According to the strategists at ABN Amro, “downside risks to the economic outlook have intensified over the last week, given the spread of the coronavirus around the world.” Therefore, further stimulus is expected from all major central banks.
Key quotes:
“We are currently in the process of downgrading our global economic scenario and will announce detailed changes tomorrow. However, given recent developments, we now expect an imminent easing of monetary policy by central banks – potentially in a coordinated fashion.
Some commentators have argued that what we are witnessing is a supply shock and therefore central bank action is pointless. We disagree.
The shock has always been of both demand and supply in nature, and if anything, we think we are now predominantly witnessing a demand shock. This reflects the tightening of financial conditions, changes in the behavior of households in terms of consumer spending and travel and the sharp tightening of financial conditions we have seen over recent days.
Add to that a likely hit to business and consumer confidence, and the demand effects are likely to overwhelm the fall back in production.
In addition, most economies went into this shock growing at sub-trend rates and with below-target inflation. Rate cuts will not cure a virus, but they can help cushion the economic fall-out.”
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