The main UK index dropped more than 10% in its worst day since 1987.
In the US, the Dow and S&P 500 were also hit by their steepest daily falls since 1987.
The deepening coronavirus crisis sent stocks into another alarming slide on Wall Street on Thursday, triggering a brief, automatic shutdown in trading for the second time this week.
The Dow Jones Industrial Average was down nearly 2,000 points, or 8.5 per cent, by midafternoon (US time), while the broader S&P 500 was off 7.9 per cent. European markets lost 12% in one of their worst days in history, even after the European Central Bank pledged to buy more bonds and offer more help for the economy.
New Zealand stock exchange market could not save itself from this global crisis. The benchmark top 50 index has fallen about 280 points or 2.6 percent, with all but a handful of stocks falling in price.
The hardest hit have been companies involved in transport, travel, tourism, and with direct business in China.
This wasn’t the first hit to New Zealand’s capital market, on 8th Mar, The S&P/NZX 50 Index dropped almost 3 per cent as investors fled the local stock market for safe havens leaving dividends behind, after oil prices collapsed following the OPEC meeting on Friday.
The benchmark index decreased 334.09 points, or 2.9 per cent, to 11,091.81. Within the index, 46 stocks fell, two rose, and two were unchanged. Turnover was $241.8 million.
BNZ has become the first major bank to predict a recession, forecasting that the economy will shrink in the first half of the year.
The bank said this morning that a “best-case scenario” was that the economy would grow “a smidgen above zero” but the downside risks were growing by the day.
“We are thus now formally forecasting at least two quarters of negative growth.”
Whether this week’s collapse of stock and oil prices will spiral into a much deeper economic crisis, perhaps even eclipsing that of 2008, depends on how the United States and other governments react. The United States has now, belatedly, taken drastic actions on travel and announced some support for businesses. But these are too late to prevent the coronavirus from spreading and too little to stave off a deeper economic downturn.
Swamping the markets with liquidity, as was done in 2008, is not going to resolve the problem this time. The markets are already awash in cash, and as was again demonstrated in early March, further cuts in interest rates no longer translate into growth. What is needed now is leadership that focuses on the domestic challenges and seeks to build international cooperation — rather than scapegoating other countries.
How bad could this get? Breaks in supply chains, factory closings and worker quarantines have disrupted supplies. Restrictions on hospitality and travel, and fears regarding contagion have hit demand. Growth is being dragged down and could turn negative in a range of economies from Germany to China to the United States. The crippling of retail and consumer businesses could quickly escalate into bankruptcies, the downgrading of corporate debt and impairment of the balance sheets of banks.
While this crisis is different in its origins from the last one, it is following a similar cycle of collapsing consumer and stock market confidence, leading to a spiraling down of demand, growth, employment and incomes. With central banks impotent and fiscal policy undermined by supply bottlenecks, novel approaches are needed.
The New York Times states that there is much that should be done immediately. Banks, supported by governments, should provide discounted loans and increase their tolerance of late repayments by businesses that risk bankruptcy because of the absence of supplies or customers, or because of late payments by creditors. Gig-economy and hourly contractors, estimated to include 57 million people in the United States, require particular help, and government should help employers to guarantee a basic income and to ensure that workers who are not currently entitled to sick pay — a quarter of the U.S. work force — are covered for the period in which they are unable to work.
New Zealand is very likely to cooperate the issue in the way that NYT suggested.
Cameron Bagrie, a New Zealand economist has warned those who look forward to an all-time low interest rates in New Zealand to “be careful what you wish for”. While low or zero interest rates would benefit those still paying off their mortgages, it would also be a sign that the global economy is in a dire state.
Bagrie says that interest rates close to zero do look likely in New Zealand as the country follows trends around the world. Already, the effects of a lower Official Cash Rate (OCR) in New Zealand – dropped to 1.5 percent in May – has had marked effects on borrowing trends.
ANZ, New Zealand’s largest bank, expects the Reserve Bank of New Zealand to cut the OCR to 1 percent later this year with further cuts likely in 2020.
In one of the worst countries with the outbreak, Italy, the government has announced that mortgage payments will be suspended across Italy as part of measures to soften the economic blow of coronavirus on households, a minister has said.
Italy’s banking lobby group ABI said lenders would offer debt holidays to small firms and families.
Suspending debt payments is not unheard of in Italy.
Some small businesses and families were given time off during the financial crisis before having to repay.