World economy faces worst yr since ’09 Oil prices on track for biggest weekly fall in four years
Bofa economists warn that they expect 2.8% global growth this year, weakest since 2009
LONDON: The world economy may be heading for its worst performance since the financial crisis more than a decade ago as the spread of the coronavirus increasingly dashes hopes of a swift rebound.
Just weeks since most economists bet the China-led slump would quickly reverse once the virus was contained, many are rethinking that optimism as swathes of Chinese factories stay shut and workers idled. Having already cut supply chains and undermined tourism and trade, outbreaks from Europe to the Americas threaten activity elsewhere too.
Bank of America Corp. economists warned clients on Thursday that they now expect 2.8% global growth this year, the weakest since 2009. They were already penciling in the softest growth in China since 1990, but now say the US will expand the least in four years.“the risks are still skewed to the downside,” Bofa economists led by Ethan Harris said in a report. “Our forecasts do not include a global pandemic that would basically shut down economic activity in many major cities.”
The outlook contrasts with that released by the International Monetary Fund just last Saturday, when it said it would likely knock only 0.1 percentage point from its global growth estimate of 3.3% for this year although it was studying more “dire” scenarios. Now the Washington-based fund is reconsidering the scale and scope of policy meetings it was scheduled to host in mid-april.as stocks plunge, companies are also sounding the alert. Standard Chartered Plc on Thursday joined HSBC Holdings Plc in saying it would miss profit targets because of the virus.
“We remain sensitive to external conditions generally and recognize that these could as easily recover as worsen,” chief executive Bill Winters said.
Eager for insight into China’s economy, investors are hotly anticipatingthesaturdayrelease of a key manufacturing gauge.the consensus in
survey is for the official Purchasing Managers’ Index to slide to 45, the lowest since 2008, from January’s 50, with forecasts ranging from 50.1 to 33. That underscores the confusion surrounding the virus and how the reading could rock markets.
China still has a long recovery ahead. Economics calculates the economy ran at 60%-70% of normal this week, albeit up from 50%-60% a week ago. For now, key central banks are holding off cutting interest rates as they wait to see the full economic effect of the virus with rates already at or near record lows.
There’s also a debate over what further easing would achieve. If supply chains are broken, lower rates would likely do little to spur activity. European Central Bank president Christine Lagarde told the on Thursday that it’s too soon to respond, echoing comments Tuesday from Federal Reserve vice-chairman Richard Clarida.in a potential model for others, the Bank of Korea resisted demands to cut rates, preferring instead to target support for companies by making cheap loans easier to get. But economists are beginning to join investors in predicting the major central banks will eventually loosen policy. Those at Stanchart told clients on Wednesday that they now expect the Fed to cut its benchmark rate in April, June having previously assumed no change this year.
BRENT CRUDE’S SLUMP OF ABOUT 13% THIS WEEK IS LIKELY TO FOCUS MINDS AT THE OPEC+ MEET NEXT WEEK
LONDON: Oil prices slumped to their lowest in more than a year on Friday and were set for their steepest weekly fall in four years as the global spread of the coronavirus stokes demand fears.
Investors are increasingly worried about an economic slowdown weighing on oil demand as the virus spreads beyond its epicentre in China to more than 40 other countries.
The most active Brent crude contract for May was down $1.74, or 3.3%, at $49.99 a barrel by 0959, its lowest since July 2017. The front-month contract, which fell to a session low of $50.05 and is headed for its biggest weekly fall since January 2016, expires later on Friday.
West Texas Intermediate crude futures fell $1.89, or about 4%, to $45.20. US crude has fallen about 15% this week, representing the sharpest weekly decline since December 2008.
“While oil prices are expected to remain volatile in the near term, we expect Brent crude oil to recover to $64 a barrel (in the second half of 2020) as the economic recovery, slowing US oil production growth and additional Opec production cuts tighten the oil market,” UBS analysts said. Benchmark Brent crude’s slump of about 13% this week is likely to focus minds when the Organization of the Petroleum Exporting Countries (Opec) and allies including Russia, collectively known as Opec+, meets next week to discuss output.
“Brent crude under $50 a barrel will be a nightmare scenario for Opec and may well provoke a ... response of some kind from the core grouping,” said Jeffrey Halley, senior market analyst at brokerage OANDA. Oil markets have their eyes peeled for deeper supply cuts from the producer group. An Opec+ committee this month recommended the group deepen its output cuts by an additional 600,000 barrels per day (bpd), but the coronavirus has spread more widely since then.
LARGER OIL CUTS?
Several key Opec members are leaning towards a bigger than previously expected oil output cut, four people with knowledge of the talks said.
One person familiar with the talks said the kingdom now supported an oil output cut of 1 million bpd. Two other people said the need for additional action was clearer than when the Opec+ committee recommendation was made. “The situation has deteriorated,” said an industry source who has discussed the issue with some producers. “There is a lot of concern.”