The Bank of America has declared that the world may be facing a coronavirus-induced recession following the devastating effects of the outbreak on global economy.
Barely some three months after it broke out, the coronavirus pandemic has shaved off nearly a third of the global market capitalisation of global equities markets.
The spread of the virus has triggered panic across the world and shaken the confidence of investors.
Reports indicated that between Decembers when the first case was discovered, and now, the global equity market alone has lost $24 trillion in value, more than the $22 trillion in United States GDP, as reported by the Bank of America in its research journal.
At the initial stage, only the global stock and debt markets were impacted by the Coronavirus scare, but now, the commodities and money markets have also been affected due to the crude oil war between Saudi Arabia and Russia.
For instance, Brent crude futures dropped by $1.09, or 4 per cent, to $25.39 a barrel by 12.30-noon Nigerian local time. West Texas Intermediate crude was down 0.7 per cent, at $22.48 per barrel.
Oil prices have fallen for four straight weeks and have given up about 60 per cent since the start of the year.
Just last week, Nigeria closed down all its airports to international flights, and is also planning to reduce its N10.6 trillion budget by almost N1.5trn as the government reacts to the economic fallout of the coronavirus outbreak.
The pandemic has taken a massive toll on Africa’s largest economy and biggest oil producer after causing a dent in global demand for the resource which accounts for roughly 90 percent of the government’s foreign exchange earnings.
Reacting to the development, Mr. Olanrewaju Durojaiye, a financial advisor for a leading Canadian bank, said: “The effect of the COVID 19 on the financial market is devastating, considering that a chunk of the world’s production is located in China.
“This would have been better managed for financial markets if we didn’t have the oil price issue between Saudi and Russia.”
The Organisation for Economic Cooperation and Development estimates that the coronavirus outbreak could cut global economic growth in half, or worse.
Temitope Busari (CFA), a treasurer in a leading financial firm based in Lagos, also explained that the outbreak affected demand and supply of commodities and production input, disrupted supply chains, led to travel bans and enhanced social distancing with more people working from home.
“This pandemic will definitely lead to a slowdown in the global economy, with bigger numbers of contractions expected in emerging market economies as foreign portfolio investors continue to exit to safety. Additionally, what I believe to be more worrisome is the potential catastrophic impact of COVID-19 on the healthcare system and health workers in Nigeria.”
But the market’s reaction and its evaluation of the economic impact of the virus wiping out several trillion dollars of value in global financial markets suggest what is certain to anyone outside of the investing world: you can’t cure a virus with monetary policy as quantitative easing.
Victor Silas, an investment analyst, said: “The effect of coronavirus in the global financial market cannot be overemphasised. In the commodity market, crude oil prices have fallen drastically due to low demand from China, which is a large consumer of the commodity.”
Meanwhile, the global economy is expected to grow by 2.4 per cent in 2020 down from the 2.9 per cent projected earlier, said a report by OECD.
