Global economic standstill prompting caution UPDATE 19-03-2020

Global economy in lockdown

The major economic regions of China, Europe and the US, are going through difficult times on account of the coronavirus. The economies of Europe and the US will contract in the first half of the year.

The easing of current safety and security measures, the provision of support by central banks and governments and a gradual return of confidence will pave the way for a recovery in the second half of the year.

On average, economic growth in the euro area will be negative in 2020. Growth in the US will remain below the projected trend.

Unprecedented situation calls for unprecedented measures

Central banks are providing a shot in the arm for the economy, as illustrated by the Fed, which has cut its rate to just above 0%.

The European Central Bank is taking other measures, including liquidity injections and more flexible rules to enable banks to grant cheaper loans to small and medium-sized businesses.

Governments are playing their part too. One way they are helping companies is by allowing deferred payment of taxes. Guarantee funds are also being set up.

Uncertainty slaughters the bull

It is impossible to estimate when the virus will be brought under control and what the exact economic impact will be. The fact is that both the virus and its consequences will be temporary. The improved situation in China and South Korea gives us something solid to go on.

The flight to safety in times of uncertainty is a classic reflex. Stock markets have undergone a sharp correction. The situation is changing from day to day.

The news in the weeks ahead will remain negative and, therefore, we are picking more defensive sectors and emerging markets for our shareholdings. We are more cautious towards Europe.

"Talk to your advisor about investing within your comfort zone. This investment solution ensures that the investment suits you, whatever happens."
Edited to 17 March 2020. This document is a publication of KBC Asset Management NV (KBC AM). The information may be changed without notice and offers no guarantee for the future. No part of this document may be reproduced without the prior express written consent of KBC AM. This information is governed by the laws of Belgium and is subject to the exclusive jurisdiction of its courts.