A worker drives motorcycle next to a stack of containers at Tanjung Priok port in Jakarta
THE global economy is in recession, Universal Basic Incomes becomes a reality while stock markets continue to plummet and the Texas oil regulator meets with Opec amid a historic fall in crude prices.
In addition to all of this, rating agencies could soon downgrade many of BBB-rated companies in light of the market turmoil, converting them into so-called fallen angels.
For the third to fifth consecutive week, the European STOXX 600 index closed in the red as fears over the fallout from the Covid-19 coronavirus continue to spread all over the world. Even regional stimulus measures failed to hold.
As a consequence, S&P 500 fell 15%, Nasdaq Composite lost 12.6%, Industrial Dow Jones ended down 17.30%, UX 100 Index 3.27%, DAX 3.28% and the Euro Stoxx 50 Index 1.45%.
The Nikkei 225 tumbled 10.81%, the Hang Seng Index 5.11%. However, the Russian Moex Index inched up 0.66% whilst the Spanish Ibex 35 lost 2.81%.
In this context, it should not come as a surprise that many research agencies began talking about the recession.
Earlier last week, Bank of America has lowered global growth projections, expecting the US gross domestic product to contract by 12% in the second quarter after growing only 0.5% in the current one.
"We believe that the US economy has fallen into recession, joining the rest of the world, and it is a deep plunge. Although the decline is severe, we believe it will be fairly short-lived," said Michelle Meyer, U.S. economist at BofA Merrill Lynch.
"We expect the economy to return to growth in 3Q. Jobs will be lost, wealth will be destroyed and confidence depressed. The salvation will come if there is a targeted and aggressive policy response to offset the loss of economic activity and ensure a sound financial system."
To prevent further destruction of the economy, the House plan calls for a money-financed fiscal programme to fund automatic stabilisers in the form of at least US$2,000 for every adult and an additional US$1,000 for every child for each month of the crisis.
All consumer and small business credit payments (including mortgages, car notes, student loans, credit cards, small business loans, personal loans, etc.) would be suspended during the pandemic.
The Federal Reserve or Treasury would also establish a facility to reimburse creditors, and servicers for lost revenue and expenses, including payment advances. No negative credit reporting would be allowed during this time, and debt collection would be prohibited.
The European Central Bank on Wednesday, in turn, said it would spend €750bil on "emergency" bond purchases to counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the outbreak and escalating diffusion of the coronavirus, COVID-19.
The Governing Council will terminate net asset purchases under PEPP once it judges that the coronavirus Covid-19 crisis phase is over, but in any case not before the end of the year.
“Economic activity across the euro area will decline considerably. Public policies cannot prevent this. What they can do is ensure that the downturn is no longer and deeper than it needs to be. The current situation creates acute strains on the cash flows of companies and employees, putting the survival of firms and jobs at risk. Public policies must help them, ” the Council said in a statement.
Finally, The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank announced on Friday a coordinated action to further enhance the provision of liquidity via the standing US dollar liquidity swap line arrangements.
Talking about the energy market, according to a report from The Wall Street Journal, the U.S. oil industry spoke with Opec, trying to resolve a Saudi-Russian price war that has crashed oil markets in the past few weeks. Potentially it could help to stabilize the oil market, but an agreement has to be reached first, and it will take some time.
Overall, we shouldn’t forget that US elections are coming and President Donald Trump will do anything to preserve his seat.
From introducing “helicopter money” that involves distributing large sums of money to the public in order to stimulate the economy, to allowing states to cancel standardised testing this year amid worsening coronavirus pandemic and letting college students suspend loan payments.
https://www.thestar.com.my/business/business-news/2020/03/22/global-economy-sinks-into-recession
