Corona – from epidemic to pandemic

The corona virus and its recent rapid spread across the globe bring much suffering to the people affected. According to current knowledge, about 20% of those affected can expect a severe course of the disease, 5% die on average. The financial markets reacted in their own way. The stock markets fell sharply in the course of the week. Investors‘ economic and profit expectations are coming under increasing pressure due to the rapid spread of the disease. If the disease spreads to become a serious pandemic, with heavy strain on supply chains, global growth is likely to come close to stagnation. Export-oriented countries would be hit harder than domestically oriented economic models. We are not there yet, but the world has come a few steps closer to this scenario in the course of this week.

Already now, the real economic data is likely to have a significant negative impact. At best, we can expect stagnation for Germany in Q1. This weak development should soon be reflected in the relevant leading indicators. However, based on past experience with such pathogens, one can assume that the wave of illness will abate in April, with the beginning of spring. This means that noticeable catch-up effects in economic development in the second half of the year are likely. Especially as there should be monetary and fiscal policy support for the economies in the coming weeks.

Monetary and fiscal policy support are proven crisis management measures that have worked well in the past. So why not trust them this time either. But the efficiency of these means has suffered greatly in recent years. There is a danger that we will be confronted with even lower interest rates and a further increase in debt at the end of the corona crisis. The efficiency of economies and capital markets should thus be further depressed. At the same time, however, global growth is not expected to benefit sustainably. In the end, the result could be lower interest rates, higher debt and weaker growth.
The long-term structural consequences of the pandemic are not yet foreseeable. The debate that has been going on for some years now about the right level of globalization and networking should pick up speed again. There are of course good reasons for less intensive international networking. But this would also mean lower welfare in the economies. This should be taken into account in the discussion. Here too, we should not be tempted to take a one-sided view.


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