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Barclays: Risk markets need certainty that COVID-19 under control

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Barclays anticipates near-zero global economic growth this year due to lockdown measures around the world to combat the COVID-19 pandemic and says risk markets may not sustain rallies until the virus is under control. “It is now a given that the world is plunging into a sharp global recession,” Barclays said. Investors have looked to the past for parallels, such as the 2008 financial crisis and wartime periods. “But there are no easy comparison points; we have never before had such a long, coordinated period of mandated economic inactivity,” Barclays said. “Our own forecasts now imply that the global economy will have near-zero growth in 2020. Admittedly, this is a guesstimate, partly because the science around COVID-19 is not well understood.” The dire economic outlook is comparable to after the financial crisis, when the global economy shrank year-over-year, Barclays continued. “The only reason why the forecasts are not worse is the speed with which policymakers have moved in recent weeks. Central banks such as the Federal Reserve and the ECB [European Central Bank] have torn up existing rule books. They have expanded balance sheets by trillions of dollars, provided unlimited liquidity to the banking sector, and set up program after program to backstop stressed parts of the financial markets with unheard-of speed.” Governments are also providing fiscal stimulus. Still, Barclays said it’s too soon to declare success. “In our view, markets will need some certainty that large economies finally have the spread of COVID-19 under control, before risk assets look past the near-term economic hit and mount a sustained rally,” the bank said.

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