Global stock markets suffered their worst week since the financial crisis of 2008 because of the growing spread of the coronavirus – and the predictions are that it will get worse before improving.
Calculations are that global investors have lost $6 trillion since Monday as markets priced in the threat of a global recession. Oil-rich countries are considering deep production cuts reflecting the expected impact on global economic activity.
Hopes that the coronavirus would be contained to China have vanished as the first case in sub-Saharan Africa was announced in Nigeria on Friday, spread by an Italian who travelled to Lagos. It has killed more than 2,800 people and infected more than 84,000 worldwide so far.
US and European stock markets continued their dramatic slide on Friday as investors rapidly stopped committing to riskier assets amid the global coronavirus outbreak.
In the US, the S&P 500 stock index was 1.2 percent lower four hours into trading. Earlier in the day it had briefly fallen into so-called correction territory – a fall of more 10 percent since its peak last week.
The Nasdaq was down 1.5 percent while the Dow Jones had slipped 1.2 percent. Both had recovered some ground since morning trading.
The falls were steeper in Europe, where the UK’s FTSE 100 index finished 3.5 percent lower, with a dispute with the European Union over a future trading relationship also denting shares. The FTSE had slipped below the correction mark at its lowest point in the session.
Germany’s Dax index ended the day 3.2 percent lower, while the pan-European Stoxx 600 fell 3.8 per cent.
The stock market routs – many of them the sixth straight day of falls – came as coronavirus spread rapidly outside China. The death toll in Italy, Europe’s worst-affected country, rose to 14. Sporting events around the world are being cancelled or postponed and there is a deep fear that the Tokyo Olympics will not go ahead in the summer if the outbreak is not tempered soon.
Governments have responded by locking down whole regions while flights, supply chains and businesses have been impacted, raising fears the global economy is in meltdown.
An International Monetary Fund (IMF) spokesman said the organisation was likely to downgrade its growth projections for the world. The IMF had already said China’s growth would likely be 0.4 percent lower this year than originally thought, at 5.4 percent.
Ritu Vohora, equities investment director at M&G Investments, said: “The coronavirus outbreak has replaced trade wars as the dark storm bearing on markets.”
“This is no longer just an Asia issue. The virus has spread to Italy, South Korea and Iran and there are fears this could develop into a global pandemic.”
The World Health Organization has not yet used the term pandemic, but its director-general Tedros Adhanom Ghebreyesus said the spike in cases was “deeply concerning” as the virus spread to 44 countries outside China.
On Thursday, Wall Street suffered its biggest one-day slump on record, shedding 1,190 points as the Dow Jones industrial average went into freefall again.
This week’s Geneva motor show became the latest major international business event to be cancelled after the Swiss government imposed a ban on gatherings of more than 1,000 people. In the UK, the law firm Baker McKenzie shut its London office and sent more than 1,000 staff home after a possible coronavirus case was detected.
Following warnings from economic analysts that the virus could take a toll akin to the 2008 financial crisis, the Bank of England governor, Mark Carney, cautioned on Thursday that UK growth could be hindered by the drag effect the outbreak was having on global trade.
“We would expect world growth would be lower than it otherwise would be, and that has a knock-on effect on the UK,” said Carney, who is due to hand over leadership of the Bank to Andrew Bailey on 15 March. “We’re not picking that up yet at all in the European and UK economic indicators but if the world is slower than the UK, a very open economy, will have an impact.”
Carney said on TV that “it was impossible to be precise about the severity or the duration of the effect, but the direction is down”.
Oil prices reached a 13-month low last week and any slowdown in economic activity would weigh even heavier on prices, adding to pressure to cut output to balance supply and demand.
Saudi Arabia, the largest producer, is expected to discuss with fellow OPEC members such as Iran and Iraq whether plans to cut production should be ramped up from 600,000 barrels per day to one million.
The combined value of companies listed on stock markets around the world has plunged so much since the Covid-19 outbreak began in January, in the city of Wuhan in China’s Hubei province, that if the outbreak is not stopped soon this could lead to the worst global recession in history, analysts predict.