BNY Mellon: COVID-19 – global economic implications

Abstracts from webinar on 7 April 2020

  • Karen bonder, Head, global investor relations advisory, BNY Mellon Depositary Receipts
  • Vincent Reinhart, managing director, chief economist and macro strategist, BNY Mellon

This is a wartime economy with enormous stimulus incentives and fiscal policies from governments and fiscal monetary support, and banks supporting at all costs = mitigation. Destruction of activity equal to 1918 but this time with markets open. US has an advantage due to the USD currency standard.

At the core is what we know about the pandemic, which is not much at this moment. The Chinese lack of reporting of the actual toll made the rest of the world underestimate the potential consequences of the virus. Reference to the Icelandic results that about half the infected cases are dramatic which have been found out based on wide testing.

Unemployment will hit widely among the workforces but especially SME will suffer (50% cannot survive if closed more than two months). Reduction in output and activities – i.e. major decrease in GDP due to much lower income and spending = disruption of activities with record high unemployment rate. Additional claims have been registered and more millions are expected which equaling a much larger proportion of the workforce. That is without precedent in the post-war period – especially the sharp rise.

Price of oil has been reduced by 50% due to the contraction of global demand. Lower global demand will especially make emerging economies depending on commodities suffer. This mean is that the pandemic will affect the global economy in waves but also advanced economies suggesting widespread results hitting both demand and supply and the effects might be permanent depending on the fiscal policies introduced, targeted and timing adequately and made temporary. Legislation and policy changers – too soon to judge the effectiveness.

Investors withdraw from risk taking now, but in the medium term when more certainty on the scope is available. We will see defaults and downgrades. Second quarter 20% decline in the US GDP. Probably a 3% decline in global GDP in 2020, however, with Europe doing a little less. Decline in world activity by 2%.