Coronavirus: three scenarios
Coronavirus is a so-called “black swan” – an event no one could have predicted that is making a great impact on the global economy and financial markets. The virus represents a major uncertainty: it’s not really clear now how the situation will develop in the future. To make sense of the different factors, we outlined the three potential outcomes. The publication is based on the materials of McKinsey and Bloomberg.
1. Mild scenario
What will happen?
China will be the main victim of the virus. Elsewhere, the spreading of the disease will be effectively stopped. In China itself, there will be no second wave of the epidemic. Fiscal and monetary support will help to diminish the economic damage. McKinsey and Bloomberg point out that in this case Chinese production will recover by the end of March in the major part of the county. The crisis in the Hubei province, however, may last until the middle of the second quarter.
Losses
Chinese economy will lose less than 1% of its annual growth, while the global growth will diminish only by a fraction of percent. The demand for fuel will recover in the Q2 helping oil prices go up.
2. Scenario of medium gravity
What will happen?
Pandemic will keep on, but the authorities of various countries will follow China’s example and impose restrictions on travelling and communication. Some countries may have to deal with China-like extent of the health crisis.
Losses
This will slice 1-2% off global GDP growth in 2020. The recovery will start in the third quarter. Air transportation and tourism will be hit hard and won’t be able to return to the normal state until the year-end. Oil prices will remain low.
3. Hard scenario
What will happen?
More self-sustained virus areas will appear all over the world. This will happen if the coronavirus turns out not to be just seasonal, but continues spreading in the north hemisphere during summer.
Losses
Annual GDP growth will be either minimum – 0.1%-1% ( McKinsey) or zero (Bloomberg). In 2020, the global GDP will lose about $2.7 trillion. This is comparable with the losses of 2008-2009.
What does it all mean for traders?
First of all, don’t panic. Make sure that you take the necessary precautions: wash hands, don’t touch face, avoid public places. As for trading, do technical and fundamental analysis carefully. There are a lot of swings in price from which traders can benefit. Good thing is that for trading you don’t need to leave home: everything can be done online.