The recent decline in risk assets follows several quarters of financial market gains and stable economic growth. The sudden spread of the Covid-19 virus, closely followed by the collapse in oil prices are the main the main culprits disrupting economic growth and investor confidence. As a result, this updated forecast leads us to anticipate subdued global growth in 2020, but we expect a recovery in 2021 as fears of Covid-19 diminish.

Global equities have declined sharply as the Covid-19 outbreak and the collapse in the oil price pose a new threat to corporate profits and investor confidence. Historically, market reaction to crisis events tend to be short-lived, as long as the shock doesn’t cause sustained and meaningful harm to the economy. While the sell-off has lowered equity prices and alleviated valuation concerns, a lack of clarity surrounding corporate profits means a wide range of potential outcomes is possible.

In this environment of heightened uncertainty, investors have flocked to safe-haven government bonds, sending yields to historically low levels that are unlikely to be sustained. While yields are being suppressed more recently due to the impact of Covid-19 on investor confidence in a time of stress, we expect that investors will eventually demand a real, or after-inflation, return on their savings.

The Covid-19 outbreak and subsequent collapse in oil prices disrupt economic growth. Global growth is now anticipated at a new low of 2.9%—though recovery is expected to follow as concerns eventually subside.

Many central banks, including those in the Canada, the U.S., Australia and China have reduced interest rates, while bond yields drop to record lows.

Concerns around Covid-19 pose risk to corporate profits, leading to a decline in global equities. With lowered equity prices, stocks are an increasingly attractive option for investors.