By
Godfrey Benjamin
April 17th, 2024
The coronavirus pandemic has given a major blow to the global and U.S. economy with the Manufacturing Index hitting a historic low. The banks have also reported their first-quarter earnings falling by a massive 46%.
The economic impact of the coronavirus pandemic can be much more than anticipated earlier. On Tuesday, the International Monetary Fund (IMF) said that we are heading to a recession that could possibly worst since the Great Depression of 1930. Amidst the weak economic outlook due to coronavirus, the Dow Jones lost 450 points on Wednesday.
At the EOD, the Dow Jones index was 1.86% down trading at 23,504 levels. Other indices like the S&P500 and the Nasdaq Composite dropped 2.2% and 1.4% respectively.
On Tuesday, the IMF had predicted that the global economy will contract by 3% by the end of 2020. Just two months back in January, before the COVID-19 outbreak, the IMF expected the world economy to expand by 3.3%. However, the massive virus spread has a big impact as global businesses have come to a standstill.
The concerns for the banking sector continue to exacerbate with each passing day. With major businesses going berserk, banks are facing a major loss in revenue over the last few months. The energy and financial sectors have registered their worst performance in Q1 2020.
Essential commodity suppliers like groceries, pharmacies, etc. saw a good jump in demand over the last month. However, the overall retail sales from other businesses like gas stations, restaurants, etc. saw a massive decline. As per the Commerce Department, the overall retail sales for the month of March plunged a whopping 8.7%. This is the largest single-month decline since 1992. Speaking to CNBC, Quincy Krosby, chief market strategist at Prudential Financial, said:
“If this is a precursor to what we can expect throughout the U.S. … there’s no word for it. This reflects the complete shutdown of the economy. The question is how quickly can the economy come back.”
Banking Sector Faces Massive Revenue Crunch
With a majority of the businesses going berserk and manufacturing output making historic lows, the troubles for the banking sector continue to mount further. Banks have been the first among major corporate sectors to report their first-quarter earnings.
Major banks in the U.S. have declared a whopping 40% in their earnings from credit cards, mortgages, and loans. Reportedly, banks are already preparing themselves for the worst ahead and have set billions of dollars aside. On Wednesday, the Bank of America Corp (NYSE: BAC) stock lost over 6% while the shares of Citigroup Inc (NYSE: C) crashed by 5.64%.
Bank of America reported a 45% drop in its first-quarter profits while its loan reserves surged by a whopping $3.6 billion. Other financial giants like Citigroup and Goldman Sachs also reported a 46% decline each in the first quarter. These banks have reportedly set more funds aside to protect themselves from missed payments from loan holders and borrowers.