Mar 19, 2020 - Economy & Business

Coronavirus could force the world into an unprecedented depression

Illustration: Eniola Odetunde/Axios

In its latest repricing of the economy, the market sees the now-expected global recession caused by the coronavirus outbreak morphing into an economic depression unlike any the world has seen in generations.

The big picture: Bankers and traders are looking to sell everything that isn't nailed down to boost cash positions and hunker down for the worst.

What they're saying: JPMorgan wrote down its expectations for global GDP to -1.1% in 2020, expecting the world's economic growth will reverse for the full year, including a second quarter contraction of -14% in the U.S. and -22% in the eurozone.

  • Deutsche Bank economists foresee a "severe global recession occurring in the first half of 2020 ... quarterly declines in GDP growth we anticipate substantially exceed anything previously recorded going back to at least World War II."
  • Both banks noted their forecasts are based on governments putting in place massive, yet-to-be-passed fiscal stimulus programs and fairly swift containment of the outbreak.
  • "It is easy to imagine a still worse outcome," DB analysts, led by head of economics research Peter Hooper and seven chief economists, wrote.

The most dire warning came from Pershing Square Capital Management CEO Bill Ackman, who went on CNBC to beg President Trump to shut down the U.S. economy for 30 days and put the country in a nationwide lockdown.

  • "Until a vaccine is manufactured, distributed and injected we will go through a Depression-era period in the country," Ackman said. "America will end as we know it unless we take this option."

What's happening: Even traditional safe havens were not seen as safe enough during Wednesday's selling.

  • Gold dropped by 3% and U.S. and German government debt, viewed as the safest bonds on earth, were sold despite a 5% decline on the S&P 500 and a rout that saw WTI crude oil prices fall 14% and crash below $22 a barrel.

The last word: "What people are doing is looking at things that they can sell to raise cash, and that’s part of the crisis market situation," Jim Caron, head of fixed income global macro strategies for Morgan Stanley Investment Management, told CNBC. "When these things happen, people sell what they can sell, not what they want to sell."

Go deeper: The coronavirus economic pain in the U.S. has begun

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Stocks plunge 7% at close of Wall Street's brutal day

Photo by Spencer Platt/Getty Images

U.S. stocks closed more than 7% lower on Monday, after a wild day for the stock market that saw a rare halt in trading.

Why it matters: The sell-off reflects serious fears that the oil price drop and the coronavirus could throw the economy into a recession.

Go deeperArrowUpdated Mar 9, 2020 - Economy & Business

Coronavirus could shrink global GDP

Data: OECD; Chart: Andrew Witherspoon/Axios

Here's how serious coronavirus is: With the exception of the global financial crisis, the last time that the world saw a quarter of negative GDP growth was in 1982.

Flashback: Back then, China accounted for only about 1% of global GDP. Today, that number is 15%.

Companies hunker down for worst-case economic scenario

Illustration: Aïda Amer/Axios

What a difference a month makes.

Then: The nation's largest companies were on top of the world — buying back stock, watching their share prices flirt with all-time highs and hiring in droves.

Now: Corporate America is prepping for what could be a very lengthy and severe recession.