"This is a perfect storm over the financial crisis."

The world economy in Corona… "This is a perfect storm over the financial crisis."

Darkening 'Black Swan Shadow'

A new coronavirus infection (Corona19), which is spreading rapidly around the world, is spreading to the 2008 global financial crisis as a perfect storm. As corona19 increases restrictions on cross-country / regional movement, plant operations are suspended, and consumer sentiment is shrinking, and even the stock market is showing signs of collapse.
Corona 19 has already reached the level of pandemic in the past weekend. Corona19 confirmed over 110,000 people worldwide, and over 3,800 died. There are more than 105 countries with corona19 infection. It has been three months since the first corona19 in China in December of last year.

The world economy is showing signs of paralysis. This is because countries around the world are restricting movement between countries and regions. Companies are also recommending refraining from travel in areas where corona19 infection is a concern.

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In a situation where the global supply chain is entangled like a spider's web, it is directly linked to production and consumption reductions such as plant shutdowns. In a recent email to investors, Silicon Valley investment firm Sequoia Capital warned that Corona 19 could become a black swan in 2020 (which is unlikely, but once it happens, it's a shocking event). And advised to reduce spending.

Nuriel Rubini, a professor of economics at New York University, who predicted the global financial crisis accurately in 2008, said in an interview with Spigelzi in Germany last month, saying that "this (Corona 19) crisis will lead to disaster" and the world stock market will drop by up to 40%. .
 

Economic institutions that anticipated the global economic recovery this year are also pouring out pessimism. Bloomberg Intelligence warned that if Corona 19 spreads around the world, the world's economic growth this year could drop to 0.1% in the worst case. Initially, the agency expected the world economy to grow 3.1% this year.

British economic analysis agency Oxford Economics also cut the previous estimate (2.3%) in half, saying that if Corona 19 became widespread, the world's economic growth rate would be only 1.1%. In particular, in the second quarter of this year, China's growth rate was only 2.0%, and the US (-0.5%) and the eurozone (-1.4%) were expected to grow negatively.

The Organization for Economic Cooperation and Development (OECD) also predicted that if Corona 19 spreads across China and around the world, the global economic growth rate could drop to 1.5%. The previous forecast was 2.9%.

The problem is that this crisis has limitations to cope with traditional prescriptions such as interest rate cuts. The central bank (Fed) held an unscheduled interest rate decision meeting for the first time since the global financial crisis on the 3rd, but cut the standard interest rate by 0.5 percentage points, but it is a case in point. Attempts to boost the economy by expanding fiscal expenditure in the United States and other countries have yet to demonstrate their power.

The Fed once started supplying ultra-short-term liquidity. It is through the repo market. New York Fed, which is in charge of operating the open market, decided to increase the daily limit for repo operation from $ 100 billion (about 120 trillion won) to $ 150 billion (about 180 trillion won). The goal is to support cash flow in the short-term money market. However, the New York Stock Exchange, which opened about two hours after the announcement of the New York Fed on the same day, caused a large number of orders to plunge as soon as the market opened, triggering circuit breakers. On the day, the Dow index, the S & P 500 index, and the Nasdaq index fell by 7% from the previous day, respectively.

The key is when Corona 19 gets caught. If the spread of Corona19 ends in a short period of time, the world economy is likely to recover early. However, if the proliferation of Corona 19 is prolonged, the global economic recovery will have to slow down. The New York Times said that the US economic situation and employment indicators were good before the spread of Corona 19.