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CoVid19 Risks: Central Banks go Back into Crisis Mode

Bad Homburg, 03/12/2020
from FERI AG
  • CoViD19 pandemic leads to global recession
  • Central banks forced to take unconventional measures
  • Market corrections not yet over due to "corona crash"
  • Long-term scenario marked by major transformations

The coronavirus is hitting the global economy and stock markets much harder than was expected just a short time ago. "The previous scenario for 2020 has changed abruptly as a result of CoViD19 and poses serious risks for the economy and capital markets", said Dr. Heinz-Werner Rapp, Member of the Executive Board and Chief Investment Officer of FERI, at the annual press conference in Frankfurt.

In particular, the probability of a global recession has increased significantly in the meantime. Although the current stock market crash reflects new economic risks, it is still a long way from real recession levels. "Even after the latest 'corona crash' there is still room for further corrections. If the current CoViD19 uncertainty leads to a sharp global recession, the markets will soon price in this risk," warns Rapp.

Monetary Policy Once Again in Crisis Mode

Unsurprisingly, global monetary policy is now back in focus. "In recent years, the markets have become accustomed to central banks acting as saviours in distress at all times and without limits," said Rapp. However, monetary policy can basically do little to counter a pandemic. Moreover, the ECB in particular has long since reached the limits of its conventional capabilities. "Nevertheless, central banks around the world are once again going into crisis mode - and must demonstrate their ability to act with ever more extreme measures," explains Rapp. In the event of risk, the possibility cannot be ruled out that, as in Japan, elements of "overt monetary financing" (OMF), i.e. the "monetisation" of government spending to support the economy, will soon be introduced in Europe.

Economic Forecasts Significantly Revised

The situation for the global economy and world trade has also changed within a very short time. "It is clear that large parts of the global economy, including Germany, are already in a sharp downturn," says Axel D. Angermann, Chief Economist of the FERI Group. FERI has significantly adjusted its forecasts downwards this year and, for example, expects Germany to see a GDP decline of up to 1 percent in 2020. This forecast is based on the assumption that the pandemic can be contained by the middle of the year and that there will then be an opportunity for economic recovery in the second half of the year. However, a risk scenario in which restrictions on public life to combat the pandemic last much longer also has a significant probability. This would dynamically aggravate the recession, and elements of a financial or credit crisis could also occur. "Because the full extent of the economic consequences will only be apparent in a few months' time, a very high level of uncertainty will remain for the time being," Angermann expects.

New Beginnings or De-globalization?

The corona shock has raised doubts as to whether the global economy will be able to return to normal mode once the exceptional situation ends or whether the global economic system will suffer irreparable consequential damage. "The fact is that Western societies are undergoing a massive transformation in the new decade. The coincidence of climate change, ageing, high levels of debt, a zero-interest policy and the digital revolution will result in far-reaching structural changes. The direction in which the overall picture develops will depend to a large extent on how governments and central banks manage the new challenges", said Dr. Heinz-Werner Rapp.

The New Decade: Roaring Twenties or Dark Decade?

According to FERI, two possible scenarios are emerging: On the one hand, there is the chance of a comeback of the "Roaring Twenties" as a synonym for a decade characterised by major investments in the future and new growth spurts through digital innovation. On the other hand, however, a "dark decade" threatens if it is not possible to compensate for demographically induced growth weaknesses through clever policies and strong innovation cycles. In this case, a deepening of social divisions and a further drift of politics towards populism would be feared, i.e. ultimately a decade of intensified social conflicts.


About FERI AG

Founded in 1987 and headquartered in Bad Homburg, Germany, the FERI Group has developed into one of the leading investment houses in the German-speaking area. FERI offers tailor-made solutions for institutional investors, family assets and trusts in the following areas:

The FERI Cognitive Finance Institute was formed in 2016. It is the strategic research centre and creative think tank of the FERI Group. The Institute focuses on innovative analyses and the development of methods for long-term oriented economic and capital market research. 

FERI and MLP currently have assets of EUR 39.2 billion under management. A total of EUR 8.5 billion of these assets are alternative investments. The FERI Group is headquartered in Bad Homburg and has offices in Dusseldorf, Hamburg, Luxembourg, Munich, Vienna and Zurich.



Media relations contact

Katja Liese

Member of the Management Board

Corporate Strategy, Marketing and Communications

T +49 (0) 6172 916-3192

F +49 (0) 6172 916-1192

presse@feri.de

FERI AG

Rathausplatz 8-10

D-61348 Bad Homburg

Dr. Heinz-Werner Rapp
Dr. Heinz-Werner Rapp
Dr. Heinz-Werner Rapp
Dr. Heinz-Werner Rapp
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Katja Liese
Member of the Management Board
Corporate Strategy, Marketing and Communications

T +49 (0) 6172 916-3192
F +49 (0) 6172 916-1192
presse@feri.de

FERI AG
Rathausplatz 8-10
D-61348 Bad Homburg

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Katja Liese
Member of the Management Board
Corporate Strategy, Marketing and Communications

T +49 (0) 6172 916-3192
F +49 (0) 6172 916-1192
presse@feri.de

FERI AG
Rathausplatz 8-10
D-61348 Bad Homburg

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