Coronavirus: Earthquakes, aftershocks and recovery
Insights

Coronavirus: Earthquakes, aftershocks and recovery

Aftershocks are a frequent and disruptive result of an earthquake caused by the displacement effects of the main shock. While alarming themselves, they are often a reasonably predictable outcome of the main event. Large earthquakes can have hundreds of aftershocks. While there are familiar patterns to the distribution and magnitude of aftershocks, there can be surprises. However, they typically tend to decline in magnitude and frequency with time.

The world is currently suffering from a large economic earthquake. The “epicentre” of the global economic earthquake is not a geographic location, but the widespread containment efforts designed to reduce the rate of infection of Covid-19, resulting in the short-term shut down of many areas of economic activity. To provide perspective on that, one in five people around the globe are currently under stay-at-home orders or advisories1. The predictable economic and social aftershocks are now beginning.

With the next US Department of Labor report2, we will see a massive increase in new jobless claims in the United States, a number that, while likely to shock, is an understandable outcome of the containment efforts. We will get more data points in the coming weeks that will also be unprecedented in their size and shock value. If the containment measures are successful in decreasing the daily infection rate, as they have been reported to be in China, South Korea and even Italy in the past few days, markets can begin to anticipate a reduction in “seismic” economic data releases.

The earthquake in Tangshan, China, in 1976 is reported to have caused 255,000 deaths. Clearly, a tragedy for the people of that region and largely a result of unreinforced masonry buildings that were not adequately engineered for an earthquake. Today, buildings are being retrofitted to improve durability and provide an architectural structure that can better withstand an earthquake.

Similarly, we saw a retrofitting of the banking system in the US and UK after the 2008/09 global financial crisis. The substantial improvements in capital and liquidity have greatly improved the ability of the financial system and economy of those countries to withstand an economic earthquake and its aftershocks.

The actions of global central banks in recent days have been significant in magnitude and impressive in timing. Governments are rushing to add liquidity through fiscal stimulus to help people, small business and local authorities/municipalities. This combination of a strong retrofitted banking system and the impressive array of liquidity measure gives me confidence that we will withstand this shock and emerge with a functioning economy as the tremors subside.

20 March 2020
Colin Moore
Colin Moore
Global Chief Investment Officer
Share article
Share on twitter
Share on linkedin
Share on email
Key topics
Related topics
Share article
Share on twitter
Share on linkedin
Share on email
Key topics
Related topics

PDF

Coronavirus: Earthquakes, aftershocks and recovery

1 The Guardian, Around 20% of global population under coronavirus lockdown, 24 March 2020

2 Due on 26 March 2020

 

Important Information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

Related Insights

8 June 2021

Ingrid Edmund

Senior Portfolio Manager

Ben Kelly

Senior Thematic Analyst

Funding Europe’s green infrastructure finance gap

Environmental, social and governance investing has received huge policy support, particularly in Europe where the build out of green infrastructure has been impressive. We look at four major investment themes this presents.
Read time - 7 min
8 June 2021

Fixed Income Desk

In Credit - Weekly Snapshot

In Credit Weekly Snapshot - June 2021

Our fixed income team provide their weekly snapshot of market events.
Read time - 3 min
2 June 2021

Asia Quarterly Bulletin - Spring 2021

In this issue we explore the Regional Comprehensive Economic Partnership, what Biden might mean for Asia and much more.
Read time - 3 min

You may also like

Investment approach

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Awards

Columbia Threadneedle Investments has received accolades across a wide range of sectors and funds, demonstrating the breadth of our investment expertise.

Contact

For more information about Columbia Threadneedle Investments or our products please contact us.