Coronavirus hits markets but is it a blip or the start of a global recession?

Global stock markets lost almost $7 trillion in value last week as a result of the coronavirus outbreak, a situation last seen during the 2008 financial crisis


Global stock markets lost almost $7 trillion in value last week as a result of the coronavirus outbreak, a situation last seen during the 2008 financial crisis.

But understanding whether this is a blip or the start of a global recession will take some time to determine, according to economist Philip Von Brockdorff.

“It is difficult to quantify the impact of the coronavirus outbreak on GDP but the tangible measurement so far has been the performance of world stock markets and what we have seen there is an indication of a global economy that is slowing down,” he said.

Von Brockdorff said that a prolonged period of fear-driven market correction could seriously impact world economies and Malta will not be immune.

“If this continues in this way it will start creating problems as listed companies losing value move to cut costs. The situation is still not a crisis but if the coronavirus spread continues it will have a growing impact on the global economy and Malta will not be spared,” he cautioned.

The coronavirus, known as Covid-19, started in China towards the end of last year but spread to more countries across the globe over the past two months. As of yesterday, the World Health Organisation recorded 93,103 cases of Covid-19 worldwide, including 3,202 deaths.

The European Centre for Disease Prevention and Control (ECDC) said 3,351 cases were reported in the EU, the EEA, the UK, Switzerland, Monaco, San Marino and Andorra, including 85 deaths.

Italy has turned out to be a hotbed for the coronavirus with 2,502 cases, including 80 deaths. So far, Malta has not recorded any case.

On Monday, the ECDC increased the coronavirus risk level to high as more countries in Europe reported cases.

The outbreak has shown no signs of slowing down and has forced some countries to take drastic measures to contain the spread of the virus.

Flight restrictions have been imposed, mass gatherings banned and certain towns placed in lockdown.

This has had a knock-on effect on trade, markets and business sentiment as fear kicks in among consumers.

Global stock markets partially recovered this week but analysts believe the coronavirus market correction is still a factor to contend with.

Von Brockdorff said the first real impact on Malta will likely be felt by the tourism sector, especially if airlines cut flights and travel bans are imposed. But there is also the fear factor of travelling at a time like this.

There have been scheduled conferences in Malta by foreign operators that have been cancelled and Maltese companies that have cut down on travel plans for their staff.

“Tourism could very well be the first casualty in Malta,” Von Brockdorff said.

The Medical Association of Malta has asked for a ban on flights from northern Italy for tourists and criticised the government for ignoring doctors’ advice.

However, the Maltese health authorities have so far resisted imposing travel bans from high-risk regions and countries, sticking to WHO recommendations against travel restrictions.

But the coronavirus outbreak could also force business people to postpone investment plans until certainty returns to the markets.

“A major factor would be the disruption in supply chains, which could impact export orders and imports, even of foodstuffs,” Von Brockdorff said, especially if factories are shut down, as happened in China.

On a domestic level, an outbreak in Malta will cause problems in the labour market as people report sick or have to self-quarantine.

Von Brockdorff noted that the country urgently needed guidance on how the quarantine leave will work in the private sector because this could create a burden on employers.

“The problem has not reached the proportions of a disaster but we need to keep a lookout because the economic and social impacts of the coronavirus are real,” he said.

The Malta Council for Economic and Social Development will be holding a special meeting today to discuss the coronavirus, Malta’s preparedness and mitigation measures to cushion any impact of an outbreak.

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