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What a year this was! Going into 2020, financial markets were characterised by restrained optimism, as rate cuts in the preceding year had triggered a bull market in stocks and tightening credit spreads. Then came a turn of events that must be very close to the economic definition of an external shock.

At the end of January, the World Health Organization (WHO) declared a global health crisis due to a new virus that had appeared in China. A few weeks later it became clear that the fight against this virus would require drastic, comprehensive measures in all affected countries – which soon turned out to be more or less the entire world.

On March 12, the Norwegian government introduced the strictest measures ever in peacetime, banning a number of events, introducing limited quarantines, partial travel bans and much more. And Norway was by no means alone. Within a few weeks, more than half of the world's population was subject to some kind of lockdown.

As investors quickly realized that this would have significant economic consequences, stock markets plummeted. In little more than a month, both the MSCI World Index and the Oslo Stock Exchange benchmark index fell by exactly 33 percent. The bottom was reached on March 23.

Now, be as honest as you can be with the benefit of hindsight: At that point, where would you expect the markets to be on New Year's Eve?

The anatomy of panic 

One may certainly be excused for describing the March 2020 market situation as a state of panic. Not only did stock markets plunge; all risk assets fell in value, from corporate bonds to commodities.

In late March, Nordic high-yield corporate bonds were quoted some 25-30 per cent below their value at the end of February. From a midwinter peak of $59/bbl, the Brent Blend crude oil price hit $19/bbl towards the end of April. And currency markets experienced wild swings, with the somewhat typical risk-off movement out of small currencies. In less than two weeks, US dollars shot up by more than 23 per cent versus Norwegian kroner. You would be excused for thinking that the magnitude of fall was not fully unrelated to the plunging oil price; versus Swedish kroner, the dollar appreciation was less than half.

Market fears had a logical rationale: the global economy would come to a halt. In fact, estimates of dramatically negative GDP growth soon appeared, only to be fully confirmed – and more – as the year progressed. The United Kingdom, being one of the worst affected countries, is now believed to have experienced a contraction of as much as 10 per cent in 2020. For the Norwegian mainland economy, it was the worst drop since 1944.

Annual review 2020

Read the complete annual review by Chief Economist & Strategist Finn Øystein Bergh: