Markets Mar 18

Markets cool to stimulus pledges as recession looms

Despite governments' moves to stimulate economies, analysts say the worst is still to come

Markets cool to stimulus pledges as recession looms
A pedestrian is walks by the Australian Securities Exchange in Sydney on March 13, when stocks were down 7.3% in early trading. Markets suffered historic falls as panic spread over the spiralling coronavirus crisis. Photo: AFP/Saeed Khan

(ATF) – Asian markets struggled on Wednesday despite stimulus spending plans announced by various governments as the threat from a global recession loomed.

S&P Global has forecast a global recession this year and their economists estimate world GDP growth in 2020 will be only 1.0%-1.5%, with risks remaining firmly on the downside.

“The initial data from China suggests that its economy was hit far harder than projected, though a tentative stabilisation has begun,” said S&P Global’s Chief Economist Paul Gruenwald.

“Europe and the US are following a similar path, as increasing restrictions on person-to-person contacts presage a demand collapse that will take activity sharply lower in the second quarter before a recovery begins later in the year.”

Overnight, the US administration discussed a $1 trillion stimulus plan, the UK announced a $420 billion lifeline for corporates and France said it would guarantee 300 billion euros worth of loans. The US stimulus package includes direct cash payments to its citizens, and bailouts for the airline and hotel industries.

“We will do whatever it takes to protect our people and businesses from the effects of this global economic emergency brought on by the coronavirus pandemic,” the UK’s Chancellor of the Exchequer Rishi Sunak said.

Capital Economics said market mayhem will get worse before getting better and said these fiscal measures are necessary but may not be sufficient.

“The extra fiscal support announced in the past 24 hours is a welcome and necessary step to limit the longer-term economic damage that the coronavirus outbreak could cause,” they said.

“But even a huge fiscal expansion, plus the monetary measures already in place, will not be able to prevent a major short-term hit. We doubt that it will turn markets around by itself either.”

The virus has so far claimed 7,905 lives and infected more than 197,000 people globally and is the biggest concern on investor minds as Japan’s Nikkei 225 is up 0.59%, the Kospi benchmark is 0.8% lower and the Australian benchmark is down 4.1%, with the MSCI Asia Pacific ex-Japan index down 0.1%.

Safe havens gold and the Japanese yen are both higher while S&P500 futures are down 3.4% this morning. The mood contrasts with the overnight rally when the Dow Jones Industrial Average jumped 5.2%, the S&P 500 soared 6% and the Nasdaq Composite climbed 6.23%.

UMESH DESAI

Umesh Desai is Asia Times Finance Editor. Prior to his current role he was at Reuters for 19 years before which he was a credit ratings and equity research analyst. A chartered accountant by training, he is based in Hong Kong.