The impact of Coronavirus on the global economy

Since Coronavirus was discovered in Wuhan, China, and confirmed human-to-human transmission at the end of December, it has first spread on a large scale in China, infecting over 80,000 people. But now, it has spread to well over 80 countries, infecting more than 102,000 people and killing more than 3,400 people.

Since China is now the most virus-hit country in the world, its economy has been hit hard since January, when large-scale human-to-human transmission of the virus began. To reduce human contact, the Chinese government has decided to limit entertainment venues, such as cinemas and tourism.

Unfortunately, the Chinese economy has caused a recession, and then as Coronavirus spread, it also affected the global economy. Yesterday, March 7, 2020, the global bond rally accelerated as people bought some government bonds to protect themselves from economic gloom caused by the recent spread of Coronavirus. But some economists believe that this is pure fear, just as people snapped up tissues in supermarkets, and this panic also appeared in the bond market.

 In response, many governments have fallen bond yields. For example, the 10-year US Treasury yield as a key reference point for markets around the world, fell 0.2 % on Friday to a historic low of 0.7%. It has dropped from above 1.5 per cent just two weeks ago.

 The fall in Treasury yields suggests that more money is flowing into the bond market, which is bound to affect stocks. In my opinion, because people are not optimistic about the economy, the stock price should decline, but on this Friday, the stock price has rebounded dramatically which added 2.4 per cent to the S&P 500 index in the final minutes of trading. The reason is investors still remain invested in stocks in case positive news emerged about the containing Coronavirus said Max Gokhman, head of asset allocation for Pacific Life Fund Advisors.

However, I think that because of the spread of the virus, almost every country have correspondingly restricted people's activities, which also restricts economic activities. No matter how severe the epidemic is, it will have a certain negative impact on the economy. Because of the restriction of economic activities, it will cause some business problems of the company, and even cause the company to go bankrupt.

The Stoxx index tracking European bank shares fell on Friday to its lowest level since the financial crisis as the expectation of lower interest rates amplified concerns over lenders’ profitability. 

And if the outbreak gets worse, worries about profitability could turn into worries about the credit crisis.  Because people are restricted from economic activity, first of all some small and medium-sized enterprises can not get their profit. If no profit, then they have no ability to repay the previous loans. If the outbreak of virus is not controlled soon, more and more businesses will loss, it will create a new credit crisis around the world. That would be a disaster for the global economy.