Editorial | Leading nations must go all out to shore up global economy
- With the coronavirus spread seemingly just starting in some countries, coordinated planning is needed from governments and central banks to contain the economic fallout
The world’s worst health crisis in decades is now threatening the health of the global economy as well. The meltdown in virtually all the major equities markets is a sign that things are going from bad to worse. People had long tried to predict what might put an end to one of the greatest bull runs in stock market history; it turns out to be a virus that has jumped species.
Just as China – where the pandemic first started – seems to be recovering, other countries, including the United States, are experiencing a drastic jump in the number of cases. While each country seems to be tackling the health crisis in its own way, they all face an economic downturn that could turn into a worldwide recession. That may be enough to concentrate minds and encourage governments and financial authorities to coordinate their efforts. Though the nature of the current threat is very different, in economic terms, it could be a rerun of the last financial crisis 12 years ago.
The Organisation for Economic Cooperation and Development, whose member states represent the wealthiest industrialised nations, has revised global growth this year to 2.4 per cent from 2.9 per cent, with the worst-case scenario being 1.5 per cent.
Supply chains have been disrupted worldwide, and consumer demands are being stifled as more countries have put swathes of their populations in lockdown or quarantine. Some central banks have started lowering rates. The US Federal Reserve is expected to funnel trillions of dollars into short-term funding markets after reports of disruptions and malfunctions to the US government bond trading operations because of escalating market volatility.
Though the European Central Bank has not joined the US Fed and the Bank of England in cutting rates, it has announced a package of economic support measures. However, central banks have limited room in exercising monetary policy and cannot be expected to do all the heavy lifting. Major economies including China and the US are considering subsidies and tax cuts. These are in the right direction. Worst-hit sectors such as airlines may need bailouts.