Can Coronavirus Cause a Huge Financial Crisis?

The impact of the coronavirus outbreak on the economy will depend on several factors, such as how fast the virus will spread and the government’s ability to manage it. Unfortunately, this is bad news.

Last Monday, Dow Jones fell by more than 2,000 points, which may be a result of the growing fears behind the outbreak as well as the oil prices. The financial markets in Asia and Europe have also plummeted, which makes this truly the worst week for the stock market. 

This is just one of the series of bad news that has grappled the economy during this coronavirus pandemic. The spread of the virus, which is referred to as COVID-19, has disrupted the supply chains and sapped the sales of products across various industries. Above all, it has thrown the travel industry into chaos and has truly caused chaos in the stock markets leading to fears of a global recession.

There are still a lot of things that we don’t know about the coronavirus, which makes it even more worrying. It’s also difficult to totally isolate the virus outbreak from the rest of what’s happening in the world, which could disrupt the market and strain the economy.

So, how deep and lasting the fallout of the economy will be hard to predict at the moment. But with the way the market is reacting and seeing the government responses to this crisis, it’s clear that the world is about to witness an economic downturn that’s a result of the Coronavirus outbreak.

What is Happening to the Stock Market?

To date, there are now more than 100,000 confirmed cases of coronavirus worldwide. The virus has been spreading rapidly in Asia, the United States, Europe, and even South America. More than 4,000 people have already died and most of the fatalities are from Mainland China, which is the outbreak’s epicenter. The fear that the virus will continue to spread and trigger a financial crisis that could affect the global economy is one of the main reasons behind these economic jitters.

With a fatality rate of around 2%, the virus has proven that it’s indeed deadly. However, this might change in the coming days and especially since more people have only mild symptoms. The virus has now been considered a pandemic. However, many are hopeful that government intervention may be able to dull its effects on the economy. 

Take note that the stock market is not the economy. However, the condition of the economy indicates how worried are the investors about the economic outlook for the coming years. They are basically predicting that the coronavirus will continue to spread at a rapid pace and trigger more disruptions in the economy. The outbreak could also dampen the demand and perhaps lead to a global economic slowdown.

This is especially the case for companies belonging to the tourism and travel industry, which are greatly affected by this coronavirus outbreak. It has even made worse by the cancellation of several major events around the world.

The conflict between Russia and Saudi Arabia over oil also triggered a dip in the prices of oil last Monday, which can also add up to the fears of a much broader slowdown. As of now, the investors are at a loss on whether a global slowdown will happen. No one can ever predict that. Yet, they are already bracing themselves for what’s about to happen. They are already reacting to fears but once the good news starts coming in, their reactions might swing in the opposite direction.

Businesses Suffering

Apple is among those companies that have considered revising their financial projections. Nike is also expected to predict a grim quarter. Both companies will also get a double whammy result out of this crisis since they are known to have most of their manufacturing plants in China.

Before the outbreak, several factories in China were already functioning with only a few employees and had to deal with delays as a result of the Chinese New Year. And when coronavirus came into the picture, this resulted in the shutting down of various factories.

Even the factories from the unaffected areas of the country that need to restart their production have to deal with challenges on logistics due to travel restrictions.

Will There Be a Global Recession?

In the midst of this chaos, many people would want to know if this pandemic could trigger a global recession. Yes, it definitely will. But if a recession will indeed happen, how bad can this be? It will mainly depend on how world leaders have managed to resolve the crisis.

Generally, a recession is a back-to-back quarter of negative growth in the economy and is often measured with the GDP or gross domestic product. This refers to the total value of products and services that have been produced at a particular period.

According to some experts, the GDP of China could end up suffering a lot during the first quarter since they make up about 17 percent of the overall global economy. This is obviously not great news. The country’s estimated GDP for the first quarter is at around 6%.

Most of the financial experts and economists around the world are looking at China and are only hoping for the best for the first quarter. Most of them are expecting a negative result on the first quarter’s GDP and that alone will hurt the world’s GDP.

Conclusion

Whatever will happen to China’s economy will certainly have ripple effects on the global economy. The countries in the Eurozone are already bracing for what’s about to happen since their GDP has only grown by 1% in the last quarter of the previous year. Any shock could certainly lead to negative growth.

The United States certainly has the strongest economy right now, so the global economy is still somehow protected. Its GDP grew by 2.1% during the 4th quarter of the previous year and experts revealed that it might get worse in 2020. But for now, it doesn’t seem to result in negative growth.