Business

Covid-19 sparks global recession fears

Covid-19 sparks global recession fears

The coronavirus has caused global worries that the pandemic will drive the world economy into a recession or to the edge of it, hence investors should act sooner rather than later to safeguard their wealth.

The stark warning comes as a market sell-off was triggered yet again on Wednesday by concerns over the impact of Covid-19 outbreak with markets across the Middle East, Asia, Europe and the US losing massively. Markets lost well over Dh2 trillion at the start of this week.

In fact, many investors have already started pricing in the possibility of a sharp and nasty global recession following two massive declines in the financial markets this week.

"Investors have largely been caught off-guard by the serious and far-reaching economic consequence of the coronavirus.  This, despite major multinational organisations already lowering their profit guidances, and many more likely to do so in coming weeks. Clearly, this will hit global supply chains, economies across the world and ultimately government coffers too," saidNigel Green, founder and CEO of deVere Group.

"However, it does seem that this week the world is waking up to the reality of the situation as the containment of coronavirus hasn't yet materialised and confirmed cases soar in different countries. Until such time as governments pump liquidity into the markets and coronavirus cases peak, markets will be jittery triggering sell-offs."

Green warned that the economies of Japan, Germany, India and Hong Kong are already facing severe headwinds while $200 billion worth of purchases by China of US products under the US-China trade deal won't be easy under current circumstances Beijing is going through now. He alerted that these headwinds will affect business confidence and investment, profits and consumer demand during 2020.

"Together they could push the world to the brink of a global recession this year. This would be severe because central banks are running out of weapons to see off the threats. Whilst I am confident that we'll narrowly avoid a global recession in 2020, no-one can accurately predict the future - as we have seen with coronavirus, which markets wrongly assumed would be limited to mainly China," Green added.

Carlo Capuano, economist at DBRS Morningstar, also warned that Italy could very well experience a technical recession - two consecutive quarters of negative growth - as many cities of the European country have been quarantined in order to control the disease.

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