The IMF needs to step up over coronavirus – a coordinated economic response is vital

The heads of major economies are either wrong – take Trump saying the virus will disappear like a ‘miracle’ – or invisible, writes Phil Thornton

People wearing face masks on the London Underground (PA)

The likely decision by the International Monetary Fund and World Bank to slim down their regular spring meetings in Washington in April – or make them virtual – over the threat of the coronavirus outbreak is both a common-sense move and terrible news at the same time.

Sensible because the meetings involve almost 5,000 delegates and observers from 189 countries converging on a tightly packed two-block corner of the US capital that could inadvertently contribute to the spread of the virus.

Regrettable because this is the one occasion where finance ministers and central bank governors from all states, both big and small and rich and poor, can exchange views and formulate policies for the two premier financial watchdogs to share among members. This dilemma sums up the challenge the coronavirus poses for economic policymakers.

Of course, covid-19 is a human health emergency with economic consequences, rather than the other way around, so the call on controls of the movement of people and advice to those infected has rightly been taken by national governments and world health bodies.

But as the dramatic plunges in stock markets reminded us last week, the economic consequences can be serious. Over the weekend, Bank of America became the latest investment bank to slash its forecasts for global growth, saying the world economy would grow by 2.8 per cent in 2020 rather than 3.1 per cent.

This would be the lowest outturn since the depth of the global financial crisis in 2009, a time when the IMF and the G20 group of rich nations rallied round to deliver a stimulus to the world economy.

A lot of the economic focus has understandably been on China and its supply chain region in southeast Asia as well as countries nearer to here that have been affected, especially Italy because of the concentration of ski resorts in the north.

If Europe and the United States are affected, they will have the financial, healthcare and pharmaceutical resources to combat the spread.

This is less true of other much weaker countries who will face an economic hit even if they miss covid-19’s potentially fatal bullets. From an economist’s perspective, there are three dangers: the impact of the virus in terms of its infection rate; the costs of the measures needed to curtail that; and – probably the most worrying one – a shock that exposes a pre-existing weakness.

For the latter, the most obviously vulnerable region is sub-Saharan Africa whose countries have collectively thrown their lot in with China, which acted to secure their commodity wealth in exchange for much-needed investment.

According to Standard Chartered bank there are an estimated 200,000 workers from China active on projects in Africa. While there have been only three cases in Africa confirmed at the time of writing, the region’s weak healthcare capacity would emerge as a key concern should the virus spread.

Latin American markets have been among the worst performers in the emerging world this month as fears about the spread of the coronavirus have intensified, as this region too is vulnerable to the recent falls in commodity prices.

Another exposed area is the Gulf where countries depend on oil prices, trade and tourism, which are threatened by the coronavirus. Oil prices have fallen some 15 per cent in the last week.

While Saudi Arabia will take the biggest oil hit, neighbouring United Arab Emirates is left in danger as a trade and transport hub, especially if it is forced to cancel the giant EXPO 2020 event. On top of that, Dubai is one of top five – and fastest growing – markets for tourists from China.

Even in emerging Europe, where the economic and trade links are weakest, stock markets have been caught up in the gloom and doom with Poland and Turkey falling the furthest.

It is becoming clear that while medical innovations leave the world in a better place than in the past to deal with the health consequences, globalisation means the impact on the economy might be more U-shaped rather than V-shaped, meaning a long drawn out downturn rather than a sharp drop and equally rapid bounce-back.

But against this backdrop there is now no leadership. The heads of major economies are either wrong – Trump saying the virus will disappear like a “miracle” – or invisible as Boris Johnson has been, or unhelpful as Emmanuel Macron was when he said the world was facing “a crisis, an epidemic”.

A coordinated economic response is as essential as it was a decade ago. Late last week, the IMF was saying the impacts of the virus can really only be tackled via international cooperation, as it’s not something that stops at national borders.

With masterful understatement, the official added: “What we’ve been saying is that in the event of a more severe reaction to the virus, synchronised action and even coordinated action by the international community would be helpful.”

Whether it is a physical gathering, a virtual meeting by Skype or perhaps a hologram version with IMF head Kristalina Georgieva appearing as a Whitney Houston-style avatar, the multilateral lender is once again the economy’s last hope. It needs to step forward now.