed in March:

On the back of safe haven asset purchases, gold prices rose to highs of US$ 1,675.70 per ounce by the 9th of March. However, prices subsequently fell to lows of US$ 1,477.90 per ounce by the 18th of March as investors sold gold to raise cash amidst losses in equity markets and low liquidity in US Treasuries. However, gold prices rebounded once again, reaching US$ 1,660.80 per ounce by the 24th of March, after liquidity was pumped into US Treasuries by the Federal Reserve.


Top 5

Global economy staring at a recession this year, says IMF The International Monetary Fund warned that the global economy could be staring at a recession that is as bad as or worse than the global financial crisis of 2008 because of the Covid-19 outbreak. IMF is expected to substantially reduce its growth estimates for most economies in its World Economic Outlook, which it is scheduled to release in April.

Emerging Markets Are in the Fastest Collapse in a Generation

Emerging markets have suffered brutal losses with the worst start to a year seen in the history of the asset class. The impacts in Brazil are especially severe with stock markets crashing. Policymakers cannot afford to launch a large stimulus package, but neither can they cut interest rates, as the pressure it will place on the Real would further erode purchasing power.

Asian governments warn of more economic, fiscal pain from virus Asian economies are now bracing for negative growth as the Coronavirus outbreak affects sectors that many of these countries rely on. The Philippines, Thailand and Indonesia have announced both fiscal and monetary stimuli to counter the negative impacts of the outbreak.

The IMF is ready to mobilize $1 trillion as nations fear a virus-driven global downturn The International Monetary Fund is ready to tap its $1 trillion lending capacity as the coronavirus spreads, the latest sign of concern that the epidemic could push the global economy toward a downturn. It indicated that it stood ready to provide aid to its 189 member nations and encouraged governments and central banks to deploy their own stimulus measures.

Lebanon defaults on debt for first time ever

Lebanon would for the first time ever default on a debt payment, and work to restructure its $92 billion in sovereign debt. The country for the first time on Monday failed to make a $1.2 billion Eurobond payment. Lebanon has additional payments due this month totaling around $700 million, and another $600 million in June, on Eurobonds − sovereign bonds issued in this case in dollars − some of which are held by commercial banks and the central bank.

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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