The World Bank on Tuesday announced a $12 billion emergency aid package to help countries cope with the rapid spread of the coronavirus.
The move follows warnings that economic slowdown from the outbreak could spark a global recession.
“We are working to provide a fast, flexible response based on developing country needs in dealing with the spread of COVID-19,” said World Bank Group President David Malpass in a release.
The aid includes emergency financing, policy advice, and technical assistance. The organization said in distributing the aid, it would prioritize the poorest and most at-risk countries.
“Through this new fast track package, the World Bank Group will help developing countries strengthen health systems, including better access to health services to safeguard people from the epidemic, strengthen disease surveillance, bolster public health interventions, and work with the private sector to reduce the impact on economies,” the World Bank stated.
“This financing is designed to help member countries take effective action to respond to and, where possible, lessen the tragic impacts posed by the COVID-19,” the organization added.
Meanwhile, the World Bank and its partner organization, the International Monetary Fund (IMF), jointly announced on Tuesday that they would be canceling in-person participation in their flagship annual economic summit over contagion concerns.
“Like everyone else around the world, we have been deeply concerned by the evolving situation of the Coronavirus and the human tragedy surrounding it. Given growing health concerns related to the virus, the Management of the IMF and World Bank Group and their Executive Boards have agreed to implement a joint plan to adapt the 2020 IMF-World Bank Spring Meetings to a virtual format,” said Malpass and IMF chief Kristalina Georgieva.
Growing Risk of Global Recession
On Monday, the Organisation for Economic Cooperation and Development (OECD) warned in an economic outlook update that the outbreak is plunging the world economy into its worst downturn since the global financial crisis.
The Paris-based policy forum projected the global economy could recover to 3.3 percent growth in 2021 if the epidemic peaked in China in the first quarter of this year and other outbreaks were mild and contained. However, if the virus spreads throughout Asia, Europe, and North America, global growth could drop as low as 1.5 percent this year, the OECD warned.
“The main message from this downside scenario is that it would put many countries into a recession, which is why we are urging measures to be taken in the affected areas as quickly as possible,” OECD chief economist Laurence Boone told Reuters.
In a much-anticipated move to coordinate a policy response to the coronavirus crisis, officials from G7 countries issued a statement Tuesday, which included a pledge to use “all appropriate tools” to deal with the spreading coronavirus but announced no immediate actions.
On the same day, the Federal Reserve announced an emergency interest rate cut of 50 basis points.
Fed Chair Jerome Powell said in a statement that the coronavirus would weigh on the U.S. economy for some time and he believed the central bank’s action would provide “a meaningful boost to the economy.”
But after initial rallies, markets failed to respond to the measures with enthusiasm.
Major Wall Street indexes and global equity markets slid on Tuesday, while the yield on 10-year U.S. Treasuries fell below 1 percent for the first time in history as investors sought refuge in safe-havens like bonds and gold.
“The G7 statement earlier today was certainly underwhelming and disappointed many investors,” said Robert Johnson, professor of Finance at Heider College of Business at Creighton University. “The Federal Reserve stepped in and made it clear that it was cutting rates to provide a meaningful boost to the economy, and will continue to do so if the economic situation warrants,” he told The Epoch Times by correspondence.
“It is certainly true that rate cuts will not provide a cure for the coronavirus,” he added. “But rate cuts will help bolster the financial markets and through the wealth effect will help the underlying economy weather the (hopefully) short-term disruption caused by the coronavirus.”
The slide in stocks and rise in safe-havens suggested markets found the Fed’s action inadequate to an epidemic that has killed thousands of people worldwide and threatens to significantly slow global growth.
“The Fed’s pre-emptive strike against the coronavirus has backfired,” said Michael Arone, chief investment strategist at State Street Global Advisors in Boston. “The reaction has signaled to the markets that the coronavirus is on par with things like the Great Depression, the technology-media-telecom bubble bursting or the global financial crisis.”