OECD: Coronavirus is "gravest threat" to economy since the crisis

Organization has published a new outlook which looks at best and worst case scenarios

OECD: Coronavirus is "gravest threat" to economy since the crisis
Steve Randall

The global financial crisis that wiped billions of dollars off the value of investments, collapsed businesses and banks, and devastated economies around the world was more than a decade ago.

But the coronavirus spread poses the greatest threat to the global economy since those dark days according to a new outlook from the OECD.

It is calling for world governments to act fast to protect people and businesses and shore up demand.

The organization’s outlook presents best and worst case scenarios for the spread of Covid-19 ranging from a broad containment of the outbreak through to a prospect of more widespread ‘domino’ contagion.

“Even in the best-case scenario of limited outbreaks in countries outside China, a sharp slowdown in world growth is expected in the first half of 2020 as supply chains and commodities are hit, tourism drops and confidence falters,” the OECD outlook warns.

Global economic growth is seen falling to 2.4% for the whole year, compared to an already weak 2.9 % in 2019.  It is then expected to rise to a modest 3.3% in 2021.

Growth prospects for China have been revised down sharply to below 5% this year after 6.1% in 2019.

Investor ‘180’
As recent as last week, investors were optimistic that the market impact of coronavirus would be short-lived and broadly shrugged off the risk.

But this has changed according to Nigel Green, CEO of global financial advisory deVere Group.

“Investors have done a ‘one eighty’ – from a muted overly confident reaction to the serious and far-reaching global issue of coronavirus to running like headless chickens,” he said. “Both extremes are worrying and could potentially wreak havoc on investors’ returns.”

However, he noted that the biggest sell-off since the financial crisis does present a buying opportunity for many investors.

“With markets on the brink of correction territory, panic-selling, mis-pricing of high quality equities, and lower entry points, this could turn out to be one of the key buying opportunities in the last 10 years,” he said. “Some of the most successful investors will embrace volatility to create, maximise and protect their wealth.”

Lock in a loss by selling
Investors who decide to join the sell-off are likely to lose out more than those able to hold their nerve according to Mark Hamrick, senior economic analyst for Bankrate.

"As with stock market declines over the past several decades including the financial crisis and Great Recession, the biggest challenge for those inclined to dump stocks is determining when to get back into the market. History tells us that most mere mortals aren’t able to get that timing right, which risks exacerbating losses. Long-term investors with the ability and fortitude to remain in the market should do just that. This is for certain: One locks in a loss by selling."

Hamrick added that while we don’t know what the short-term implications for the market is but that the outbreak and its impact will have a conclusion at some point.

"For long-term investors, this jolt is a bump in the road that will eventually only be a memory,” he said.