The coronavirus outbreak is set to deliver a sharp and deep economic shock. Market moves are reminiscent of the 2008 crisis, but we don’t think this is a repeat. Stringent containment and social distancing policies will bring economic activity to a near standstill, but provided aggressive fiscal and monetary policy actions are taken to bridge businesses and households through the shock, activity should return rapidly with little permanent economic damage.
Key points
- It’s not 2008: A decisive and coordinated policy response should prevent the coronavirus shock from sparking a 2008-style crisis.
- Diminished buffer: Government bonds have served their role as portfolio ballast in the risk selloff, but this role looks increasingly challenged by low yields.
- Central banks: Monetary and fiscal actions to cushion the blow have begun, including the Fed cutting rates to near zero and announcing bond purchases.
The opinions expressed are as of March 2020 and are subject to change at any time due to changes in market or economic conditions. The above descriptions are meant to be illustrative only.