The crisis in Europe began with a lockdown in Italy’s Lombardy region.  It was the starting point of the big falls in the stock markets of Europe, the United States, Japan, and the emerging markets. The coronavirus pandemic has set in motion a bigger drop the markets than those produced by this century’s other two crashes: September 11, 2001 following the attack on the Twin Towers, and the Lehman Brothers bankruptcy in September 2008. This time, the stock markets have come crashing down just a little more than a month into the coronavirus crisis, dropping an average of 32%. Consider, in contrast, the fact that, over the same period after 9/11, the markets fell by 3.5% on average and in the case of the Lehman Brothers, the fall amounted to around 18%.
Furthermore, in this crisis, the value of gold, the safe-haven asset par excellence, has fallen by around 10% over the last month, while in 2001 it rose by 4.5%. It also rose after Lehman, by 11%. Now, with the coronavirus, it is possible that the counter-intuitive decline is due to the sale of precious metals in order to obtain liquidity to cover portfolio positions. The only thing that has withstood the shock are US treasury bonds, which have garnered returns of somewhere between 4% and 7% during the last month.  This is as opposed to the public debt of European countries, and notably German public debt, where 10-year bonds have gone from trading at -0.8% in mid-March to between -0.1% and -0.3% in recent days, with their consequent fall in value due to these increases in returns.
This global stock market catastrophe is happening because, according to the IMF, the World Bank, and the OECD, world economic growth will fall from an expected 3.3% in 2020 to 2% – assuming the pandemic is brought under control by the end of the second quarter of 2020 – and then on to 0.8% if it takes until after the third quarter. For its part, the US economy will shrink by -0.1% this year, based on a worst-case scenario of not bringing the pandemic under control until the third quarter of 2020.  In Europe, that contraction would be -0.7% under the same scenario and, in the case of Spain specifically, GDP growth would be -0.2%. China would be left with a growth of 3.5%.