Repeat after me: “It’s about time.”
— Danielle DiMartino Booth (@DiMartinoBooth) February 25, 2020
Economists try to estimate the impact of a pandemic, but we just don’t know how bad it could get
The world woke up Monday to the reality that the coronavirus epidemic is going to have a much bigger impact on the global economy than investors and policy makers had assumed. Just how big, no one really knows.
Last week, it seemed as if financial markets believed that COVID-19 would be contained. But new cases in Italy, South Korea and Iran over the weekend undermined that belief. The World Health Organization tried to reassure the public on Monday, saying the disease was not yet a pandemic because it was not spreading in an uncontained way.
No matter, stock markets GDOW, -3.53% SPX, +0.23% and other financial markets BUXX, -0.05% TMUBMUSD10Y, -1.22% GC00, -1.29% were quickly recalibrating the worst-case scenario, one in which hundreds of millions of people would be infected, and millions would die.
Nasty, brutish and short
Investors are just beginning to price in the possibility of a sharp and nasty global recession that would be followed by a rapid rebound once the disease has run its course. Whenever that will be.
In the longer run, of course, a pandemic could have more far-reaching effects, including a smaller and less productive workforce and even a reordering of globalization.
A pandemic ‘could produce a short-run impact on the worldwide economy similar in depth and duration to that of an average postwar recession in the United States,’ the CBO found.
We’d like to think that we can know the worst that could happen, but there is still so much that isn’t known about COVID-19, the disease caused by the new coronavirus that emerged in China and now spreading around the world. Most of the economic analysis is based on past pandemics, such as the 1918 global influenza pandemic, and more recent bouts with avian flu, SARS and MERS.
Germany $EWG, Italy $EWI, Japan $EWJ, France $EWQ, and the UK $EWU are all more than three standard deviations below their 50-DMAs. Extreme oversold territory. t.co/e8LECQTizl pic.twitter.com/f1HA3xep6j
— Bespoke (@bespokeinvest) February 25, 2020
Coronavirus now causing rapid tightening of financial conditions t.co/1gvT6HSzDx energy high yield is one asset class to watch
— Edward Harrison (@edwardnh) February 25, 2020
— Liam Denning (@liamdenning) February 24, 2020
“The interconnectedness of our economies means that literally, no man is an island. If one economy starts to struggle, the spillover effects onto others can take hold rapidly,” New York Fed President John Williams said in a speech last November. t.co/q6Yz1BMULt
— Nick Timiraos (@NickTimiraos) February 25, 2020