In just two months, CORONAVIRUS brought the world economy to its knees

In just two months, from the emergence of a new coronavirus in China to “Black Monday,” which brought equity markets down like never since the 2008 financial crisis, the COVID-19 epidemic brought the global economy to its knees.

It all started in the Chinese city of Wuhan, an industrial metropolis of some 11 million inhabitants, where at the end of December 2019 several cases of viral pneumonia of unknown origin were detected.

The disease spread rapidly, and on January 9 the Chinese authorities attributed these cases to a new type of coronavirus.

Two days later, the first death due to the new coronavirus was recorded in China, which spread first to Asian countries and shortly thereafter to the world, surpassing 115,000 cases of infection to date.

In late January, China decided to quarantine Wuhan and banned the reopening of hundreds of factories in the region immediately after the Chinese New Year holiday.

The tourism and transport sectors were the first to worry about this epidemic, as many countries adopted restrictions on the arrival of citizens of the Asian giant.

In late January, the markets experienced the first shocks, from Shanghai to Wall Street, and commodity prices, which have a huge market in China, collapsed.

Between mid-January and early February, oil prices fell about 20%.

The new coronavirus revealed the dependence of the global industry in relation to the Chinese industry.

The world discovers that Wuhan, an almost unknown city, is a logistics hub and automotive production center for many international groups and that a mishap in one of its factories can have consequences for multiple companies in the world.

In Germany, South Korea, Japan, Italy, France or the United States, industrialists realized the difficulty they had in obtaining parts and components generally produced by Chinese partners.

The French manufacturer Renault, for example, had to suspend one of its factories in South Korea, and the American giant Apple faced a production cut from its suppliers.

Economists said there was a massive “supply shock” due to China’s key role in world trade and world leaders began to worry about its consequences on trade and growth in a difficult context due to trade tensions between China, United States and Europe.

“COVID-19, a global health emergency, has disrupted economic activity in China and could jeopardize the global recovery,” the new head of the International Monetary Fund (IMF) Kristalina Georgieva warned on February 23.

In the face of the spread of the epidemic, the multinationals warn that the health crisis will harm their results and the stock markets begin to fall.

In the last week of February, the stock markets of the United States and Europe lost 12%, something never seen since 2008-2009 when the world economy went into recession due to the financial crisis.

The word recession begins to settle in the comments of experts and leaders. And the authorities begin to mobilize to try to avoid it.

On March 3 the United States Central Bank (Fed) surprisingly lowered its interest rates. China poured billions of dollars into the market to sustain the activity and Germany, France and Italy adopted plans to support their companies.

On March 11, the Bank of England lowered interest rates from 75% to 25%.

This is to avoid adding to the “supply” crisis a global shock of “demand”, a sharp drop in consumption and investment, if other countries, like Italy, must apply drastic measures of confinement.

However, in principle, as in Los Angeles or Sydney, people invade supermarkets to stock up on essential products.

But planes travel nearly empty or remain stationary as companies cancel thousands of trips. The epidemic could cost airlines up to $ 100 billion, the International Air Transport Association (IATA) said March 5.

Oil is sinking

To make matters worse, the price of oil sank on Monday, March 9, dragging the stock markets that suffered spectacular falls.

Three days earlier, in Vienna, where the OPEC + meeting was held, Saudi Arabia and Russia failed to agree on a drop in production to stabilize the price of crude.

Annoyed at the lack of agreement, Saudi Arabia launched a price war, which left the barrel of crude close to $ 30, after a drop in a day never seen since the Gulf War in 1991.

The collapse of oil caused panic in the stock markets that closed with losses of up to 8% on Monday and saw trillions of dollars of market capitalization disappear in a few hours.

Analysts fear that falling oil and markets will destabilize banks and large investment funds.

Governments and central banks must “prevent a temporary crisis from irreparably damaging individuals and businesses due to job losses and bankruptcies,” said Indo-US Gita Gopinath, chief economist at the International Monetary Fund (IMF) , when referring to the current situation.

In 2008-2009, the G20 (Group of 20 industrialized and emerging countries, representing 66% of the world population and 85% of GDP) took the reins of the response to the crisis to such an extent that it was described as ” world economic government. “

Eleven years later, the situation is substantially different due to the trade war, Brexit, and political instability in Europe.

There is no indication that the G20, chaired this year by Saudi Arabia, can fulfill the same role as in the 2008 crisis.

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