World stock markets took a heavy beating last week on fears the COVID-19 outbreak would stunt global economic growth. The equities market across Asia, the US and Europe sank, oil prices tumbled to below $50 per barrel, while major production plants in China shut down, cutting off a major part of the global supply chain.
The coronavirus outbreak did not only spook the global financial markets. Schools closed in Japan, while flights are canceled worldwide in a bid to contain the spread of the virus. Saudi Arabia, meanwhile, stopped pilgrims from traveling to Mecca and prominent international trade shows were canceled. Uncertainty also hovers around the Olympic Games scheduled to open in Tokyo in July.
Market investors are always the first to sense when trouble in the global economy is about to come. They may be overreacting to COVID-19 but the spread of the virus to the US, Japan Korea, Italy, Iran and parts of Africa is enough to convince investors to search for safe havens like the Japanese yen and US Treasuries. Some analysts thought last week’s market crash was putting the global economy at the greatest risk of recession since the 2008 financial crisis.
The world’s central banks, fortunately, have taken notice. The US Federal Reserve on Tuesday slashed interest rates after last week’s global market rout to limit the economic impact of the coronavirus. Australia and Malaysia’s central banks followed suit to offset the shutdown of major factories in China.
Stimulus measures like reduced interest rates, greater public spending to create jobs and bolster consumption and cheaper funds from global financial institutions like the World Bank are needed to prevent a catastrophic world recession. Such stimuli also give investors confidence and take away the gloom that pervaded in the global financial markets last week.
The Philippines, for its part, should start lowering the borrowing cost in the country to spur businessmen to expand their factories. The government must also draw up an assistance program to help the tourism sector, especially the micro-entrepreneurs who have lost their livelihood following several flight and hotel room cancellations.