Around the world, economies are crumbling
Since the coronavirus outbreak, the price of every vital commodity has fallen
We’re seeing a lot of these markets hit
Coronavirus has oil below $50 a barrel...
...US demand in China has dropped off substantially
You’re impacting the demand for copper, iron ore, even gold is going down
America’s Department of Labour has recorded the highest ever number...
...of new claims unemployment in the past two weeks—just under 10m
Governments had modelled the impact of a pandemic on their economies
But were in no way prepared
The indication is that economic activity has been...
...sledgehammered in the course of a couple of weeks
Just how deep is the crisis for the world economy?
Over the past two months, the world’s biggest stockmarkets have turned red
It falls like that because investors suddenly have to...
...recalculate the future for the economy...
...and the future for corporate profits...
...and adjust their figures sharply downwards
And then they tend to sell assets, which are the most liquid
Often those are the big companies in the S&P 500
The S&P 500 had its quickest bear-market decline in history
When the dot-com bubble burst in 2000...
...it took almost two years for the S&P 500 to drop by 49%
The 2007-09 financial crisis led to a fall of almost 60% in just over a year
The coronavirus pandemic has already seen the market fall by a third...
...in just one month
This crash has been so quick because it was such a shock
In the financial crisis, there was actually quite a long lead up
It was a good, long 18 months of bad news
But this is genuinely a deus ex machina, a bolt from the blue...
...where investors were just not pricing in the risk of a pandemic
And of course, governments have never in the past...
...imposed the kind of lockdown on a global economy that they have this time
So this was not something people had in their models
In an effort to stop the deadly virus, businesses have been forced to close...
...and citizens isolated at home on an unprecedented scale worldwide
It’s caused a unique economic crisis...
...the impact of which will be greater on some industries in particular
The industries which are hit hardest are those...
...which are related to the consumer. So that’s retailing, that’s entertainment...
...that’s hospitality, both hotels and restaurants...
...many of which have simply been locked down
And many of these companies will have high costs...
...which they’ll need to keep meeting
So, suddenly you have lots of costs continuing and absolutely no revenues...
...which is the worst possible outcome for these businesses
But even if a business isn’t directly losing out from people staying at home...
...lockdowns are having a devastating ripple effect
Modern industry relies on goods and materials crossing borders
When they can’t, production around the world is endangered
The coronavirus caused a break in the biggest link...
...in the vast, global, supply chain
The problem started in China where the disease started...
...really to be seen in December and then had a huge impact in January
China is the bedrock of the global supply chain
Businesses started to look for alternative suppliers...
...but of course, that was a race to try and find the few that had spare capacity
As the virus spread, alternative suppliers have become...
...fewer and further between
It’s going to take a very, very long time for them to rebuild their supply chains
And in the interim, because there’s very little demand for finished products
Few companies are going to want to resurrect that supply chain...
...instantly until they know that the economy is settled down
The true extent of the damage to the world economy...
...will only start to become clear with the speed...
...and strength of its recovery
The big question that economists are still trying to grapple with is...
...whether this is what they call a V-shaped recession...
...or a U-shaped recession or an L-shaped recession
In a V-shaped recession the economy suffers a rapid fall...
...but rebounds very quickly...
...as opposed to a longer economic trough before recovery...
...or long-term recession
Now, the most encouraging news we’ve had so far is that in China...
...which was the first economy to be hit...
...the latest figures suggest the most hopeful possibility...
...which is that this is a V-shaped recession
Now, if China can do that, the hope is that...
...Europe and America can do that later on when the lockdowns are lifted
Europeans and Americans are also being helped by...
...unprecedented government responses
Up to €200bn
£330bn
$2.2 trillion in urgently needed relief
These short-term protections might reduce the damage the economy suffers
But this pandemic could last a long time
So, the difficult calculation for governments is...
...trading off the lives of people who will die from the coronavirus...
...versus the economic damage to the economy
Year-long lockdowns would cost America and the euro zone...
...perhaps a third of their GDP
Models looking at America...
...suggests that ending lockdowns would lessen that damage...
...but would lead to around 1m extra deaths
In the last 75 years, since the second world war, we’ve seen nothing like this
Governments have not reacted on this scale
So although it’s terrible, in a way it shows our humanity...
...that we want to reduce the number of deaths so much...
...that we’re willing to put up with all these restrictions...
...and we’re willing to accept a big hit to economic activities
I’m Philip Coggan. I’m reporting for The Economist...
...on the financial crisis that’s been created by the pandemic
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