With many countries imposing travel bans, sporting events cancelled, mass gatherings prohibited, stock markets in freefall and shopping malls being deserted, international financial experts are warning that the world is already in a recession.
In Nigeria, Group Managing Director of Nigerian National Petroleum Corporation (NNPC), Mr Mele Kyari, said on Wednesday last week that Nigerians should prepare for economic trouble for at least three months depending on how low, the crude price goes.
At least four former IMF chief economists agreed that although addressing the public health needs was the first priority, governments should start preparing to spend significant sums to protect businesses and households with a sharp downturn likely.
Most affected sectors currently are leisure amenities, tourism, travel, transportation, energy, financials, continued lockdown of cities and countries like Italy and Iran may eventually affect manufacturing and agriculture products distribution.
Senior fellow at the Peterson Institute, Olivier Blanchard, said there was “no question in my mind that [global economic] growth will be negative” for the first six months of 2020.
The second half would depend on when peak infection was reached, he said, adding that his “own guess” was that this period would probably be negative as well.
ALSO READ: Corruption: Bauchi govt called to adopt whistleblower policy in governance
Raghuram Rajan, professor at Chicago Booth School of Business and a former Indian central bank governor, said the depth of any economic hit would depend on the authorities’ success in containing the pandemic, which he hoped would be decisive and rapid.
“Anything prolonged obviously creates more stress for the system,” he said.
A long outbreak could also lead to the second round of consequences, where workers were let go and there was another fall in demand, eroding long-term confidence, he warned.
“These kinds of effects — firms closing down — depending on how prolonged the first round is, and what steps we take to alleviate that first round. So it is up in the air,” he said.
Up until a month ago, it was assumed that the coronavirus outbreak would be a localised problem for China and that any spillover effects to the rest of the world could be comfortably managed by a bit of policy easing by central banks.
According to some experts, if people do not go out to their weekly meal at their favourite local restaurant for the next two months, they are not going to eat out four times a week when the fear of infection has been lifted.
It also seems likely that the economic pain will go on for longer than originally estimated.
Having imposed bans and restrictions, governments and private-sector bodies will be cautious about removing them.
There will be a recovery but it will take time and only after much damage has been caused.
The SPDR Bloomberg Barclays High Yield Bond ETF (JNK) dropped more than 6% this week, while the iShares iBoxx $ Investment Grade Corporate Bond ETF fell more than 8%.
“Default and downgrade risks have increased to their highest levels since the start of the current business cycle,” Lotfi Karoui, chief credit strategist at Goldman Sachs, told clients this week.
Much of the risk lies with energy companies, which have ramped up borrowing in recent years to build pipelines and fund other projects.
Looking to take advantage of low-interest rates, companies have rushed in recent years to issue bonds whose proceeds could be used to grow their businesses.
Corporate debt among non-banks exploded to $75 trillion at the end of 2019, up from $48 trillion at the end of 2009, according to the Institute of International Finance.
and then