Slump in Oil Prices and Coronavirus Outbreak: Global Recession Seem Inevitable

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At the start of this week, a global recession seems as the most probable scenario for the world’s economy in 2020.

Stocks around the world and government bond yields fell after oil prices plummeted by almost 30 per cent on Monday.

Oil’s sharpest one-day drop since the 1991 Gulf war has further fueled the sell-off in global stock markets that started a couple of weeks ago on fears that coronavirus is going to severely damage economic growth.

Every major stock market is getting hammered as oil prices plunge due to a price war following the breakdown of Saudi Arabia’s oil-cutting alliance with Russia over the weekend.

This is an issue that will not be resolved overnight and it can be expected to have far-reaching consequences.

It comes as the world scrambles to deal with the market mayhem and economic fallout caused by the relentless global spread of coronavirus.

With the combination of the implications of the oil stand-off and the outbreak, analysts believe that it’s almost inevitable that there will be a global recession this year.

Before the oil price drop, the outbreak has already sent the stock market into bouts of volatility not seen since the 2008 financial crisis, severely disrupted global supply chains, shuttered factories, grounded flights, closed attractions and cancelled major events. Entire powerhouse cities in Asia and Europe are nearly shut down. Multinational companies have warned that coronavirus will severely hit profits. Workers are being evacuated and forced to work from home and to avoid traveling.

Both supply and consumer demand are already being impacted in key sectors, such as travel and tourism, hospitality, manufacturing and retail, and it is going to extend to others.

This scenario is then likely to feed on itself: a lack of consumer confidence and spending, lack of business investment, more job cuts, which means even less spending and demand, which leads to further job cuts.

In times of increasing volatility, investors need to ensure that they remain in the markets with their suitably diversified portfolios – not only to safeguard their wealth, but to create and build it too.

As ever, there will be winners and losers and savvy investors and their financial advisers will be eyeing the opportunities that fluctuations, panic-selling and mis-pricing generate, allowing them to revise and add high quality equities to their portfolios at lower prices.

The ultimate impact that the oil price war will have on an already vulnerable world economy that’s struggling to cope with the spread of coronavirus remains unknown.

However, the risk of a short but severe global recession in 2020 has now been heightened dramatically.

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