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Policymakers around the world between containing the COVID-19 and the collapse of the global economy

Policymakers around the world between containing the COVID-19 and the collapse of the global economy

13 Mar 2020 02:24 PM

World governments are suffering from a great dilemma, on one hand is the COVID-19 Spread. Global official bodies are taking extensive containment measures to limit the spread. It was confirmed that the number of infections has exceeded 135 thousand cases, and the number of active cases excluding recoveries and fatality increased to nearly 60 thousand confirmed cases. Another dilemma comes into question also, the containment and travel ban procedures that is being set around the world will hurt the global economy. The fact is after the virus reached the old continent, equity markets around the world have suffered and fell sharply reminding us of the 2008 global financial crisis as the US Dow Jones Index experienced its worst performance in 124 years.

This epidemic has forced the US President Mr, Donald Trump to suspend and restrict all travels from Europe for 30 days. In addition, many other countries are forcing large containment measures and isolating millions of people. Meanwhile, British Prime Minister "Boris Johnson" said that the crisis is the worst in generations and called for social distancing. this signal for a possible shift in approach the virus to limit the spread.

The number of infections in the United States has reached more than 1700 confirmed cases, and experts believe that the total number could be much more. While in Italy, it has become the focal point for the spread of the virus after China, with more than 12.8 thousand active cases and a total number of infections of more than 15 thousand. In Iran, the total number of active cases reached more than 10 thousand, Spain on the other hand reached over 3 thousand. Finally, France approached the 3,000 cases as well. These numbers indicate that we are already facing a global plague after its officially been described by the World Health Organization to be so.

Consequently, central banks have taken several steps to try to rebalance the financial markets. The Federal reserve has already done an interest rate cut by 50 basis points, also injecting liquidity into the repo markets of more than $ 1.5 trillion. The Fed promised to diversify and increase its purchase of bonds. As for the Bank of England, the UK bank did follow the fed path and did cut its borrowing cost also by 50 basis points as well. Meanwhile the European Central have no bullets to use in his arsenal and cannot catch up them. The Euro area interest rate is currently at zero as a reference interest while the deposits on interests already standing at negative 0.5%. The ECB instead will use unusual policies. The ban will be expanding asset purchase programs and will be providing liquidity to the banking sector in the euro area with a cost of -0.75% interest, in an attempt to maintain its stability in the region.

Even still, all these measures taken by the central banks so far have not been able to stop the collapse of the stock markets as their impact is limited. As we have seen today, Friday, several stock indices are attempting to edge higher around the world, but the rise is very limited compared to its recent losses that occurred. Concerns may remain in control as long as the continued spread of the Coronavirus is in play and its direct negative impact continue on the global economy.

Decision-makers are already facing a major dilemma. Sacrificing the global economy in order to contain the virus may be more dangerous than the virus itself to the world, while letting the virus spread more may cause global devastation. Thus, stock markets may see bullish corrections from time to time, and today some reduction in losses should not be ruled out. However, bearish trends remain and may continue in most stock indices around the world until the confirmation of containing the global spread of the virus or at least its effects on the global economy.

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