Corona fall-out

The momentum of coronavirus infections has at times slowed somewhat, which has helped to ease the situation on the financial markets. However, the economic impact of the flu wave in China cannot yet be estimated. Not surprisingly, central banks are preparing themselves and the markets for an economic slowdown in Q1 2020.

The economic development in Q1 is likely to be weak. Both leading indicators and real economic data in the industrialised countries should be negatively affected by the extended New Year holidays in China. As things stand at present, global supply chains should have been affected, but no long-term effects are to be feared. Thus, an economic recovery from Q2 2020 onwards is still likely. However, the longer the wave of influenza has China under control, the greater the risk that the unfavorable economic consequences will extend well into 2020.

The central banks will act accordingly cautiously in the coming weeks. The financial markets will expect at least latent monetary policy easing. The US economy should perform well even in this tense environment and the US Federal Reserve should be able to react calmly. However, the euro zone is already entering this crisis weakened. With Germany and Italy, two large countries have suffered economic and political damage. In addition, the euro zone as a whole is more dependent on world trade. The risk of recession is therefore much greater here than in the USA. The ECB’s fuse will be correspondingly short – even though the ECB has a clearly limited scope of action.

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