“The pandemic could call these founding elements into question,” says Savry.
CASE TOTAL LOCKDOWN LESSONS WORLD PROFESSIONAL
Technological progress has made this mobility ever faster, as even some professional services operations can now be done from service support centers abroad. The current world economy has been built on globalization, based on the mobility of corporate capital seeking the highest returns at the lowest cost. What about the NYSE? (Photo by Spencer Platt/Getty Images) Getty Images through Hubei province in January and February. Life is not back to normal, and might not be until the country goes a few weeks with zero cases.Ĭhina closed its stock market for a week after Lunar New Year break as the coronavirus ravaged. Waiters monitor people’s temperature and still recommend takeout. People who are not working from home only leave the house to go to work, then they return home.
People are instructed to take their own cars instead of mass transit, and taxi service. One has to assume people just rev up and get back to work.įor its part, China seems to be wrapping this up.īut despite having only 27 cases in Shanghai, many restaurants there are still closed. Unlike other natural disasters and emergency periods, such as Hurricane Katrina-type events (in 2005, Katrina cost roughly 0.7% of GDP), there will be no reconstruction effect to boost business activity after the quarantine period. The instantaneous, global and interconnected nature of the current situation is more like a world war scenario with economic activity limited to a minimum, and with people hunkering down in fear.
It is happening concurrently and is due to lockdown and quarantine measures. The sharp slowdown in economic activity is taking place in the world’s three most important economies: the U.S., Europe, and China. succeeds at “flattening the curve” of infections, then there is a chance that instead of a China and Italian-like explosion of cases in a short period of time, overwhelming the hospital system, we can be in for a slow burn lasting throughout the summer until the virus decelerates.Ĭoupled with the demand shock caused by work furloughs and self-quarantine even among the healthy, the economic shock will likely be bigger than expected, Savry thinks. Assuming the virus runs its course through the U.S. President Trump hinted that the outbreak could be with us until August. The economic shock will not be over by the summer. (Photo by Win McNamee/Getty Images) Getty Images President Donald Trump says this could last all summer. Guilhem Savry, head of macro for Unigestion. These estimates are based on the assumption that only a few weeks of confinement will be necessary to combat the exponential slope of the virus.” The impact could be two quarters of economic contraction with a drop in GDP of between 2% and 3%, depending on the area. To date, the consensus is that the shock will be violent but temporary. “Economically, the longer the epidemic lasts, the more extensive the containment measures, and the more recessive the shock will be. Democratically elected governments that get this wrong will be punished by voters.ĭon’t be surprised if the middle class in Shanghai get really angry too if their case loads go from a few dozen to thousands in the weeks ahead. The coronavirus crisis now poses three challenges: economic, political and geopolitical. The CBOE Volatility Index, known as the VIX, reached a level not seen since October 2008 when the Toxic Assets Relief Program (TARP) was introduced following the collapse of the mortgage backed derivatives market. These two elements, uncertainty and deleveraging, explain why last week was one of the worst week’s financial markets have ever experienced.
“The second is that, in the face of so many unknowns, the best way to deal with the situation is to de-risk,” he says. “The first consequence of this lack of visibility is that, at this stage, we do not know how the situation will evolve,” says Guilhem Savry, head of macro allocation for Unigestion, a $23 billion European asset manager.
It’s like we are all flat earthers, and we are all heading out into a fleet of Spanish galleons, hoping we don’t hit a massive waterfall that takes us off the planet and into the dark unknown. (Photo by LUDOVIC MARIN/AFP via Getty Images) AFP via Getty ImagesĪnother thing markets know is that this is uncharted territory. weeks late following travel bans by the U.S. French Prime Minister Edouard Philippe on March 17, 2020, in Paris.
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