The coronavirus-induced recession could become a depression, PIMCO says
- "Fiscal and monetary policy makers around the world will have to pull out all the stops to prevent what currently looks like an inevitable recession from turning into a depression," Joachim Fels, an analyst at PIMCO, wrote in a note to clients Monday.
- A depression could send financial markets from "a drawdown to a meltdown," Fels said.
- In addition to facilitating more expansionary fiscal policy, central banks will also have to ensure that credit can continue to flow to companies and households, he said.
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The coronavirus pandemic has brought much economic activity around the world to a halt, making a global recession appear inevitable - it could become a depression if policy makers don't act fast enough, according to Joachim Fels of Pacific Investment Management Co.
"In the face of the most serious global health crisis in more than a century, fiscal and monetary policy makers around the world will have to pull out all the stops to prevent what currently looks like an inevitable recession from turning into a depression," Fels, the global economic adviser at PIMCO, wrote in a note to clients Monday.
That could send financial markets from "a drawdown to a meltdown," he added.
On Sunday, the Federal Reserve sprang into action in an attempt to save the US economy from fallout amid the coronavirus pandemic. The central bank lowered its benchmark interest rate to near zero and said that it will increase bond holdings by $700 billion, among other measures.
US equities all but shrugged off the emergency measures - the Dow Jones Industrial Average shed 2,700 points at the open, and the S&P 500 slipped 8%, hitting a circuit breaker that halted trading for 15 minutes. When it resumed, stocks continued to slump.
This is as close as it gets to "whatever it takes" action from the Fed, Fels wrote. Still, it appears that a global recession is "a foregone conclusion" amid supply disruptions and halted demand for services.
The task at hand for governments and central banks continues to be that the recession "stays relatively short-lived and doesn't morph into an economic depression," Fels said. This will require a "very large fiscal response" to support individuals and businesses adversely affected by the crisis, he wrote.
In addition to facilitating more expansionary fiscal policy, "central banks will also have to ensure that credit can continue to flow to companies and households," he said.