At the time when the world learned about the new virus and how quickly it spreads, they also began to consider what economic consequences for the Chinese and global economy may arise. Companies began to close stores and factories, many air connections were canceled, and citizens were evacuated. All of this may affect the economy as a whole.
We already know that the slowdown in China's industrial activity and the closure of factories due to the outbreak of the coronavirus may most likely cause the largest oil demand shock in over a decade, since the financial crisis. Due to the fact that the Chinese authorities quarantined the cities, limited air and road travel, and extended factory closures after the Lunar New Year, oil consumption in China could fall by as much as 25 percent. Hence the chances rise that the OPEC and OPEC + countries could increase their commitment to reducing production to stop oil prices falling. There is talk of reducing production by 500,000 barrels a day or more, but no decision has yet been taken.
The impact of the virus on the economy is also noticed by the rating agency Standard & Poor’s, which in 2020 lowered the forecast for economic growth in China from 5.7 percent to 5.0 percent. According to the statement, most of the coronavirus's impact on the economy will be felt in the first quarter and the economic recovery in China will definitely take place in the third quarter of this year. According to Moody’s, the direct and most significant economic impact is taking place in China, but it will echo all over the world, given China's importance in global development as well as in the income of global companies - the statement says. The economist of the Chinese government also said economic growth in the first quarter could fall to 5 percent or even lower due to the virus outbreak.
In this context, we may think about the legitimacy of the euphoric increase in stock indices this week, with unprecedented volatility indices have set new historical highs in the United States, and in Germany, DAX is very close to the highest level in history.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
60% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
