Larry Elliott writes:

It is New Year’s Eve 2019 and around the world stock markets are closing for business on a high note. Shares in the US are up by almost 30% on the year, those in Japan by 18%. Even in Britain, where the mood has been dampened by months of Brexit uncertainty, the FTSE 100 has risen by 12%.

Overall, it had been the best year for stocks since 2009 and traders saw no real reason why the party should not continue into 2020. The US and China looked close to an armistice in their trade war, the US central bank was stimulating the world’s biggest economy, and Boris Johnson’s decisive victory in the general election had removed any lingering doubts about whether Britain would leave the European Union.

What the markets had yet to factor in was that on that same day China had informed the World Health Organization about a string of pneumonia-like cases in Wuhan.

Few of those trading on Wall Street or in Canary Wharf had heard of this city of 11 million people nestled on the banks of the Yangtze river. A month later they would know plenty about Wuhan.

Three months on, a localised health problem has turned into a pandemic. The global economy is in a state of paralysis, there has been a massive expansion in the size of the state, and questions are being asked about whether global capitalism will ever be the same again.

Alistair Darling was the UK’s chancellor of the exchequer during the 2008 financial crisis and he knows how easy it is for governments to be overtaken by events. “It was happening in China and we didn’t do much about it. People thought this would be the last thing that would come and get us.”

Yet it did, and the scary health numbers have been joined by some scary economic numbers. The collapse has been instantaneous, swifter than during the Great Depression. As late as mid March, around 200,000 Americans were filing jobless claims each week. In the last week of March that figure shot up to more than 3 million and the following week it doubled to 6.87 million. A further 6.6 million filed claims the week after that – taking the total to more than 16 million in three weeks.

But it is not just America. More than 80 emerging market economies are now seeking help from the International Monetary Fund, which is warning of a recession “as bad or worse” than in 2008. [Continue reading…]