Asian stocks sink after IMF says global economy will shrink

AP – Asian stocks skidded yesterday after the International Monetary Fund (IMF) said the global economy will suffer its worst year since the Great Depression of the 1930s due to the coronavirus pandemic.

Benchmarks in Shanghai, Tokyo, Hong Kong and Sydney declined despite Wall Street’s overnight gain driven by buying of technology stocks. India advanced.

The IMF’s latest forecast said this year’s global economic output will shrink by three per cent, a bigger loss than 2009’s 0.1 per cent decline. That was a marked reverse from the Fund’s previous forecast in January of 3.3 per cent growth before the virus prompted governments to shut down factories, travel and other industries.

“The IMF forecast a deep economic winter,” said Hayaki Narita of Mizuho Bank in a report. Narita said, however, investors appear to be looking past that to the IMF’s outlook for a “spring-back in growth” to 5.8 per cent next year.

IMF Chief Economist Gita Gopinath said the loss to global gross domestic product, the broadest gauge of economic output, could amount to USD9 trillion, or more than the economies of Germany and Japan combined.

People wearing face masks walk past an electronic board showing Hong Kong share index outside a local bank in Hong Kong. PHOTO: AP

The Shanghai Composite Index lost 0.5 per cent to 2,812.23 and the Nikkei 225 in Tokyo declined 0.5 per cent to 19,550.09. Hong Kong’s Hang Seng was off 0.7 per cent at 24,260.90.

The S&P-ASX 200 in Sydney lost 0.4 per cent to 5,466.70 while India’s Sensex opened up 2.5 per cent at 31,446.28. New Zealand advanced while Jakarta declined and Singapore was unchanged.

On Wall Street, the benchmark S&P 500 index climbed 3.1 per cent on Tuesday to 2,846.06. The benchmark index surged 12 per cent last week, though it is about 16 per cent below its all-time high set in February.

The Dow Jones Industrial Average gained 2.4 per cent to 23,949.76.

Technology stocks powered much of the gains. Microsoft climbed 4.9 per cent and Apple rose 5.1 per cent.

Johnson & Johnson climbed 4.5 per cent after reporting a stronger profit for the first three months of the year than Wall Street expected. It raised its dividend, bucking a trend as companies try to conserve cash, even though the healthcare giant also had to slash
its outlook.

Investors are focussing on how and when authorities may begin to ease business shutdowns and limits on people’s movements imposed to slow the spread of the coronavirus.

United States (US) President Donald Trump has been discussing with officials how to roll back federal social distancing recommendations that expire at the end of the month. And governors around the US have begun collaborating on plans to reopen their economies in what is likely to be a gradual process to prevent the coronavirus from rebounding.

The discussions follow signs the outbreak may be levelling off in some of the hardest-hit areas, including New York City.

In Italy, Spain and other places around Europe where infections and deaths have begun stabilising, the process of reopening economies is already underway. Some businesses and industries are allowed to reopen in a calibrated effort aimed at balancing public health against their countries’ economic well-being.

The IMF expects economic contractions this year of 5.9 per cent in the US, 7.5 per cent in the 19 European countries that share the euro currency, 5.2 per cent in Japan and 6.5 per cent in the United Kingdom.

The Fund said China, where the pandemic originated, should eke out 1.2 per cent growth this year, better than some private sector forecasters who expect little to no growth in the world’s second-biggest economy.

China has reopened factories, shops and other businesses after declaring victory over the outbreak while the US and Europe still are tightening controls. Still, forecasters said it will be months before Chinese industries return to normal output and exporters will be hurt by depressed global demand.

While Wall Street expects profits will be down for most companies in the S&P 500, the focus is on what management teams have to say about what profits look like for the rest of the year.

Analysts are forecasting a drop of roughly 10 per cent in earnings per share for S&P 500 companies for the first quarter and 21 per cent for the second quarter.

ENERGY: Benchmark US crude gained 45 cents to USD20.56 per barrel in electronic trading on the New York Mercantile Exchange. The contract lost USD2.30, or 10.3 per cent, on Tuesday to close at USD20.11. Brent crude, the standard for international oils, advanced 40 cents to USD30.00 per barrel in London. It dropped USD2.14 the previous session to close at USD29.60 a barrel.

CURRENCY: The dollar declined to JPY107.11 from Tuesday’s JPY107.17. The euro retreated to USD1.0966 from USD1.0981.