Health Crisis Versus Global Financial Crisis: Australia's Efforts to avoid Recession like situation

  • Mar 12, 2020 AEDT
  • Team Kalkine
Health Crisis Versus Global Financial Crisis: Australia's Efforts to avoid Recession like situation

On 10 March 2020, the market showed positive signs of recovery with S&P/ASX 200 closing in  green, with a growth of 3.01% during the day’s trade. The investors seemed to have developed optimism as the pace of Coronavirus growth slowed down in mainland China that accelerated in mid-January.

However, on 11 March 2020, the Australian benchmark index S&P/ASX200 was trading at 5765.8 points, down by 3% (at AEDT 3:17 PM). Also, most of the indices relapsed into the red zone, and were trading down as compared to the previous day’s market session.

On 10 March 2020, a number of sectors on ASX made a rebound, defying the Coronavirus-driven downtrend where the major gain was made by S&P/ASX 200 BANKS (INDUSTRY) by gaining 5.02%, though it was trading in red on 11 March 2020, at 1,927.3 points, down by 6.09% (at AEDT 3:36 PM).

Till 09 March 2020, Coronavirus had claimed thousands of lives across the globe, and billions of investors’ money had wiped off the market, with several severe implications on the global health front as well as the financial and economic front.

Global Health Crisis

According to WHO, the global number of confirmed cases of COVID-19 had surpassed 100,000 on 07 March 2020, and the number of confirmed cases across the globe stood at 113,851 as on 11 March 2020.  

The table below encompasses several countries with confirmed cases, as on 11 March 2020:

The globally prevailing Coronavirus crisis had taken a toll over thousands of lives.

 

According to the latest Situation Report – 49 from WHO on Coronavirus disease 2019 stated three new countries, Bangladesh, Albania and Paraguay with confirmed cases of COVID-19 in the last one day and the global death meter reaching 3809 deaths, comprising of 225 new deaths.

The outbreak of Coronavirus has been fatal for the world health scenario. Recent times have shown a serious shortage of medical equipment across the globe. Since the outbreak of the disease, global demand for critical items remains atop global supply availability.

Effects on Business and Market

With the outbreak of the Coronavirus, we witnessed one of the most frightening times of human history. Complete lockdown of cities and places across several places in China has created a slowdown in international business. The effect of the Coronavirus outbreak was not only limited to the Chinese economy. Travel, tourism and entertainment industries were amongst the majorly hit ones amidst the Coronavirus outbreak.

Companies have made huge losses due to low investor sentiments and halt in the business operations in China.

On the individual level, several stocks reduced their earnings guidance for the first quarter of the year 2020, and the Australian economy is also expected to observe negative growth in Q1 CY20.

Several stocks plunged to record lows during the Coronavirus outbreak; however, some stocks recorded fresh highs, especially healthcare stock Zoono Group Limited (ASX:ZNO) and PolyNovo Limited (ASX:PNV).

Investors have turned out to be highly ambiguous, and there was consistent anxiety among investors with respect to the virus outbreak. Lately, on 09 March 2020, ASX collided below 6,000 points washing away around $140 billion off in the worst day since the global financial crisis.

It was on 10 March 2020 that the market finally made a rebound and the ASX survived with a gain due to the decline in the growth of the Coronavirus in mainland China. However, the market rebound just lasted for a day and plunged down by 3%, trading at 5,764.9 points (at AEDT 4:03 PM).

Steps from Australia

Health organisations, both domestic as well as international, government bodies, economic authorities as well a regulatory body are actively taking measures from educating people to implementing measures to tackle the situation and keep things under control.

At first, the Government had issued a serious level travel advisory to China, which means do not travel to China. Moreover, the recent spike in the number of Coronavirus affected cases in Iran had compelled the government to extend the same travel advisory to China. Other than these countries, the Government has issued for South Korea and Italy to 'reconsider your need to travel' for Japan and Mongolia to ‘exercise a high degree of caution’.

Next, keeping a close watch to limit the entry of the disease in China, the international patients are scanned for Coronavirus at the airports and confirmed cases are being kept under proper medical observation. As on 10 March 2020, there were 92 confirmed cases in Australia that were found to be infected by the Coronavirus with three deaths reported till date in Australia.

Major media sources even reported that the Australian Government is likely to detain people affected by Coronavirus against their will if it comes to limiting the virus from spreading. The power to detain under the Biosecurity Act was issued, and borders had been informed to control people that are likely to have the virus.

As an implication of the mounting anxieties due to Coronavirus outbreak, the RBA slashed down the cash rate by 0.25 basis points to 0.5 per cent confirming the speculations in the market. The RBA announced the reduction in the interest rate due to the decelerating rate of the Australian economic growth and its struggles amidst falling yield of the long-term government bonds, volatile financial market situations and Australian dollar at its record low value.

Although the Australian economy progressed by 0.5% in seasonally adjusted chain volume terms in the December quarter 2019 & the same grew by 2.2% throughout the year, the growth in the first quarter of the year 2020 is expected to be slow.

At the international level, WHO is currently engaged with governments, industries and the Pandemic Supply Chain Network to fuel the production and ensure allocations for severely affected and countries at-risk. WHO projects an increase of 40% in manufacturing of the equipment in order to meet rising global demand and puts forward guidance of developing incentives for the industry to ramp up production.

The governments across the globe can be an active participant in easing restrictions on the export and import, as well as distribution of personal protective equipment and other medical supplies in an effort to exemplify the value of human life.

After providing a flicker of hope through the market rebound on 10 March 2020, investor sentiments appeared to have had settled in place, but the trading session of 11 March 2020, with most of the sectors in the red zone, the speculations regarding market gaining some momentum appears to have been kept at bay.


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