COVID-19 pandemic and market risks: a systemic crisis in the making?
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We are sliding into a global recession caused by the COVID-19 outbreak, which could potentially morph into a full-scale systemic crisis. It's key to understand how various factors can amplify the impact of this shock on the economy. We believe the euro area remains more exposed to systemic risk than the US and China.
- The novel coronavirus will trigger a global recession, and potentially a systemic crisis.
- While extreme monetary and fiscal measures curtail some of the economic and financial tail risk, uncertainties remain significant.
- The risk of a systemic crisis is higher than a decade ago. The euro area is more exposed to systemic risk than the US and China.
- Gauging transmission channels is crucial to interpret systemic risk.
- Key amplifiers such as high and risky debt levels and elevated liquidity risk contribute to prolonged and more severe recessions.
- Corporate debt levels have reached all-time highs, and we see 25% chance of a global credit crisis.
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