Are any industries worth a trillion dollars

Coronavirus destroys $ 4 trillion on the stock exchanges

This week, the fear of the corona virus hit the world's stock exchanges in full: On Thursday, the New York Dow Jones index recorded the largest loss of points that has ever been recorded. The stock market barometer dropped by almost 1200 points, or 4.4 percent, after the new virus continued to spread worldwide.

This trend continued on Friday and the stock exchanges closed again with losses. The Dow Jones fell 1.4 percent to 25,409 points. Wall Street posted the weakest trading week since the financial crisis in 2008, with the Dow discounted by more than twelve percent.

Big losses in Europe too

The situation in Europe was very similar. The German leading index Dax again rattled almost four percent down. The Frankfurt stock exchange has lost more than twelve percent this week. Travel companies were hit particularly hard, especially the airlines. Lufthansa, for example, has lost 21 percent of its value in the last five days. European banking prices also rattled into the basement. Other sectors that are particularly affected by the coronavirus from the point of view of the stock exchange traders: insurance companies and food companies.

The warnings from economists about the consequences of the virus are getting louder: Philip Lane, chief economist of the European Central Bank (ECB), sees a great risk for the economy if the respiratory disease persists. David Folkerts-Landau, chief economist at Deutsche Bank, even predicted a recession.

Fears of recession

How justified are these fears of recession? Reliable predictions can hardly be made, as a lot depends on whether the regionally limited corona epidemics actually turn into a global pandemic. "If there were a pandemic, the global economic consequences would be considerable. Then 2020 would not be a good year," says Stefan Helmcke, head of McKinsey's Austrian branch. For management consultancy, the scenario that demand will weaken sharply by the end of the half-year is still most likely at the moment.

Accordingly, there could be a recovery in the second half of the year. "But that's all very vague now," said Helmcke. A realistic assessment of the situation is also made more difficult by the fact that the various sectors are affected by the virus to different degrees: "The tourism and aviation sectors are severely affected and could take the longest to get back on track. Consumer goods and electronics are likely to do so go faster, "predicts McKinsey.

Worries even before Covid-19

Another point in favor of a recession is the fact that worries about the global economy - due to the trade dispute, for example - have existed for some time. In addition, in Europe production increases - that is, "real" economic growth - have long been looking for with a magnifying glass. The Covid 19 disease in Africa poses a further risk. "This has often been overlooked so far," says expert Stefan Helmcke: "An infection cycle could arise in Africa because many Chinese companies with Chinese workers are active there." Such an infection cycle would have corresponding effects on the global economy. In Nigeria, the first corona case south of the Sahara was confirmed on Friday.

Oil prices plummet

In addition to the company shares, the oil price also hit last week: The price for North Sea Brent oil fell to $ 51 per barrel, its lowest level in two years. Worldwide, around four trillion dollars in market value were wiped out this week. "The stock exchange is currently pricing in a tsunami of profit warnings from companies," explains analyst Jochen Stanzl from the online broker CMC Markets.

Coronavirus long ignored

The financial markets had long ignored the outbreak of the corona virus. Investors assumed a scenario similar to that of the Sars lung disease outbreaks in 2003. Back then, the effects were local and barely hit the global economy. This expectation can no longer be maintained as the coronavirus is on the verge of a pandemic with global repercussions. In a number of industries the supply chains are interrupted, in others the demand is going down the drain.

Accordingly, it is expected that the central banks will brace themselves against economic risks with an even looser monetary policy: At the ECB, investors are already assuming a further reduction in the penalty interest rate for banks from minus 0.5 to minus 0.6 percent. Government bonds from issuers that are considered safe, such as the USA or Germany, benefit from this. The same goes for the gold price, although it recently took a little breather after the previously strong price increases. The beneficial effect on the real economy, however, is questionable: disrupted supply chains will hardly be able to fill injections of liquidity. (Tobias Kachelmeier, Alexander Hahn, February 29, 2020)