Covid-19 and the oil price war: A global recession is almost inescapable
A global recession is now almost inevitable in 2020.
Monday has seen global stocks and government bond yields decline after oil prices nosedived by near to 30%, as I discuss in this short video.
This is oil’s sharpest one-day fall since the Gulf War in 1991, further driving the global stock market sell-off that got underway a fortnight ago on fears the Covid-19 outbreak will severely affect economic growth.
Every major stock market around the world is getting battered as oil prices plummet due to an impending price war after the breakdown of Saudi Arabia’s oil-reduction alliance with Russia over the weekend.
This is not something that will be sorted out in a day, and far-reaching consequences are a cert.
This comes at a time when the world is attempting to cope with the market chaos and economic fallout sparked by the spread of coronavirus.
As such, coupled with the ramifications of the oil stand-off and the virus outbreak, I believe that it’s almost unavoidable that 2020 will see a global recession.
As I said last week, ahead of the oil price fall, coronavirus has led to bouts of volatility in the stock market not seen since 2008, severely affected global supply chains, closed down factories, grounded flights, closed attractions and cancelled big events. Covid-19 has almost brought major cities in Asia and Europe to a standstill. Major companies have cautioned that the virus will seriously impact profits and employees are being forced to work from home and avoid all unnecessary travel.
In addition, both supply and consumer demand are already being affected in certain sectors including travel and tourism, hospitality, manufacturing, and retail, and will likely impact others too.
This will then result in a fall in consumer confidence and spending, reduced business investment, additional job losses, meaning further reduced spending and demand and, in turn, more job losses.
Indeed, during these times of heightened market volatility, investors must make sure they stay in the markets with sufficient portfolio diversification to safeguard and also build their wealth.
Shrewd investors and their financial advisers will be keeping an eye out for the inevitable opportunities that are created by fluctuations, mis-pricing, and panic selling, permitting them to add high-quality equities to their investment portfolios at lower prices.
We still don’t know what the ultimate effect the oil price war will have on the global economy that is struggling to cope with the spread of Covid-19, but the risk of a short but serious global recession this year has radically increased.