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Will the Coronavirus Start a Worldwide Recession?

Feb 28, 2020 by Simon Banks

Crisis management. Two words that will be familiar with most people, whether as individuals trying to right previous wrongs, or as part of a company looking at ways to mitigate a professional issue. Yet, when the entire planet goes into crisis management mode, the outlook seems exponentially worse. 

The world seemed a relatively calm place midway through December 2019. Fast-forward a couple of months, and we’re on the cusp on a pandemic. COVID-19, or, as it’s more commonly known, the, has dominated every section of the news so far in 2020.

While it’s impossible to predict what happens next in terms of spread severity, everyone from local governments to the World Health Organisation (WHO) are trying to find ways to temper the virus. The initial concern for most people is, of course, catching the coronavirus. But other potential impacts are more far-reaching than a virus with a 99% survival rate. 

It’s highly possible that the rate in which the virus spreads will begin to slow. Staying alert is important, but it’s not time to panic. Yet, it’s still worth looking at how the coronavirus could impact the global scene, including the economy and a possible worldwide recession – and how the housing market might provide a solution.

The impact of coronavirus so far

Uncertainty around data means it’s too early to speculate on the impact of coronavirus on the global economy. However, throughout January, the economy showed signs of a recession, which came in the form of Q4 global GDP contracting for the first time in 43 quarters.

Forty-three quarters ago equates to 2009, which was around the time of the last global recession. Even so, the signs were largely ignored because of “unclear” developments on the virus, along with the limited availability of data. The contraction was mostly attributed to slowing Chinese figures.

Coronavirus compared to SARS

Many are already making comparisons between the coronavirus and SARS, especially as they come from the same family of diseases. However, there are a few differences between the two. The basic reproduction number for coronavirus is significantly higher than SARS. This means the risk of it spreading is higher. 

China has also expanded since 2004 (the years of the SARS outbreak) and is a major leader in the world economy. According to UN stats, the United States was accountable for 22% of global manufacturing in 2004, with China accounting for only 9%. 

By 2018, China had 28% of global manufacturing output. Business from all other parts of the globe is more frequent, meaning travel or transportation of goods to and from China is significantly higher than it was 16 years ago. Essentially, the coronavirus has a greater chance of not just spreading; but also impacting the global economy. 

A far-reaching impact

Switch on the news, and all the stories are focused on people contracting the virus and how to stop the spread through isolation. What started as a major concern in China has grown to other countries in Asia, including Japan, South Korea and Malaysia. 

Europe is also starting to feel the impact of coronavirus, with cases in Italy surpassing 400 and the first UK death confirmed. If the virus continues to spread, economies are likely to be more exposed. The Dow Jones index recorded its biggest fall in history on the 27th February, while Britain’s FTSE slumped by 3.5%.

If the virus continues to spread, we can expect to see a reduction of tourism in countries and slowing of consumption, as well as tougher international trading environments and an outlook on investment that is anything by clear. 

A recession in 2020?

It’s too early to suggest there will be a worldwide recession, but it shouldn’t be ruled out entirely. During tough financial times, people often look to invest in safe assets, away from stocks and bonds tied to financial markets. 

The credit crunch at the tail end of the last decade sprung many surprises as the mortgage crisis made investing in property an unsafe option. Yet this time around, the outlook is different, and the cause of a potential recession has nothing to do with the housing market. 

Does the property market hold the answer?

In fact, bricks and mortar will likely be seen as an attractive asset class, especially here in the UK, where prices just recorded their highest month-on-month rise on record in the property market. On-the-fence home sellers might want to start thinking seriously about selling their home. 

While there might be an initial uptick in sales, the longer a recession goes on, the more people stop taking investment risks. Houses are a fairly secure risk, however, their values see spikes and dips throughout all different market conditions. 

Even so, it’s during the initial stages of a recession where sellers can prosper, as people look to find an asset class that is relatively risk free. If there is a global recession, it’s highly unlikely that the housing market will suffer like it did during the credit crunch. 

While property investment can’t play a role in reducing the spread of the coronavirus, it could just be the safe bet when it comes to the economy. The world is in crisis management, and the property market might just be the ideal tonic for damage control. 

Property News
Feb 28, 2020 by Simon Banks

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