Global growth to dip below last year’s rate, says IMF chief

The new coronavirus epidemic poses a “serious threat” and will slow growth in the world economy to below the 2.9 per cent posted last year, IMF chief Kristalina Georgieva said on Wednesday.

The COVID-19 outbreak “is no longer regional issue, it is a global problem (that) calls for global response,” Georgieva told reporters.

The epidemic’s impact on confidence and steps to contain it are impacting economic activity, with the result that “global growth in 2020 will dip below last year’s levels,” she said.

The IMF in January forecast growth this year of 3.3 per cent, which means at least a half point will be lost to the virus.

But “how far it will fall and how long the impact will be is still difficult to predict,” she said.

Georgieva said the fund’s analysis had assumed the virus would be largely confined to China, which would have led to a sharp but short economic slowdown, followed by a quick recovery.

“Unfortunately over past week we’ve seen a shift to a more adverse scenario for the global economy,” due to the “sheer geographic spread of the epidemic around the world,” impacting a third of the IMF’s 189 member countries.

The virus has infected over 93,000 people worldwide and killed more than 3,200 people, mainly in China.

Georgieva and World Bank President David Malpass spoke to reporters after a conference call of finance officials from the member nations, who directed the IMF “to use all its available financing instruments to help member countries in need.” “We are determined to provide the necessary support to mitigate the impact, especially on the most vulnerable people and countries,” the statement from the governing body, the IMFC, said.

Georgieva said the Washington-based development lender has $1 trillion in overall financing capacity, including $50 billion available without a formal IMF programme, and $10 billion in no-interest funds for the poorest countries.

The World Bank on Tuesday announced it had $12 billion available to help countries respond to the coronavirus threat.

Meanwhile, stock markets bounded higher on Wednesday after the Federal Reserve sprang its first emergency rate cut since the global financial crisis to counter economic fallout from the coronavirus.

Wall Street also appeared to welcome a strong showing by Joe Biden in the Democratic presidential primaries on Tuesday, which boosted his chances against leftist Bernie Sanders.

In the first unscheduled rate reduction since 2008, the Fed axed Tuesday its key interest rate by a half point to a range of 1.0-1.25, explaining that “coronavirus poses evolving risks to economic activity”.

But equities in Europe and Asia advanced Wednesday as investor worries subsided, dealers said. When trading cranked up again in New York, the Dow Jones index shot 2.7 per cent higher, which some observers said also represented a “political relief rally” after moderate Democrat Biden won big in the “Super Tuesday” presidential primaries.

The deep cut in US rates on Tuesday followed a statement from G7 finance ministers that they stood ready to take “appropriate actions... including fiscal measures” in response to the virus.

“It is the first emergency cut since the financial crisis − and the rate cut will be fairly ineffectual in offsetting the coming hit to the economy from the coronavirus,” said Kingswood chief investment officer Rupert Thompson, predicting that the Bank of England could follow the same path.

An International Monetary Fund statement said Wednesday that a special financial and monetary committee tracking the virus urged the IMF “to use all its available financing instruments to help member countries in need.” In Asia, the Tokyo stock market gained 0.1 per cent, while Shanghai added 0.6 per cent.

Seoul surged more than two per cent as South Korea − the worst virus-hit country outside China − reported a sharp drop in new cases, and the government planned a $10-billion stimulus budget.

Hong Kong fell 0.2 per cent after a gauge of manufacturing, construction, wholesale, retail and services activity in the city fell in February to its lowest level since records were first compiled in mid-1998.

The Fed rate cut sent yields on 10-year US Treasuries, a go-to asset in times of turmoil, below one per cent for the first time on record. Gold, another fallback for worried investors, was steady at $1,641.07.

Separately, China on Wednesday rolled out cash support to both domestic and foreign airlines to encourage them to restore services and stop suspending flights during the coronavirus outbreak.

The move, which had been flagged by the country’s aviation regulator in recent weeks, will alleviate cashflow pressure on China’s aviation industry, one of the worst-affected by the epidemic as nations curbed travel fearing contagion and airlines cancelled flights as demand shrivelled.

Data from Cirium showed the number of flights to, from and within China cancelled or removed from schedules totalled 347,414 from Jan. 24 through Feb. 27.

Agencies