Group of Seven finance ministers and central bank chiefs were set to hold coronavirus talks Tuesday as concerns grew that the epidemic could imperil the health of the global economy.
US Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell “will lead a call with their G7 counterparts” on Tuesday, the Treasury department confirmed in a statement.
In addition to scrambling to respond to the outbreak which has now killed more than 3,100 people and infected over 90,000 as it spreads around the world, governments have also sought to calm fears of widespread economic disruption that saw major stock markets lose over 10 percent of their value last week.
While Tuesday’s conference call will be the first effort to coordinate actions by the world’s top economies, officials have already been making statements seeking to reassure investors that they stand ready to cushion shocks to markets or the wider economy.
“We stand ready to take appropriate and targeted measures, as necessary and commensurate with the underlying risks,” European Central Bank chief Christine Lagarde said in a statement.
The Bank of England will “take all necessary steps” to support the UK economy from coronavirus fallout, said governor Mark Carney ahead of the G7 talks.
The International Monetary Fund and World Bank issued a joint statement Monday pledging to help countries deal with the fallout from the epidemic.
“We will use our available instruments to the fullest extent possible, including emergency financing, policy advice, and technical assistance,” the lending institutions said.
Powell had on Friday issued a statement pledging the Fed would “use our tools and act as appropriate to support the economy”.
Eurozone finance ministers are also set to hold a conference call on Wednesday.
“There will be coordinated action,” said French Finance Minister Bruno Le Maire.
Wall Street — which last week saw its worst performance since 2008 with a 12.4 percent drop — was cheered by the announcement, with the benchmark Dow Jones Industrial Average jumping 5.0 percent on Monday.
The gains on Tuesday carried over to markets in Asia and the Pacific where Australia’s central bank slashed interest rates to a record low of 0.5 percent on fears the deadly coronavirus outbreak could push the country into recession.
However Tokyo stocks lost early gains to close lower as investors grew skeptical about the outcome of the G7 financial chiefs meeting, market analysts said.
Europe’s main markets were up more than two percent in Tuesday morning trading, and Wall Street was expected to rise at the opening bell.
While the outbreak has only just begun to slow factory output or empty retailers’ shelves outside of China, it has already hit the transportation and tourism sectors hard, and seen companies scale back travel and cancel conventions.
The OECD warned Monday the global economy risks an outright contraction in the first quarter as it slashed its global GDP forecast by half a percentage point to 2.4 percent, the lowest rate since the 2008-09 financial crisis.
It said growth could slow to 1.5 percent if the epidemic is not brought under control in the coming months.
Former ECB Vice President Vitor Constancio even warned of a global recession.
Some analysts cautioned that markets could be disappointed by Tuesday’s G7 talks.
“The danger is that today’s meeting fails to deliver in terms of substance, and while warm words may cut the mustard for a day or two, in the absence of any concrete action this rebound may evaporate quicker than water in the desert,” said market analyst David Hewson at CMC Markets UK.
With interest rates low in many parts of the world, central banks have little room for further monetary easing to support economic activity, and there are doubts that lower rates would actually provide much of a boost.
“What the G7 needs to deliver is not the blunt instrument of lower rates … what is needed in these difficult times is ample liquidity to ease credit conditions,” said Hewson.
With firms likely to experience cash flow problems, leniency from creditors and access to cheap credit are likely to be crucial, he added, pointing to targeted measures by the ECB to boost bank lending to companies.