The Coronavirus is threatening supply chains and the logistics setup of many companies, which is why it has become unavoidable that there will be a break in the supply chain and thus the production, thus causing longer delivery times. In view of the loss of production, important decreases should be expected in industrial production as well as in the retail trade. Simultaneously, consumers have rapidly changed their buying patterns and travels, thus reducing their expenditures for goods and services. The great insecurity is causing a significant drop in the demand for goods and investment activities, which are limited to the bare minimum. It is therefore possible that a global downturn is just around the corner.
To make things even more turbulent, the oil market is in a crisis, which is causing further uncertainty and instability. The current situation is making investors jittery. As at the beginning of March 2020, international stock markets have experienced their highest losses since the financial crisis in 2007/2008. Credit markets and the market for credit insurance are extremely tense.
Companies that are highly leveraged or those that are not highly profitable could enter troubled waters quickly, experiencing difficulty refinancing expiring bonds and loans or they could only service these at a much higher financial cost. Apart from a global recession, the Coronavirus could also trigger a debt crisis.
Switzerland has already experienced the first negative impact. Numerous companies warn of the Coronavirus in their outlooks and some have even issued profit warnings. The longer the insecurity is lasting, the higher the risk that a company with a low liquidity and equity buffer will spin out of control and into financial trouble.
In view of these developments, monetary policies will be called for from central banks and stimulus packages from governments. Indeed, the Swiss Federal Council has just announced that it would support companies with CHF 10 billion.