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Coronavirus Recession Will Be as Bad or Worse Than 2009, IMF Director Warns

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03/28/2020 | 02:48am EDT

By Stella Yifan Xie

Concerns about the financial toll of the coronavirus pandemic continued to grow as the number of infections globally threatened to top 600,000 Saturday, with the International Monetary Fund warning of an economic and financial crisis exceeding that of a decade ago.

Overlapping travel bans and lockdowns have hammered businesses and led to millions of job losses, punctuated by a spike in U.S. unemployment claims to more than three million this week and a warning of a deep recession this year in trade bellwether Singapore.

"It is now clear that we have entered a recession as bad or worse than in 2009," Kristalina Georgieva, managing director of the IMF, said Friday. Rising bankruptcies and layoffs could undermine any recovery and do long-lasting damage to the world economy, she said.

The risks have added urgency for countries around the world to extend relief packages to ease financial distress.

U.S. President Donald Trump on Friday signed a $2 trillion stimulus plan, the largest economic relief package in history.

With the pneumonia-causing virus swiftly spreading across the U.S. and Europe, after it was first detected in central China three months ago, governments around the world have ramped up efforts to limit people's movement and began imposing wide-ranging closures on businesses, restaurants and schools domestically in recent weeks.

Increasingly strict travel bans set up by large countries including the U.S. and China have put a dent in global commerce, complicating efforts to reignite growth.

Cancellations of major events continued to pile up. The organizer of the Shangri-La Dialogue, a high-level regional security forum in Singapore, has canceled the gathering originally scheduled for June.

The U.S. added more than 15,000 cases of the Covid-19 disease, pushing the total past 104,000 on Saturday, with a surge of cases in New York and increased testing. The growth outstripped that of Italy and China, the countries with the second and third most infections, where confirmed cases stayed around 86,000 and 81,000 respectively, according to data compiled by Johns Hopkins University.

As a result, the number of confirmed infections globally has more than doubled over the past week to around 600,000. The death toll from the pathogen rose to more than 27,000 on Saturday, with roughly one-third of the fatalities in Italy, data from Johns Hopkins showed.

The IMF warned that low-income countries will be hit particularly hard given a combination of a health crisis, sudden reversal of capital flows and in some cases a plunge in commodity prices. It estimated that at least $2.5 trillion is needed to contain economic contraction for emerging markets.

The Chinese government is also wrestling with the economic blow from the SARS-like virus, first from a prolonged halt in domestic business activities and now from weaker consumer sentiment and shrinking export demand as the coronavirus engulfs Europe and the U.S.

On Friday, the country's top decision-making body said the government plans to boost spending by increasing its fiscal deficit this year, as well as speed up issuance of treasury bonds and so-called local government special-purpose bonds to support funding of infrastructure projects, as part of the stimulus measures to curtail economic impact from the pandemic.

"The fiscal policy needs to be more proactive, and the prudent monetary policy needs to be more flexible," said a statement from Friday's meeting of the Politburo Standing Committee, chaired by President Xi Jinping. The government also called for a gradual reopening of shopping malls and markets to boost consumer spending.

Lu Ting, an economist with Nomura, estimated that, over the second and possibly third quarters, China's exports could contract by a total of 30% from a year earlier, wiping out 18 million jobs, or about a third of those tied to trade. To counter the negative impact from the outbreak, Beijing is likely to cut its benchmark deposit rate as well as raise the fiscal deficit target to 3.5% of GDP, up from 2.8% in 2019, he wrote in a research note on Saturday.

China's National Health Commission reported 54 new infections Friday, saying all were imported from abroad, bringing the total to 81,394.

Other countries in Asia continue to tighten rules on social distancing.

Hong Kong banned public gatherings of four or more people beginning midnight Sunday, with those violating the rules facing fines of more than $3,000 and six months in jail. Singapore said it would fine people who violate its social distancing rules up to about $7,000.

Australia said it will quarantine citizens returning from overseas in hotels for 14 days beginning midnight Saturday. The effort will be overseen by the army and police, reflecting concerns that some people returning from abroad weren't complying with self-isolation rules. The country's total confirmed cases stood at 3,378, as of Saturday morning, Australia's health department said.

Write to Stella Yifan Xie at stella.xie@wsj.com

 

Stocks mentioned in the article
ChangeLast1st jan.
BYD COMPANY LIMITED -1.47% 43.5 End-of-day quote.11.97%
WORLD CO., LTD. -3.03% 1567 End-of-day quote.-41.77%
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