Coronavirus spared some assets, a recession isn't certain, and there could be some winners, top economist says
- The coronavirus won't necessarily cripple the world economy, according to Boston Consulting Group's chief economist, Philipp Carlsson-Szlezak.
- The epidemic hasn't hit all assets equally, a global recession isn't guaranteed, and there could be some winners, he told Business Insider.
- "History tells us not to draw a straight line between financial market sell-offs and the real economy," Carlsson-Szlezak said.
- Coronavirus could have a "more positive microeconomic legacy" by boosting the e-commerce, online-learning, and digital-health sectors, he added.
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Coronavirus might not be quite as devastating to the world economy as many fear, Boston Consulting Group's chief economist, Philipp Carlsson-Szlezak, told Business Insider.
The virus - which causes a disease called COVID-19 - continues to disrupt supply chains, interfere with businesses, and dampen consumer demand, fanning fears of a global economic slowdown. Worried investors ditched stocks, oil, and cryptocurrencies in favor of haven assets such as gold and government bonds this week.
However, coronavirus hasn't hammered every part of the market, won't necessarily result in recession, and might even benefit some parts of the economy, Carlsson-Szlezak said in an email.
"History tells us not to draw a straight line between financial market sell-offs and the real economy," he wrote.
"So far, the impact of COVID-19 on valuations of risk assets has not been uniform. Credit spreads have risen remarkably little, suggesting credit markets do not yet foresee funding and financing problems. Equity valuations have fallen, but they are still relatively high," he added.
Recession isn't a certainty
Coronavirus has infected more than 119,000 people, killed at least 4,200, and spread to upwards of 100 countries. Italy, which locked down its entire 60 million population this week, has 10,000 confirmed cases. The US has racked up more than 1,000 cases so far, and major events such as SXSW and Coachella have been canceled or postponed.
In the coming months, millions of people could stay home to minimize their risk of getting sick, hurting restaurants, brick-and-mortar retailers, cinemas, and other businesses. Millions more could fall ill and be unable to work. Given many countries are already growing at a sluggish pace, a sustained decline in global output could be the result.
Yet a recession "isn't a foregone conclusion," Carlsson-Szlezak said. Coronavirus threatens to slam both supply and demand, shrinking the global economy and causing a "real" recession. However, a "policy" recession - when authorities suffocate growth - remains unlikely given interest rates are low and governments have promised fiscal support, he said.
Coronavirus is also unlikely to contribute to the types of financial imbalances that caused the financial crisis in 2008, Carlsson-Szlezak said. One risk is that "stress could arise from cash-flow strains, particular in small and medium enterprises," he cautioned.
Recovery and silver linings
It's tough to predict how long the global economy will take to recover from coronavirus, Carlsson-Szlezak said.
"The way back will depend on the degree to which demand will be delayed, whether the shock is lasting, and whether there is structural damage" he said. "An indirect hit to confidence could see markets fall and household wealth contract, causing a fall in consumption."
In the meantime, the outbreak could have a "more positive microeconomic legacy," he added. People quarantined at home might buy more goods over the web, teachers may well turn to educational software if students can't physically attend classes, and health officials could embrace innovations such as video appointments.
"We could see an expansion in the online shopping market, and as schools close, e-learning could see a breakthrough," Carlsson-Szlezak said. "We might also see more investments into digital solutions to public health crises."
