Coronavirus leads to worst week for markets after financial crisis

The rapid spread of the coronavirus has triggered the biggest plunge in global stock markets since the financial crisis, amid rising fears over the impact on the world economy of the deadly disease and the efforts to contain it.

An increasing number of countries and companies are imposing tough measures to limit the spread of the Covid-19 disease, with mounting costs for company profits and growth.

The outbreak has led to the fastest reversal for the stock market since 1933 during the Great Depression. Wall Street has slumped from record-breaking highs to the lowest point since 2016, with more than $5tn (£3.9tn) wiped off the value of global markets over the past week alone.

The economic consequences are becoming increasingly evident in a fast-moving crisis.

Markets

Global stock markets have had their worst week since the depths of the 2008 financial crisis, reflecting the growing fear over the economic catastrophe as it rapidly unfolds.

Wall Street suffered its worst one-day fall ever – with the Dow Jones Industrial Average plummeting 1,190 points on Thursday.

The FTSE 100 lost 823 points over the week – equal to £206bn wiped off the value of the top 100 companies – to finish at 6,580.61. Shares in airline companies including easyJet and the British Airways owner, IAG, have been among the hardest hit. The cruise firm Carnival – the operator of the Diamond Princess ship, quarantined for coronavirus cases with one Briton among those killed by the disease on board – has lost a fifth of its stock market value.

Global investors rushed to buy assets considered safe havens in times of stress – including government bonds and gold – sending the yield of US Treasury bonds to the lowest level on record.

Economics
The halting of activity to contain the virus, the fear factor keeping consumers away from shops, and the disruption to complex international supply chains will dramatically drag down global growth.

Although the mortality rate remains comparatively low, the actions to control the virus are now having a big impact, as business travel and conferences are cancelled and world trade and consumer activity falter.

David Owen, the chief European economist at the US bank Jefferies, said: “The bottom line is we really don’t know what will happen, but what we do know is that the fear factor and the way people change their behaviour makes the difference.”

Two weeks ago economists were estimating that the coronavirus outbreak would have an impact similar to the Sars outbreak of 2002-03, when growth faltered in China then rebounded rapidly.

However, China now makes up almost a fifth of world GDP, compared with just 4% at the turn of the millennium, and global growth was already weak after the US-China trade war.

After promising to double gross domestic product (GDP) and income per head in the decade to 2020, the Chinese Communist party is now on the cusp of failure.

Hitting the target would require GDP to grow by about 5.8%, yet some economists now believe growth in the world’s second-largest economy could slow to 3% this year.

The Italian economy, at the centre of the European outbreak, was already shrinking at the end of last year, raising the prospect of a near-certain recession in the country at a delicate moment for the Eurozone.

Transport and tourism
IAG said on Friday it was impossible to predict how far the coronavirus impact might go. Although stock markets initially punished airlines flying to China, easyJet – purely shorthaul with an almost entirely European network – has slumped after warning that 500 Italian flights would be cut. IAG said flights to all parts of Italy had been dramatically affected and reported a high rate of booked passengers choosing not to travel.

Hong Kong-based Cathay Pacific remains the hardest hit outside the Chinese mainland, and has cut a third of its capacity. Major US and European carriers have axed direct flights to China, and falling demand has also hit destinations in neighbouring countries.

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