The International Monetary Fund is to offer $50bn (£39bn) in emergency funding for countries hit by the coronavirus, as it warned that the spread of the disease has already pushed global growth in 2020 to below last year’s levels.
The fund’s managing director, Kristalina Georgieva, said an expected increase in global growth this year would now be more than wiped out by the epidemic which has reached 70 of the IMF’s 189 member countries.
Some $40bn of the $50bn on offer, which is aimed at developing countries, is short-term crisis funding, while $10bn will be available at zero interest to boost health spending.
Georgieva said developments in the last week showed that Covid-19 was hitting business supply chains and was likely to harm developing countries, many of which were ill-equipped to deal with a flu epidemic.
In the UK, Andrew Bailey, the incoming governor of the Bank of England, called on the government to offer emergency financial support to help British companies through the worst of the coronavirus outbreak.
Warning that the central bank had limited room to support the economy by cutting interest rates, he told MPs on the Treasury committee: “We are collectively now going to have to provide some form of supply chain finance in the not too distant future.”
Bailey said the Bank and the Treasury were in talks about how to protect small and medium-sized firms. He added: “We’re going to have to do that very quickly.”
Increasing numbers of businesses across Europe and the US are adopting measures to tackle the spread of the virus.
Tesco told more than 5,000 office-based employees to prepare to work from home. Staff at its Welwyn Garden City headquarters and other offices were told on Wednesday to take everything they needed to work from home with them, such as laptops and work mobile phones, sources said.
Lloyd’s of London, the world’s biggest insurance market, said “emergency trading protocols” would allow 1,000 staff, along with thousands of brokers and underwriters at other firms, to work from home.
Bloomberg reported that EU finance ministers have been warned to expect recessions in Italy and France if the outbreak worsens, and that the ripples from that could incite a “vicious” spiral of declining markets.
The Italian government, which on Monday announced a €3.6bn package to tackle the economic fallout of the outbreak, is now understood to be considering further measures in a bid to stave off a recession.
Georgieva said China is struggling to recover after a slow return to work. Factories there are only operating at 60% capacity, she said, though they aim to reach 90% within the next fortnight.
A collapse in spending by Chinese consumers has also hit car sales, which new data showed yesterday were down 80% in February.
In January the IMF estimated global growth this year would rise to 3.3% from 2.9 % in 2019 after China and the US agreed a truce in their two-year trade war.
In February, the Fund said the outbreak, which it expected to be contained by the Chinese authorities, could shave 0.1 percentage point from 2020 growth.
“It is the duration of the outbreak that at this time is difficult to predict,” Georgieva said on Wednesday, adding that the effectiveness of mitigation measures would play a key role in determining the economic impact.
“In relation to the world economy, we have seen a shift to a more adverse scenario.”
The IMF is concerned that companies, many of them with large debts, will suffer from a drop in consumer spending that will cut their income and ability to maintain interest payments.
– The Guardian UK