SAVINGS SHREDDED IN MINUTES

For those who’ve lost loved ones to the coronavirus or who are fearful of catching it, plunging stock markets may seem of little consequence. And in the grand philosophical scheme of things, that is entirely right.

But the terrifying collapse in share prices since the virus started to spread worldwide is taking a vicious toll on the wealth of nations and individuals that no-one should underestimate. The market panic is driven by fear that the health crisis engulfing the globe will turn into a global financial slump.

This affects all of us. Anyone with savings in an investment ISA or a pension has a stake in the stock markets.

Even those without holdings should be concerned. This virus will hit the economy hard, putting jobs, livelihoods and hardearned savings at risk. Financial markets are in deeper trouble now than they have been since the credit crisis of 2008-2009.

The FTSE 100 saw one of its worst days ever yesterday with a £160billion loss of value which dwarfs the £94million suffered when Lehman Brothers went under in 2008. Since the ‘Boris Bounce’ peak on January 17, more than £608billion has been wiped off blue chip British shares.

of course, in the long term, markets come back from meltdowns. But it is painful to look at the losses in your pension portfolio. For people prudent enough to have built up some savings, seeing a large chunk of them evaporate in minutes is unpleasant to say the least. Investments will almost certainly recover, but it is galling to have to wait perhaps years to recoup losses run up in days.

In some respects it is more frightening than a decade ago, not least because the central banks which rescued the world then may not be able to pull off the same feat.

So far, their attempts at firefighting have achieved, at best, only the briefest of breathing spaces before the carnage starts again.

The mighty US Federal reserve delivered a temporary respite from the massive losses on Wall Street yesterday by promising to inject more money into the system through quantitative easing (QE – in effect moneyprinting) which was used after 2008.

But an emergency interest rate cut by the Fed earlier this month did not prevent huge falls in the following days and weeks.

In the UK we saw a huge co- ordinated action with Wednesday’s Budget. There was a cut in borrowing costs plus £30billion of support from the Chancellor, rishi Sunak, but it did nothing to stop the vertiginous plunge barely 24 hours later.

As for the European Central Bank, its efforts to prop up the Eurozone yesterday (cheap loans for small businesses, more QE but no loan rate cut) were derided on the markets as being utterly ineffectual.

One wild-card that has spooked the City and Wall Street is President Donald Trump. His veto on European flights to the US unnerved the financial world because of the direct economic damage it would cause and because of the seemingly irrational element of allowing planes from the UK to carry on landing. A capricious President at the helm of the world’s biggest economy, prone to crafting policy in late night tweets, has never been the most reassuring scenario even in good times – and certainly not now.

THE big fear is that, as the number of cases rises in the US, its economy will be severely hit. The lack of an NHSstyle health system will leave tens of millions of Americans who do not have health insurance facing huge financial anxiety if they fall ill. A large wave of victims emerging in the States may trigger the markets to tank further.

In China, where the pandemic began, economic growth is being shredded even as the crisis there seems to be diminishing.

The Eurozone is deep in the mire as commercial activity in Italy, its third largest economy, has ground to a virtual halt. It is a hugely indebted nation with more than £2trillion of borrowing on the government books and a banking system that was teetering even before the epidemic.

Little wonder, then, that policymakers fear the pandemic could trigger a global recession. The unpalatable fact is that the tools central banks have at their disposal, which worked effectively in the credit crisis, are not capable of beating the economic fallout from this pandemic. The best we can hope is that they can ease the worst of the pain and boost the recovery when it comes.

Interest rates are still at rock bottom a decade after the credit crunch – they are negative in the Eurozone – so cutting them further does not make much difference. And when people are ill or too scared to go outside, or when the components manufacturers need are stuck in a Chinese or Italian factory, lower interest rates won’t help.

Governments can offer help through the tax system, as our Chancellor has done. Mr Sunak did the right thing in relaxing the rules and preparing to borrow more to tide us through. But building up more debt poses obvious dangers in the long term.

It is unlikely that the financial markets will regain any sort of equilibrium until the pandemic has been quelled.

This virus has seeped its way into every aspect of our daily lives. It threatens to bring workplaces to a juddering slowdown, if not a total halt, creating anxiety for millions of entrepreneurs and employees. Aspects of modern life such as overseas travel and eating out are under a cloud, threatening the survival of whole industries.

Covid-19 is the biggest challenge to globalisation – the idea that economies function best when people, goods and money can move freely – we have ever seen.

Britain has a resilient economy and we are resilient people. The nation, the economy and the stock markets will bounce back as they have always done. But there’s no hiding the fact that we are in for a rough ride.