Q&A on COVID-19: The Economy, Markets and What Investors Should Do
While it is hard to predict the economic impact from the coronavirus (COVID-19) in the first quarter given little yet reported and many unknowns, most economists are anticipating a rebound later this year.
Two of the best performing stock markets in the world so far this year are China and Italy, where COVID-19 outbreaks have been focused—reminding us that headlines don’t often make for good investment advice.
Rather than trying to call the bottom, a more effective way to think about investing right now is to focus more on the duration rather than the decline. Markets may have further to fall, but they may not stay down for the rest of the year barring a severe pandemic.
Q: What’s the economic impact of COVID-19?
While it is hard to predict the economic impact in the first quarter given little data yet reported and many unknowns, most economists are anticipating a rebound later this year. They see the drag on growth early in the year resulting in only a modestly weaker pace of growth for the year as a whole. For example, on February 22, the International Monetary Fund (IMF) updated their 2020 global growth outlook, lowering the pace of growth by 0.1% due to the anticipated impact of COVID-19, putting their estimate of GDP growth at 3.2% compared with 2.9% last year.
With the situation evolving rapidly, how bad could it get in the event of a pandemic? In 2008, an internal report by the World Bank estimated the impact of a “mild” flu pandemic at 0.7% of global GDP, a “moderate” pandemic at 2% and a “severe” outbreak at 4.8%. That would be the difference between a slowdown, a downturn, and a global recession as deep as the GDP decline during the financial crisis of 2008-09.
In the event of a pandemic: mild, moderate and severe potential global GDP impact
Source: Charles Schwab, Federal Reserve and World Bank data as of 2/27/2020.