The economy today, is in the grasps of a major pandemic that threatens a major economic recession that could even rival the likes of the Global Financial Crisis of 2008. Even though the mortality rate is quite low as compared to pandemics of the past, the issue arises as the contagion rate is alarmingly high which could choke the health sector if not contained well.
Countries are now facing major damage to the economy, and this is expected to get worse in the coming months till this virus is contained. There is fear gripping in the minds of the investors and hence a vast majority of them have taken a safe stance which in turn led to them pulling investments from new and emerging markets especially from developing countries.
The global stock market has shed an equivalent of US $15 trillion, with almost all major stock indexes facing major cuts of around 20-30%. The Indian indices like SENSEX and Nifty saw close to 30 per cent shed in market cap which is equivalent to US$650 billion (INR 50 lakh crores). This has also led to a major liquidity crunch as social distancing has vastly reduced availability of human resources.
The volatility indices have also gone sky high – with INDIA VIX going up to 83.6 (which is more than 500 per cent from 13.7 as of February 20). This has led to a huge lingering fear amongst the investor community with regards to the impending market conditions and expected governments’ actions. But the measures introduced brought no relief to them which in turn led them to take a much safer approach that endangered rest of the economy as they pulled investments from many major sectors.
Any relief in the foreseeable future is quite unlikely as most crucial activities has come to a halt, countries are looking at sharp reduction in their GDP growth and also the possibility of millions losing their jobs as companies too are taking a safe approach which is bad for the workers society. But there is some hope as with China’s return to normalcy, it is inevitable that this will be over soon. Also countries have announced emergency relief funds to revive the economy from this major disruption.
This is also the time when many assets of value have seen a huge slump in prices, so investments here could hold fruit in the future. The economy will rise again stronger than ever as has been witnessed in the past.
