G7 postpones coordinated action against coronavirus impact

ECB President Christine Lagarde

Finance ministers and central bank chiefs from the Group of Seven (G7) countries agreed to adopt stimulus packages to address the coronavirus outbreak that has sparked fears of economic disruption. However, officials from the seven wealthy countries – Canada, France, Germany, Italy, Japan, the UK and the US, postponed Tuesday’s meeting and instead held a conference call.

 

“Alongside strengthening efforts to expand health services, G7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase”, the group said, adding that they are closely monitoring the virus outbreak.

They also said that their central banks would also continue to fulfil their mandates of price stability while maintaining the resilience of the financial system. Analysts said that a coordinated interest rate cut that involves European central banks, i.e. both the ECB and the Bank of England, was quite likely.

Despite the unison message, the group did not meet expectations of a coordinated action to deal with the economic impact of the virus on the ailing growth, as were the expectations of the markets. Analysts had awaited a coordinated interest cut by central bankers, as some of them signalled over the past days that they would act to revive the economy.But only the US Federal Reserve announced after the call that it would slash interest rates by half a point, after President Donald Trump renewed his calls on the institution to ease its monetary stance.

European Central Bank President Christine Lagarde said late last Monday the bank is ready to take “appropriate and targeted” measures. Meanwhile, the governor of the Bank of England, Mark Carney, said that “we will come to quick conclusions on the appropriate stance of policy”.

Treasury Secretary Steven Mnuchin applauded the Fed’s decision to cut rates - and had little to offer by way of other action. Mnuchin told reporters last Tuesday that “all of our tools are on the table,” without identifying any of them. He said the administration isn’t planning a temporary payroll-tax cut or reduction of tariffs on Chinese imports, which could offer support to the economy.

On 2 March, the Organisation for Economic Cooperation and Development (OECD) warned the global economy could grow at its slowest rate since 2009 this year because of the virus. The influential think-tank forecast growth of just 2.4% in 2020, down from 2.9% in November, but it said a longer "more intensive" outbreak could tip many countries into recession. There were also sharp falls on global stock markets last week as factory activity in China contracted.

Meantime, the World Bank on 3 March announced an initial $12bn in immediate funds to assist countries grappling with the health and economic impacts of the coronavirus outbreak that has spread quickly from China to some 80 countries. World Bank President David Malpass said there were still "many unknowns" about the fast-spreading virus and "much more" aid might be required, but he declined to elaborate.

"The point is to move fast; speed is needed to save lives," Malpass said during a teleconference with reporters. "There are scenarios where much more resources may be required. We'll adapt our approach and resources as needed."

The bank's International Development Association, which helps the world's poorest countries, could also receive additional funds in the second quarter of 2020 if its Pandemic Emergency Financing Facility (PEF) is triggered, which has not occurred yet, Malpass said. That would not require global health officials to declare the outbreak a pandemic, he added.

The World Bank said the $12bn in fast-track grants, loans and low-interest loans would help developing countries provide better access to health services, strengthen disease surveillance and bolster public health interventions, as well as work with the private sector to reduce the impact on economies. About $4bn of the funding will be reprogrammed from other bank instruments, officials said.

The bank said its International Finance Corporation (IFC) will work with commercial bank clients to expand trade finance and working capital lines as countries scramble to get needed supplies to contain the virus. The IFC will also work with corporate clients in strategic sectors such as medical equipment and pharmaceuticals to sustain supply chains and limit downside risks.

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