‘Global response to economic shock needed’
WORLD leaders swiftly created an international forum that committed to boost economies by spending more and keeping trade open when the global economy went into meltdown after the failure of Lehman Brothers in 2008. Central banks announced rate cuts within seconds of each other.
The approach to the economic shock from the coronavirus outbreak is, so far, looking very different.
With the world economy teetering, plenty of action is being taken, but often without co-ordination or consultation that could increase its impact.
US President Donald Trump banned flights from Europe, surprising outraged allies and causing markets to collapse. Plans for fiscal stimulus have popped up separately and incrementally in Italy and Germany as the US Congress debates aid measures.
The Federal Reserve, Bank of England, and European Central Bank poured in more stimulus, announced separately – the Federal Reserve on March 3, the Bank of England on Wednesday and the ECB on Thursday. Today leaders of the Group of Seven rich democracies – the US, France, Italy, Britain, Canada, Japan and Germany – are to talk by phone, according to a tweet from French President Emmanuel Macron.
What action or commitments result from that remains to be seen. Investors in financial markets brushed off an earlier G7 statement by finance officials. Since then, major indexes have fallen by the most since the market crash of 1987 and remain unusually volatile.
It is a sharp contrast with the co-ordination shown during the global financial crisis, when the Fed, ECB, Bank of England, Bank of Canada and others announced a half-percentage point rate cut simultaneously on October 8, 2008, as stock markets plunged.
The current piecemeal approach does not sit well with former policymakers who dealt with previous crises, including ex-ECB chief JeanClaude Trichet.
He told the BBC this week that it “is absolutely appalling that the US took a decision to stop people coming in without any warning or any discussion with the Europeans.
“I think that it is without precedent and it is an illustration of the drama where we are.
“We need a global response. We need the market to understand that there is some kind of global co-ordination.” Former chancellor of the exchequer Alistair Darling said that “one of the reasons that the global economy recovered 10 years ago was because of international co-operation.
“We all did the same thing – from Communist China to Republican-led United States. International co-operation at the moment is in something of short supply.”
The world economy is increasingly looking as though it will fall into recession, with Europe and Japan almost certain to see a big economic contraction in the first half of this year. The US is facing a steep slowdown and China’s growth is forecast as low as 1% at the start of the year, the weakest in decades, from 6% previously.