The novel coronavirus has impacted us all but where we could hide at home certain
aspects can't adopt this escape route one such aspect is the economy.
the pandemic has reached almost every country in the world
naturally governments around the globe are in a state of panic
many countries found it overwhelming to control the unexpectedly rapid spread of the virus
hence national economies and businesses had no other choice
but to count the costs of the extended lockdowns
to tackle the viruses spread resulted in shutting down
many businesses across all sectors which further impacted the economy
so how and to what extent has the covid 19 affected the global stock market and economy?
today we'll find out the economic impact. the pandemic has been a surprising one
and interestingly it continues to surprise in the spring we saw business shutdowns
pushing economic activity to an all-time low it wouldn't be wrong to state that coronavirus
forced the economy into shutdown hence a brutal fiscal contradiction unfolded which broke many
of the negative records set during the great depression enjoying this video so far please
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thanks now let's get back to the video in early march 2020 the interim economic outlook for the
organization for economic cooperation and development which we'll casually refer to
as oecd highlighted that the pandemic had already caused a sharp decline in china's economic growth
and what followed was a similar downward spiral in almost every country governments were prompted to
introduce unprecedented measures to control and contain the infection we cannot object
to measures like country-wide lockdowns because these were necessary to contain the virus however
they have led to businesses facing temporal shutdown extensive mobility and traveling
restrictions market turmoil heightened uncertainty and mass scale confidence erosion stock markets
are where company shares are bought and sold big shifts in this mechanism usually affect the value
of individual saving accounts and the value of pensions one of the most lethal impacts of the
global spread of the coven 19 virus is that it heightened market risk aversion so drastically
to levels we haven't seen since the 2008 global financial crisis believe it or not stock markets
declined over 30 percent while equities and oil volatilities have spiked to crisis levels credit
spreads on non-investment-grade debt widened greatly as investors adopted a low-risk approach
global financial markets are facing this heightened turmoil despite the comprehensive
financial reforms implemented by the g20 financial authorities in europe the financial times stock
exchange or the ftse 100 index has suffered its deepest plunge since 1987. while in latin america
stock exchanges dropped dramatically the dow jones industrial average and the nikkei all recorded
huge falls while the number of coronavirus cases grew in the crisis's initial phase most major
u.s and asian markets did recover considerably following the arrival of the vaccine in november
2020. however the ftse is still in negative territory it dropped by 14.3 percent in 2020
which by industry standards is its worst performance since 2008 the shanghai stock exchange
composite index and the nikkei stock average index plunged due to the pandemic in contrast
the japanese economy was affected the most by postponing the tokyo 2020 olympic games the nasdaq
composite index and the s p 500 index found it challenging to stay afloat in these rough borders
similarly the dow jones industrial average index has reported some of history's biggest single day
losses reflecting the global stock market's highly volatile nature that's why the us senate had to
pass a two trillion dollar coronavirus aid bill to aid the ailing economy in many countries such as
the uk central banks slashed interest rates this means countries have made borrowing cheaper to
promote spending to boost the economy due to such measures some markets managed to recover ground
in january 2021 but this is a general trend which we'll call the january effect analysts fear that
any new lockdowns or delay in vaccination programs may trigger more market volatility in 2021
the intensity of the shark has created widespread economic pessimism which is another significant
pandemic impact the pandemic generated systematic fears among the masses but in our opinion the
situation isn't as grave as was being predicted around six or seven months back people predicted
a new great depression that would cause the banking system to collapse price deflation
and bring sovereign defaults but after a wobble prices did stabilize and sovereign borrowing costs
fell worldwide however there has been expansive borrowing while the banking systems today show
fewer liquidity issues so we can say that extended systematic fears have remained unfulfilled as the
situation didn't get as tricky as it did in 2008 systematic fears usually pave the way for cyclical
fears but we have observed that like systematic fears cyclical fears also remain proliferated
for example unemployment is a cornerstone measure of economic growth we expect it to
touch an all-time peak in the us with never-ending waves of bankruptcies a weaker housing market
and a probable collapse by the end of 2021 after initial recovery but we were surprised to see a
promising trend although the unemployment rate in the us is still alarmingly high it did fall sooner
and faster by september 2020 it was lower than expected by the end of the year the housing sector
also showed remarkable resilience as prices aren't dipping while sales have bounced back to somewhat
similar highs since the housing crisis most parts of the u.s economy have now returned to pre-crisis
level of activity so when the economy shows growth this means more jobs and wealth for the people
still we cannot paint a rosy picture here because all isn't that good according to the international
monetary fund in 2020 the global economy shrunk by 4.4 percent which is the worst decline since the
1930s great depression interestingly china turned out to be the only major economy to register
growth in 2020 its economy grew by 2.3 percent last year but the imf expects global growth
to increase to 5.2 percent by the end of 2021 driven primarily by economic bigwigs like china
and india these economies are expected to grow by 8.2 and 8.8 percent respectively conversely
economic recovery and larger service dependent economies such as the uk or italy which were
also hit hard by the pandemic will be slower this isn't an ordinary financial market downturn as the
pandemic's repercussions will be felt for many more months or possibly years relief plans like
the one introduced by the us will eventually lift economies worldwide however investors will remain
cautious and want to wait for the virus outbreak to be contained before investing in stocks again
enjoying the video remember to hit that like and subscribe button thanks businesses in most
countries have become heavily indebted which isn't a good sign for the national and global economies
this indebtedness has made businesses vulnerable to deteriorating markets and economic conditions
as a whole although there is an accommodative monetary policy in many countries the low
borrowing cost has contributed significantly to the never seen before extent of the corporate debt
issue in many g20 countries the corporate debt stands at an unimaginably high level
at the same time the growth of leveraged loans outstanding in europe and the us
have offset bank lending slowdown to offer financial aid to indebted corporations
which they will use to buy back shares pay dividends and increase the leverage that made
them so vulnerable to sharp declines in operating earnings lower rated credits like bbb bonds
non-investment grade bonds and leveraged loans also have risen to elevated levels it is safe to
assume that the global financial intermediation structure has changed a lot during this time
large banks and broker-dealers are continually providing credit and market intermediation
market-based finance issued by non-banks has seen a sharp rise lately investment funds and
exchange-traded funds are now playing a key role in credit intermediation they're also facilitating
the demand for corporate debt by giving liquidity to investors but we can't overlook the fact that
when there's an acute market stress going on higher levels of investor redemptions can force
rapid selling of corporate debt through funding such as leveraged loans and high yield bonds
this dynamic may erode market liquidity quickly and the price of traded debt may rise which will
raise businesses financing costs despite these not so welcoming changes we must admit that
the global economy's initial bounce back was much more robust and sooner than was expected
some economic sectors have undergone complete recoveries to pre-pandemic activity levels
still some sectors which are mainly vaccine dependent including recreation hospitality
food service and transportation will take time to bounce back there have been some positive changes
but overall meaningful recovery to pre-pandemic activity levels will take time these sectors
are responsible for a large chunk of the global economy only in the us these sectors represent
around 38 percent of consumption therefore solid and sustainable economic recovery
depends on these exhausted sectors one would like to believe that the development of new vaccines
will fix everything up in a jiffy sadly the reality is stranger than fiction the challenges
are way harder to address and far different from the previously observed financial crisis
the current market fragilities market contagion routes and policy implications
all collectively call for a sober assessment of the global markets chain structure and financial
intermediation in the post-pandemic world but with that being said i'll see you all in the next video