UBS Research Insights "Coronavirus: Key Questions and Signposts"

We cover recent Macro and Market developments and introduce a framework of key questions and signposts for investors to track throughout the Coronavirus outbreak.

02 Apr 2020

Many countries have announced mobility restrictions to slow down the spread of the virus. But, how will this affect the economy? UBS Research analysts believe that the mobility restrictions, event cancellations and temporary business closures will affect people more than the virus case-count. Find out how we will be affected.

A unique and highly unpredictable shock

The COVID-19 coronavirus poses a unique and highly unpredictable risk for the global economy and markets. Its accelerating spread across the globe and the unprecedented yet necessary mobility restrictions required to contain it, pose a unique combination of challenges that sets this current crisis apart from most economic and financial crises.

Broad-based market capitulation but financial system stress remains well below financial crisis extremes

After initially discounting the threat of the virus until mid-February, the subsequent market sell-off has been the fastest on record with c. USD 30 trillion in value lost across the S&P 500. While several metrics have exceeded their Global Financial Crisis (GFC) extremes, financial system stress remains below their 2008/09 levels thanks in part to unprecedented government and central bank intervention.

Our base case is a deep global recession followed by a recovery in H2

We expect the global economy to observe a deep recession in the first half of the year as economies are placed into forced slowdowns to curtail the spread of the virus. As things stand, countries contributing 80% of global GDP are under severe (26%) or intermediate (54%) mobility restrictions.

In response, central banks have slashed interest rates to record lows to shield consumers and corporates and launched fresh waves of bond-buying initiatives to support market liquidity and the flow of credit. In parallel, governments across the globe have announced over USD 2 trillion of stimulus measures, surpassing levels seen in 2009.

While these measures will not prevent a significant slowdown in global growth in H1, they will be material in shielding the economy through a peak period of uncertainty as well as lending support to a recovery in H2.

There are material risks to our view given the rapid evolution of both the virus and the official sector response

Downside risks to our view would be a failure to contain the spread of the virus in H1, a material delay in stimulus measures reaching those that need them urgently, further undermining consumer confidence and creating a more severe rise in unemployment.

Coronavirus framework: Key questions and signposts

In order to help investors navigate the crisis, we have pulled together a four-pillar framework of key questions and charts that we will regularly update as the crisis evolves.

  1. Near-term evolution of the virus
  2. Near-term economic and market impact
  3. Government and monetary policy support during the downturn
  4. Long-term prognosis on a vaccine and consequences from this crisis

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