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Craig Botham: Latest views on how the coronavirus is affecting economies


Craig Botham

Craig Botham

Senior Emerging Markets Economist

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The economic view

Now that the coronavirus is a pandemic, the economic consequences are going to be more severe.

It is a fast-moving situation. It is something we are constantly monitoring. But as it gets worse the pressure on any economic outlook is going to be downward.

US and Europe - behind the curve?

If you want an indication of just how bad things can get you can look at China. The most recent data was negative. We have seen double-digit declines in the high frequency indicators and that was a result of the shutdowns to control the virus rather than the virus itself.

China and much of Asia are further through this virus pathway. The US and Europe are only now beginning to enact these quarantines. So, you can expect a similar hit, perhaps even greater, in those regions as time progresses.

Central banks can do more - but fiscal response key 

The dividing line between recession and depression is the policy response.

Central banks have acted pretty aggressively. They are not out of ammunition yet. There is still a bit more they can do, but now fiscal policymakers have to step into the gap.

Where central banks are the lenders of last resort, governments are the spenders of last resort.

Right now they need to replace that income that is being lost by people who are losing their jobs, the result of firms not being able to earn anything anymore. If they can do that then we should be able to avoid an economic catastrophe.

 

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