With the Covid-19 outbreak spreading across the globe like wildfire, analysts are anticipating that we’re heading into a global recession that will be the worst since 1929. Even though stocks were up across Europe, the US, and Asia this week, analyst Stephen Isaacs said that the Covid-10 crisis is “unprecedented”, with record levels of leverage and overbought stocks. So, are we heading into a global recession?
The global economy is in a difficult position
According to Alvine Capital Management’s investment committee’s chairman, “We came into this with all sorts of problems hiding within the momentum of a massive bull market, which again leads me to feel extremely concerned that the selling is only abating temporarily, and that we are still looking, unfortunately at a very, very difficult situation.”
With the number of infections climbing daily, more and more countries around the world are implementing lockdowns. As of today, there are close to 500,000 cases of the coronavirus, and nearly 22,000 deaths. The situation is more than serious – it’s dire.
The US alone has close to 69,000 cases, 67,000 of which are currently active. Despite this, President Trump has not implemented a formal lockdown, and expects the country to be back to business by the Easter weekend.
That’s not going to happen. While Trump’s plans seem to be geared towards preventing a recession, it’s already far too late.
Warning signs that a recession is imminent
The S&P 500 index has plummeted by 30% since 19 February, and Alvine Capital’s Steven Isaacs believes that it could lose another 20%. Isaacs said that the 1929 Great Depression is the closest bear market in comparison to what’s awaiting us.
“That might coincide in mid-to-late April with some abating of the extreme lockdown in Europe, and we should from there get something like a short-covering rally,” he said. “This is an unprecedented situation, this is worse than 2008, this is worse than 1987, this is the worst crisis to hit financial markets since the Great Depression.”
The crude oil price has crashed 60% this year, and is currently sitting at around $25. With fuel consumption in many countries, like Italy and France, down by around a third, some refiners are having to reduce the amount of crude they produce. Phillips 66, the 11th biggest oil refiner by capacity, said that it was operating plants at “minimum crude processing rates.”
A Look at Worldwide GDPs indicate we are heading into a recession
IHS Market revised it’s world GDP growth for 2020 down to 0.7%, as the full effects of Covid-19 became apparent. Growth below 2.0% is classified as recession. The US real GDP is expected to fall by 0.2%, and Europe by 1.5%. China, where the outbreak began, is projected to see a slowdown in growth from 3.9% to 6.1%.
According to Nariman Behravesh and Sara Johson, both with IHS Markit, Japan is already in a recession, and their GDP is expected to fall by 0.8%.
Are we heading into a global recession? In some places, we’re already in one.
Could this be as bad as the Great Depression?
Following the stock market crash on 29 October 1929, the S&P 500 fell 86% in under three years. It didn’t recover its peak until 1954. The recession brought on by Covid-19 could be as bad as 1929, with millions losing their jobs and the global markets entering a free fall. So, are we heading into a global recession? Almost certainly, and the ramifications of it are still unknown.
