Author`s name Pyotr Fadeev

Coronavirus makes global economy utterly unstable, like never before

The outbreak of coronavirus in Italy forced Paramount film company to suspend the filming of  "Mission Impossible VII" in Venice. According to the plan, actor Tom Cruise was supposed to spend three weeks in Italy for shooting.

"Out of an abundance of caution for the safety and well-being of our cast and crew, and efforts of the local Venetian government to halt public gatherings in response to the threat of coronavirus, we are altering the production plan for our three week shoot in Venice, the scheduled first leg of an extensive production for 'Mission: Impossible 7,'" Paramount said in a statement.

Meanwhile, economic markets seasaw against the background of coronavirus news. On Monday, February 24, the Dow Jones Industrial stock index dropped by more than 1000 points against the outbreak of the disease in Italy and South Korea (the latter has already recorded more than 1,200 cases of the infection) for the third time in the history of US markets. On Tuesday, February 25, Dow Jones declined by 3.2 percent as the spread of the virus in Iran exacerbated investor concerns. Thus, over the past four days, the stock index of major companies has lost 2,267 points and is now at eight percent lower in comparison with recent record levels.

  • The S&P 500, which tracks a wider range of quoted shares, fell by three percent, which is already lower than the all-time low by seven percent.
  • Nasdaq Composite, the index of high-tech companies, dropped by 2.8 percent (i.e., the current figure is almost 9% below the all-time low).

If the Dow continues to move down and decreases by ten percent, this will mark the official correction in stock markets - brokers and their clients will launch an even more massive sale of revalued assets in an effort to resell them.

The correction in the American stock market cannot but affect other global markets - London, Tokyo and others will not wait. The correction will inevitably affect Russian companies. "Total sale" on the Russian market is not going to happen, but the price of the share of the companies, the products of which are usually in demand in vulnerable markets (the Chinese market in the first place) will decrease significantly, because their revenues will obviously fall.

USA expects Covid-19 to strike hard, really hard

All this is happening as the market is already considering a high probability for the US Federal Reserve to lower the rate. Fed Vice Chair Richard Clarida noted on February 25 that the central bank was closely monitoring the spread of the coronavirus infection and its impact on the economy, but it was premature to talk about consequences. Nevertheless, the representative of the Federal Reserve assured that the reaction would follow immediately if any factors become a threat to the forecast of economic growth in the United States. On February 24, 14 cases of the coronavirus infection were reported in the country.

The decline in oil prices continues as well.

  1. On Tuesday, Brent lost 2.4 percent, having reached the price of $54.95 per barrel.
  2. West Texas Intermediate crude fell in price by three percent to $49.9.
  3. On February 25, the Russian Urals was trading at 53.55 dollars per barrel, having lost almost ten percent in one month (on January 27 it was traded at $57.15).

According to the IMF forecast, the global economy will grow by 3.3 percent this year, which will be 2.9 percent higher than last year's growth. However, as IMF Chair Kristalina Georgieva said at a meeting of finance ministers and central bank governors of G20 countries on February 24, such an increase in growth was vulnerable to unforeseen circumstances: the pandemic may affect the final result.

"COVID-19 is a stark reminder of how a fragile recovery could be threatened by unforeseen events," she said.

Kristalina Georgieva emphasized that even in the event of an effective response to the disease from the countries of the world, it is impossible to completely avoid the impact of the pandemic: the coronavirus will reduce global growth by 0.1 percent, and the Chinese economy will grow this year by no more than 5.6 percent.

The International Air Transport Association (IATA) estimated potential losses to the airline industry at $29.3 billion this year. For the first time in ten years, the number of passengers has fallen.

  • Jaguar Land Rover warned that the stock of auto parts for the assembly of cars at British factories was close to exhaustion, while the Chinese factories, where they are manufactured remain closed.
  • Apple Corporation announced a drop in demand for its products and revised its revenue forecast. The company also suffers from the shortage of parts due to production problems in China).

Coronavirus from China's Wuhan remains a factor that makes the current state of affairs in the  world utterly unpredictable and uncertain. The Chinese economy alone provides for more than 18 percent of global GDP. It is difficult to predict what the spread of the pandemic and even partial economic paralysis of other countries, including the developed ones, may lead to.