World at risk of second Great Depression due to coronavirus, says Chinese central bank
- Zhu Jun from the People’s Bank of China says the risk is small, but the world must be alert to the threat
- Economies around the world have been hit by the measures taken to stop the spread of Covid-19
China’s central bank has warned the international community to be alert to the risk of a “Great Depression” in the wake of the Covid-19 outbreak, although it said the chances of this occurring was low.
“The possibility of a ‘Great Depression’ cannot be ruled out if the epidemic continues to run out of control, and the deterioration of the real economy is compounded by an eruption of financial risks,” Zhu Jun, director of the international department of the People's Bank of China, was quoted by local media as saying last week.
The difficult trade-off between the need to protect public health and the economic cost of shutting almost all face-to-face human activity has prompted warnings from many economists that the economic shock from Covid-19 may be more severe than the 2008 global financial crisis or even the Great Depression.
The latter, which began with the Wall Street Crash of 1929, saw credit markets freezing up, massive bankruptcies, US GDP falling by more than 10 per cent and unemployment rates that touched 25 per cent.
Professor Terence Chong Tai-leung from the department of economics at the Chinese University in Hong Kong, said he was optimistic the global contraction would not be as severe as the 1930s slump.