Business graph with arrows tending downwards
Business graph with arrows tending downwards

‘Devastating collapse’: Billionaire’s coronavirus call

An Aussie billionaire boss has issued a sinister prediction, claiming the global economy will almost totally shut down within the next six months due to the coronavirus "health emergency".

Hamish Douglass, the chairman and chief investment officer of fund management company Magellan Financial Group, delivered that alarming warning in a note to investors today.

Mr Douglass, who has an estimated net worth of $1 billion and was ranked 117th in last year's AFR Rich List, described the COVID-19 outbreak as a "fast-moving and fluid situation".

"The most likely outcome of the efforts to contain this health emergency is a near total shutdown of the world's economy over the next two to six months," he wrote.

"This is likely to lead to a near-total collapse in demand for many (but not all) businesses over this period. For some, this could prove fatal, particularly for small businesses and for businesses that have high financial leverage or high fixed costs.

"Only governments can prevent these businesses from failing. The potential financial and social consequences are very concerning."

Mr Douglass said any recovery would depend upon the "scale, timeliness and effectiveness" of government and central bank action to help businesses survive - and keep everyday people in work over the next few months.

"The outcomes range from a V- or U-shaped recovery, a prolonged and deep recession and, at the pessimistic end of the scale, to a depression," he said.

 

Hamish Douglass says COVID-19 will devastate the world economy. Picture: Britta Campion/The Australian
Hamish Douglass says COVID-19 will devastate the world economy. Picture: Britta Campion/The Australian

 

"The likely size of the fiscal response required to head off the worst outcomes is unprecedented and potentially could be up to 20 per cent to 30 per cent of GDP.

"Unfortunately, there will be some countries (particularly some emerging markets) that might be unable to respond with sufficient force."

But he said "major countries" including Australia were in "strong positions to respond to this crisis".

"We hope that politicians and central banks will act in time and with sufficient force to prevent a devastating economic collapse," he said.

Mr Douglass' warning came just hours ahead of an unscheduled meeting of the Reserve Bank, with experts almost unanimously expecting the central bank to cut the official cash rate to a new historic low of 0.25 per cent in a frantic bid to soften the economic blow caused by the pandemic.

And earlier this week, ratings agency S&P Global also claimed the coronavirus will push the world into a recession this year, with unemployment tipped to rise sharply as a result.

In a research report released on Tuesday, the firm claimed 2020 GDP would rise just 1 to 1.5 per cent and that "the risks remain firmly on the downside".

And a second report published on the same day claims an Asia-Pacific recession was now "guaranteed" due to "an enormous first-quarter shock in China, shutdowns across the US and Europe, and local transmission".

It said shock, mass shutdowns and a drop in household and business confidence would "translate into severe and more persistent supply and demand shocks across the region".

The problem will be amplified by a reduction in "people flows" in the travel, tourism and education sector as well as disruption to production and supply chains and a drop in demand for the region's exports as well as commodity prices.

Unemployment is predicted to rise to 7 per cent this year, which would be the highest level in Australia since 1998.

 



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