Financial markets in times of pandemic- magazine Economy and Business


author: Stojan Doneski

The emergence of the virus which rapidly spread all around the world over night has brought the world economies in recession. By definition, according to the traditional measuring, not a single economy has registered GDP decline, but the reality is that almost all developed economies are in deep recession already. Decline of the economic activity around the world is compared to the one of the high depression in the 30-ies of the last century. Following the initial shock from the virus and the extreme increase of infected persons, most of the countries in the past period were noting decrease in the of number of the newly infected, and thus the world would begin to return to normal, counting the losses.

Spreading of the virus, fear, measures for social distancing, limiting of movement, border closing and similar, had initially been mirrored in stock indices decline around the world and then in the global economic activity. Since the beginning of the crisis, the losses at the world stock indices went in negative figures ranging from 25 to 30 percents.

Problems with the production since the beginning of the crisis spilt over in extreme reduction of the demand, except the one for essential and pharmaceutical products and services.

Developed economies reacted by creating largest anti-crisis measures until now. Rating agency Fitch is projecting that the global amount of debt that the central banks shall redeem this year will exceed 6 trillion US dollars.

All these circumstances led to unforeseen decline of employment in USA until now, where 22 million people submitted request for unemployment benefits in the past 4 weeks. Given that the total number of employees in USA before the crisis was around 170 million, market analyzers expect the percentage of unemployment in the USA for April to increase to around 15%, which is huge increase than the previous 4, 4% in March and 3, 5% in February, respectively. Eurozone, in view of the labor market, is not as affected as is the USA. Projections for March are that the unemployment shall increase from 7, 3% in February to 7, 8 in March, but it has to be noted that there are still no data and projections for the Eurozone for April.

GDP growth projections for 2020 around the world are mostly negative, having in mind that the developed economies are facing urgent measures due to the COVID virus for second month already. Projections are moving from growth of 2% at most with China, which is a reduction of growth projection from 6,1% in year 2019, and for USA are that GDP shall note decline of around 7%, while for the Eurozone is that the GDP decline would amount 8,1%. Still, the economies in EU which until now were in good condition shall relatively easily deal with the crisis opposite the remaining economies that were facing problems up until now to generate stronger growth. Thereby the fears for higher separation in the block following the crisis are justified.

The serious situation, the reduction of demand accompanied with the measures for spreading of the virus is best evidenced in reduction of the oil price from the beginning of the year until now. As the virus spread, measures for movement limitation and reduction of the economic activity grew stronger, and thus the demand and the oil price were reducing. Since the beginning of the year, the price of the crude oil reduced gradually. At first, in March due to non-reaching of the agreement for reduction of production in OPEC, in a single day it fell down by around 30%. As the virus took force in the USA and Europe, reduction of demand with simultaneous filling in of inventories with crude oil caused the price of the Western Texas Oil (WTI) to be negative for the first time in the history. Such decline of the price lasted for only one day, but the fact remains that since the beginning of the year the oil price of the type Brent fell from 67 USD per barrel to the current 20 USD, while the Western Texas Oil from 62 to 13 USD per barrel.

The domestic foreign market reacted predictably for our terms and the demand for foreign currencies by individuals was slightly increased. On the other hand, decline of the economic activity due to the occurred situation has reduced the foreign currency demand by importer companies, while the impression is that the import companies are for a shade slightly less affected by the crisis. Foreign market notes decline of the total turnover by around 15% compared to the same period last year. In our country, it is the projection by the World Bank that should be stressed in particular that the amount of the foreign currency remittances from abroad that our immigrants traditionally send home shall be reduced significantly. The reduction is expected to be not less than 20% at global level.

Although it is early to speak about normalization, the economic activity in the world after, in eyes of many, the worst second quarter, the expectations are that in the third and fourth quarter of the year there will be strong growth, which unfortunately shall not be sufficient to neutralize the decline of the first half of the year. Positive growth rates in USA are expected at earliest in 2021, while in the Eurozone it is expected in 2022.

Still, the growth cannot be predicted with certainty due to the unknown of what is that normal that the world will return to. If the crisis is over in a manner as it was before the Corona crisis, the recovery would last relatively short, but if the world continues to live in the so called new normal, the recovery would take much longer.



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