Impact of Coronavirus on Economy

Impact of Coronavirus on Economy

The long-anticipated – and feared – moment when Covid-19 would infect the markets arrived with a bang. Despite efforts by central banks and a less-than soothing address from President Trump, markets the world over went into free-fall as the coronavirus extended into more than 80 countries, sending infections and deaths surging.

With comparisons to Black Monday of 1987 and the great crash of 2008 circled on policymakers’ jotters, the New York Fed said it would inject a record $1 trillion into American money markets by purchasing Treasury securities across a range of maturities.

That is quantitative easing on a scale and with a speed never seen before, wrote David Goldman. The Fed is trying to stop a financial avalanche that threatens to bury risk assets and throw the world into a deep recession.

It was enough for US stock prices, which had fallen by almost 10% at their lowest, to recover a good deal of their lost ground by the end of the week.

For a gauge of the impact on the broader economy, look no further than US Treasuries.

Prices of the benchmark debt climbed to their highest levels since 2009, as investors continued to flee risk assets, writes by David Goldman. The market, though, highlights how the dollar can no longer be considered the haven asset it has been for decades.

Even as the world tries to grapple with COVID-19 — and is miserably falling short — it may not be the last such pandemic to engulf the planet, going by the recent outbreaks of viral infections.

The United Nations has warned that the global economy faces “a US$2 trillion hit” in a “doomsday scenario” after the WHO declared a worldwide pandemic. As the Covid-19 disease spreads across the planet and the battle switches from China to Europe and the US, concerns are growing that global growth will be wiped out as consumer demand evaporates, Gordon Watts reports.

Rate cuts: Such restrictions are bound to cause a drop in economic activity. The world economy was already strained by the Chinese lockdown. To cope, countries are proposing various forms of stimulus. In the US, the Trump administration could introduce a payroll tax cut to put more cash in people’s hands. The US Federal Reserve, which last week cut benchmark interest rate to boost lending activities, said it will inject $1.5 trillion into bond markets. The UK has slashed the interest rates and revived a programme to support lending to small and medium-scale businesses. Tax breaks and cheaper loans were also introduced in Germany. Australia said it will spend $11.42 billion to avoid a recession.

Fund for healthcare: Then there are the funds to support the overburdened healthcare system. Italy has launched a $28 billion package, while the European Commission has earmarked a similar figure. Iran, which is reeling under the US sanctions, took a rare step of seeking financial assistance from the International Monetary Fund (IMF). The IMF has not lent Iran money since 1962 — that is, never since the Islamic Revolution.

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