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Will Coronavirus Cause a Global Recession?

As of 26 February 2020, the Coronavirus continues to spread globally. News about the virus is not only harming people, it’s also affecting the global economy.

But will coronavirus cause a global recession?

Here are some recent statistics compiled by Statista on the effects coronavirus is having on the stock markets and industry. If these trends are indicative of global economic health, they might signal the beginning of the next global economic correction cycle (recession).

Many economists believe the world is long overdue a global recession. They occur in cycles, usually about 10 years apart, and the last one we had was in 2008.

Figure 1 shows how fast coronavirus is spreading. As at 24 February 2020, there are almost 80,000 reported cases of coronavirus worldwide. And it doesn’t seem to be slowing down.

Confirmed coronavirus cases as at 24 February 2020
Figure 1: Confirmed coronavirus cases as at 24 February 2020

Figure 2 shows a disturbing increase in market volatility, most likely caused from the uncertainty surrounding coronavirus and the impact it’s having on industry.

The VIX Index measures expected volatility over a 30-day period. The data suggests that the current volatility is extremely high. A VIX score over 20 (currently 26.5) is considered abnormally high.

Financial volatility is thought to be a direct signal of an impending financial crisis.

Market volatility since news of coronavirus emerged
Figure 2: Market volatility since news of coronavirus emerged

Figure 3 shows what has happened to mainstream stock markets, with one index recording the biggest one day drop in the past 10 years.

Stock markets negatively affected by coronavirus
Figure 3: Stock markets negatively affected by coronavirus

Figure 4 puts the stock market effects in perspective, suggesting market uncertainty has retraced the gains made in the first half of the year. The Dow Jones Industrial Index recorded it’s 3rd biggest single day drop in the history of the index.

Steep drops in market indices as a result of coronavirus uncertainty
Figure 4: Steep drops in market indices as a result of coronavirus uncertainty

Figure 5 shows which industries are most common in Wuhan, the epicentre of the coronavirus, now in lockdown.

Wuhan industry sizes
Figure 5: Wuhan industry sizes

Figure 6 shows the likely impact on tech industry shipments out of China, as a result of coronavirus.

Except for Samsung who now do most of their production in Vietnam, big brands such as Apple and Huawei who do much of their production in China are likely to suffer.

The downstream effects could mean more expensive electronics good to consumers.

The Expected Impact of Coronavirus on Tech Industry Shipments
Figure 6: The expected impact of coronavirus on tech industry shipments

The coronavirus is most certainly having a profound effect on the global economy. It seems that the effects will not subside anytime soon, and we should prepare for recession.