Recent activity and demand data for China show the huge impact of the coronavirus epidemic. German business expectations have seen an unprecedented monthly drop in March . The drop in the price of oil acts as an additional drag on growth and a source of increased credit risk. The strengthening of the dollar is a source of concern for issuers with foreign currency debt in dollar. Despite swift action of the major central banks and the announcement of increasingly important fiscal policy support in various countries, equity markets have barely reacted: lack of visibility dominates.
Sudden stop. Until recently, the words referred to a sudden halt in private capital flows to emerging economies. Following the epidemic, they now also apply to demand and activity, witness the unprecedented 11-point drop in business expectations in the ifo survey for Germany. The latest data from China provide another illustration: over the January-February period industrial production dropped 13.5% versus last year, real retail sales declined 23.5% and fixed asset investment was down 24.5%. In case this would still be necessary, this is a reminder of the quasi-impossibility of assessing the extent of the hit to growth which results from what is, after all, an exogenous, non-economic shock. This explains why, despite massive, swift action of the major central banks and the announcement of increasingly important fiscal policy support in various countries, equity markets have barely reacted. At most, these actions significantly slowed the speed of decline.
