Coronavirus presents ‘greatest danger’ to world economy since GFC, authorities say

Global finance chiefs will discuss coronavirus from the safety of a conference call as the world economy faces it “greatest danger” since the global financial crisis.

Finance ministers and central bank chiefs from G7 countries will hold talks on Tuesday amid rising global uncertainty over the coronavirus epidemic, the US Treasury has said.

Wall Street ended last week with losses not seen since the 2008 global financial crisis.

Global central banks have also promised to act to “ensure stability” in financial markets as the Organisation for Economic Co-operation and Development, a research organisation made up of mostly advanced economies, cited the coronavirus as the “greatest danger” since the GFC.

“The OECD calls on governments to act immediately to limit the spread of the coronavirus, protect people and businesses from its effects and shore up demand in the economy,” it said in its interim outlook.

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The dire state of affairs in the US on Friday. Picture: Scott Heins/Getty Images/AFP

The International Monetary Fund and World Bank announced simultaneously yesterday that they were ready to help countries affected by the coronavirus through their emergency lending programs and other tools.

“We will use our available instruments to the fullest extent possible,” IMF managing director Kristalina Georgieva and World Bank president David Malpass said in a joint statement.

“International co-operation is essential.”

In an emergency statement issued on Monday, Bank of Japan governor Haruhiko Kuroda said: “Global financial and capital markets have been unstable recently with growing uncertainties about the outlook for economic activity due to the spread of the novel coronavirus.

“The Bank of Japan will closely monitor future developments and will strive to provide ample liquidity and ensure stability in financial markets through appropriate market operations and asset purchases.”

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The Australian share market spiralled nearly 2.5 per cent lower on Monday. Picture: Joel Carrett/AAP

The Group of Seven consists of Canada, France, Germany, Italy, Japan the UK and the US.

The announcement of their Tuesday meeting cheered Wall Street, and the benchmark Dow Jones Industrial Average gained more than 3.0 per cent to 26,2220.86, continuing the morning rally after it dropped 12.4 per cent last week, its worst fall since the GFC.

Markets in London and Paris also rebounded, but Frankfurt closed in the red.

“With the partial exception of the Black Death in 14th century Europe, every major pandemic has been followed by an economic recession,” Professor Robert Dingwall, researcher at the University of Nottingham Trent in England, said.

“I don’t think there is any good reason to think it would be different this time.”

Economists warn the coronavirus could provide just such a shock, especially since it has been expanding daily – moving outwards from central China where it erupted in December – despite the emergency measures to try to contain the COVID-19 outbreak.

As of January, production plants had been shut down in China and entire cities confined. Saudi Arabia has stopped pilgrims from travelling to Mecca, and on Friday, the iconic Baselworld watch fair was cancelled, as was the Geneva auto show.

Football matches are played without spectators and behind closed doors in Italy, while uncertainty hangs over the Olympic Games set to open in Tokyo in July.

A woman wears a protective face mask at the Bangkok Stock Exchange over the weekend. Picture: Romeo Gacad/AFP

Governments have been scrambling to respond to the outbreak, which has now killed more than 3000 people and infected almost 90,000 as it spreads to more and more countries, inflaming fears of widespread economic disruption.

French Finance Minister Bruno Le Maire yesterday said G7 and eurozone finance ministers would be holding conference calls to “co-ordinate their responses” to the impact of the coronavirus.

“There will be a concerted action. Yesterday I spoke with the G7 president, the US Treasury secretary Steven Mnuchin, and this week we will have a meeting by phone of the finance G7 ministers to co-ordinate our responses,” Mr Le Maire said on France 2 television on Monday.

“We will have that meeting by phone – because you need to avoid travelling too much – for the G7 to co-ordinate its response.”

He said they “must act” so the impact was “as limited as possible”.

A similar meeting of eurozone finance ministers would be held on Wednesday, he said.

Specialist Peter Mazza on the floor of the New York Stock Exchange on Monday. Picture: Richard Drew/AP

The Bank of England, for its part, said it was monitoring the situation and working closely with domestic “as well as our international partners to ensure all necessary steps are taken to protect financial and monetary stability”.

If there is an outbreak in the world’s largest economy, the United States, “the reaction is likely to be extreme,” said Gregory Daco, chief economist of Oxford Economics.

“It would have a very, very negative impact. The economy would fall into recession immediately,” he told AFP.

– with wires