The Economist, a British news magazine, says (porous paywall) that COVID-19 is infecting the world economy. Although they say that “a recession is unlikely” but not impossible, it’s very clear that the conventional wisdom on global economic prospects has gone gloomy. Here is some of the evidence:
“The global spread of the novel coronavirus has crushed hopes for stronger growth this year and will hold 2020 global output gains to their slowest pace since the 2008-2009 financial crisis, International Monetary Fund Managing Director Kristalina Georgieva said on Wednesday,” reports Reuters.
“The Institute of International Finance downgraded its economic growth forecast for the United States and China on Thursday, while warning that world growth could reach its weakest since the global financial crisis,” also per Reuters.
“The virtual shutdown of one of the world’s biggest economies is hurting business around the globe, from multinational firms to truck drivers and tour guides,” reports the New York Times (porous paywall) .
So why are China’s stock markets surging?
Despite the gloom and doom, punters in China are betting on a big government bailout. The Financial Times reports (paywall):
Chinese stocks closed at a two-year high on Thursday, roaring back from a coronavirus-driven sell-off as investors prepared for more relief measures from Beijing.
Despite widespread disruption to supply chains in China, the country’s CSI 300 stock index gained 2.2% on the day, making it the best-performing major stock market in the world. The index has gained nearly 3% so far in 2020 while most other big global indices languish in the red. The S&P 500 is down 3% and the FTSE 100 is off 1.6%.
Shenzhen’s smaller technology-focused composite index has performed even better, gaining 12% this year, largely due to a rally in internet companies that benefit from enforced stays at home due to quarantine measures as well as speculative plays by momentum-driven retail investors.