Daily Management Review

Economists warn of a global recession threat


A recession in the US economy and other countries around the world seems increasingly likely given the impact of the coronavirus pandemic on trade and financial markets, The Wall Street Journal writes.

US stock indices Dow Jones Industrial Average and Standard & Poor's 500 fell by more than 9.5% at the end of trading on Thursday. This is a record fall since October 19, 1987, known as Black Monday. As a result, all three major indices, including the Nasdaq Composite, moved to a bearish trend, that is, fell more than 20% from the last peak levels.

Negative market sentiment did not even change the actions of the Federal Reserve System (FRS), which promised to intervene in the short-term lending market in the amount of more than $ 1.5 trillion on Thursday and Friday, and also expanded the program for redeeming government bonds.

Airline and cruise companies, including United Airlines Holdings, Delta Air Lines, Spirit Airlines and Royal Caribbean Cruises, which fell 21-33%, showed the steepest fall.

The stock markets of Western Europe on Thursday experienced one of the worst days in decades. The composite index of the largest enterprises in the Stoxx Europe 600 region fell 11.5% at the end of the day.

Investors were disappointed by measures announced by the European Central Bank (ECB) to counter the effects of the coronavirus outbreak on the economy. The Central Bank said it would temporarily increase its asset repurchase program by € 120 billion by the end of 2020, and also launch additional long-term refinancing programs, but it kept the base interest rate on loans at zero.

On Wednesday, the World Health Organization announced a pandemic in connection with COVID-19. Following this, US President Donald Trump decided to ban travel from Europe to the States from March 13 for the next 30 days.

Meanwhile, an increasing number of commercial flights, industrial conferences, music festivals, sporting events and other social events have been canceled or postponedin the United States in recent days. Oil producers are suffering losses due to the collapse in oil prices - a number of American shale oil producers last week announced plans to cut drilling and cut costs. All this increases the risk that the longest period of continuous economic growth in history will end in the coming months, the WSJ article says.

"We are moving towards a global recession. The necessary measures that are being taken to curb the spread of the virus will inevitably lead to this," former ECB Vice President VítorConstânciotweeted on Thursday.

In the US, "the chances of a recession are all higher," said JP Morgan Chase economist Michael Feroli.

According to experts, although the cancellation or postponement of public events in the United States will probably slow down the spread of the virus, this will certainly affect consumer spending, while the reduction in drilling volumes will put oilfield services companies with thousands of employees in a difficult financial situation.

source: cnn.com, reuters.com