Westpac Market Outlook March 2020
The last month has seen dramatic changes to the economic outlook and to markets. The coronavirus, now officially dubbed COVID-19, has moved from a severe outbreak in China to a global pandemic that is showing few signs of slowing down. There is some good news in that China’s bold measures look to have curtailed their outbreak, firming up prospects for an end to lock downs and the resumption of economic activity. However, other countries are still only coming to grips with their own outbreaks. Several – South Korea, Iran and Italy – are seeing cases at emergency levels while the escalation in other parts of Europe, the Middle East and the risk that the virus has been spreading undetected in other major countries such as the US is of great concern. Having largely ignored the initial outbreak in China, financial markets have been rocked in recent weeks with heavy sell-off s in equities, bond yields plumbing new record lows and flight to safety and repatriation flows dominating. The volatility and the prospect of major virus-related disruptions to economic activity and consumer demand prompted the FOMC to make an unscheduled 50bp rate cut in early March. The RBA also lowered the cash rate 25bps at its March meeting. Our economic forecasts have been substantially revised with several countries now facing into ‘technical recessions’ as the virus disruptions impact in the first half of the year. Policy is now seen acting more quickly and aggressively with the FOMC, the ECB and the RBA all expected to deploy new unconventional stimulus measures in coming months. Our forecasts have a rebound pencilled in for the second half of the year but rest heavily on the condition that the outbreak starts to come under control by around mid-year.
