World economy will struggle to bounce back from Covid-19 lockdowns: Reports

While growth in the hardest hit economies may snap back briefly, the momentum will soon fade, a financial research firm warned.

The world economy likely faces a long slog back from the coronavirus crisis as two reports out on Monday predict that global growth will struggle to bounce back from the lockdowns, travel restrictions and business closures meant to contain the pandemic.
IHS Markit said that it expects the world economy to shrink 5.5 per cent this year, triple the damage it sustained in the 2008 financial crisis, and then struggle to regain traction, news agency PTI reported.

While growth in the hardest hit economies may snap back briefly, the momentum will soon fade, the financial research firm warned. It expects the US economy to contract 7.3 per cent this year and the collective economy of the 19 European countries that share the euro currency to recoil 8.6 per cent.

Hobbling the rebound, IHS predicts, will be a wave of business bankruptcies and cautious spending by consumers trying to repair their household finances and uneasy about resuming old habits that drive economic growth shopping, eating out, booking vacations and going to movies.

Government leaders wanted to err on the side of caution, and, as a result, we basically shut down large parts of the economy, said Sara Johnson, executive director at IHS Markit.

Likewise, Deutsche Bank Wealth Management warned Monday that a hoped-for rebound in the second half of 2020 won't be strong enough to undo the damage absorbed in the first, at least among the advanced economies of the United States, Europe and Japan. "We don't expect developed economies output to be back to pre-crisis levels until 2022,'' the report said.

Explained: What is negative crude future and how does it affect consumers?

The price of a barrel of crude varies based on factors such as supply, demand and quality. Supply of fuel has been far above demand since the coronavirus forced billions of people to stop traveling.

The price of a barrel of benchmark US oil plunged below $0 a barrel on Monday for the first time in history, a troubling sign of an unprecedented global energy glut as the coronavirus pandemic halts travel and curbs economic activity.

The contract for West Texas intermediate crude, or WTI, is the benchmark for US crude oil prices.

Such a steep drop in the oil benchmark prompted strong reactions beyond trading floors. Here is an explanation of what negative crude prices mean in the real world:

What Does a negative future price mean?

The price of a barrel of crude varies based on factors such as supply, demand and quality. Supply of fuel has been far above demand since the coronavirus forced billions of people to stop traveling.

Because of oversupply, storage tanks for WTI are becoming so full it is difficult to find space. The US Energy Information Administration said last week that storage at Cushing, Oklahoma, the heart of the US pipeline network, was about 72% full as of April 10, the Reuters reported.

"There's no available storage anymore so the price of the commodity is effectively worthless," said Bob Yawger, director of futures at Mizuho in New York. "So when it's minus a dollar, they'll pay you a dollar to get it out of there."

The price plunge was partly due to the way oil is traded. A futures contract is for 1,000 barrels of crude, delivered into Cushing, where energy companies own storage tanks with roughly 76 million barrels of capacity.

Each contract trades for a month, with the May contract due to expire on Tuesday. Investors holding May contracts didn't want to take delivery of the oil and incur storage costs, and in the end had to pay people to take it off their hands.

The June contract, with delivery a month away, is still trading at above $20 a barrel, but the price crash indicates that most storage space has been gobbled up

Good time to start SIP in this market mayhem

The entire panic has been initiated by fears that the system to curtail the Coronavirus (COVID-19), across the globe, is misplaced.

The way markets crashed on Friday, with the Nifty hitting the 10 per cent lower circuit is a global market -led panic.

The rout was triggered by the sell-off in the global markets, initiated by a 10 per cent crash in Dow Jones Industrial Average, followed by the Korean markets freezing in the lower circuit.

The entire panic has been initiated by fears that the system to curtail the Coronavirus (COVID-19), across the globe, is misplaced.

Truth be told, we don’t know when will this chaos will ease. Over 100,000 people across the globe have been infected by the virus and nearly 5,000 have died. India, too, is seeing a consistent rise in the number of cases.

However, this doesn’t mean that we can’t control the outbreak. We need to put in stringent restrictions, possibly a lockdown, to curtail the spread.

However, investors must realise that this is a very short-term phase, and normalcy should come back to markets soon.

Right now, investors should be inactive and should avoid any sort of buying or selling. For long-term investing, it is a precise time to wait and watch and start accumulating quality stocks via the systematic investment plan (SIP) route.