The Global Economy in February 2020
Developments on the Coronavirus or Covid19 and its potential impact on the global economy dominated global sentiment in February.
How will Covid19 impact the global economy in 2020?
The outbreak of the coronavirus has now spread well beyond China’s shores, with 6 major hotspots outside of Mainland China: Singapore, Japan, South Korea, Italy, Iran and the Diamond Princess cruise ship docked in Yokohoma, Japan.
Weak global growth: The global economy could see growth slowing down to around 3.2% in 2020 according to the IMF in their most likely scenario of containment, denting the fragile recovery expected for the year. Most of the weakness is likely to be seen in the first quarter, but further outbreaks in different countries could make the disease even harder to contain, and compound the economic weakness.
Disrupted supply lines: Beyond the immediate hit on growth, supply chains across the world have been heavily disordered. This could extend the period needed for a recovery in growth even if the disease outbreak is contained early.
Possible recession: If the outbreak isn’t contained within the 2nd quarter, analysts warn of the likelihood of an imminent recession.The global economy was already weak from geopolitical tensions and a weakening industrial sector in 2019, and sustained negativity could push the world into recession.
What about the direct impacts on individual economies?
Weak consumption, a labour force reluctant to get to work, and persistent fears of the virus are driving most direct impacts on individual economies.
Chinese economy: As key areas in the country remain in lockdown, consumption and manufacturing have seen some of the largest slowdowns in recent years. China is expected to add stimulus in the 2nd quarter to avoid the negative implications of this, but even the Chinese government expects a “relatively big” hit on the country’s growth.
US economy: US companies are seeing their supply chains affected, and companies such as Apple have begun to experience weaker revenues as a result of the virus. The services sector has also fallen to levels associated with the 2008 financial crisis, and if the outbreak isn’t contained, the US economy could tip into recession.
Developing world: Most impacts on developing world economies have been as a result of supply chains being disrupted, as export performance across the board declined this month.
How have commodities been performing?
Oil prices fell in February, but saw a mid-month correction:
- Oil prices started from highs of US$ 59.81 per barrel on January 29th, but continued fears of a global pandemic situation in the wake of Covid19 brought prices of Brent Crude down to a low of US$ 53.27 per barrel by the 10thof February.
- Mid-month optimism on coronavirus containment caused oil prices to rise back up to US$ 59.31 per barrel by February 20th , but after fears and cases resurged, oil prices fell back to US$ 56.39 per barrel by February 23rd.
Gold prices rose across February:
- Investors flocked to safe haven assets as risk rose in February due to Covid19 and subsequent weak economic data out of the US. Prices rose from a low of US$ 1550.40 per ounce on the 04th of February to a high of US$ 1668.25 per ounce by the 23rd of February.