Will Coronavirus Crater Hopes of A Global Recovery as World Trade Tumbles?
The comments below are an edited and abridged synopsis of an article by Tyler Durden
The global economy faces a synchronized slowdown, as central bank ammunition to fight the next global recession is limited.
Monetary authorities globally have slashed interest rates 80 times over the last 12 months, and printed upwards of $1 trillion over four months to counter the slowdown.
The only solution central bankers have offered is a liquidity-fueled stock market melt-up that rivals the dot-com bubble (and the liquidity-fueled melt-up around Y2K). They have also provided forward guidance on how a V-shaped recovery in the real economy is imminent.
Unfortunately, traditional monetary policy has had difficulty stimulating growth in developed and emerging economies.
In its annual report, the UN warned that the global economy recorded its lowest growth in a decade in 2019, falling to 2.3% as a result of the US and China trade war, and sharp pullbacks in investment.
The report warns that ‘slowbalization’ will define the global economy in the early 2020s. Growth is expected to pick up slightly across the world from 2.3% last year to 2.5% in 2020, but that depends on the effectiveness of monetary policy and whether all trade disputes can be resolved.
And, on top of warnings about a decelerating global economy in 2020, the market’s most important pillars of support—buybacks—are declining.
If the global economy fails to rebound in 2020, asset managers and leveraged funds, who’ve already priced in a recovery by bidding stocks to record highs, could soon see a repricing of growth that will lead to a blowoff top in stocks.
Along with a continued global slowdown, a deadly virus outbreak could derail consumer spending habits across Asia that would ultimately weigh on global trade.
