G7 finance, central bank chiefs to hold talks amid outbreak

Chris STEIN with Richard LEIN in Paris
·4 min read
Wall Street was cheered by news that the G7 would hold talks amid the coronavirus outbreak, sending the Dow up over 3.0 percent (AFP Photo/Johannes EISELE)
Wall Street was cheered by news that the G7 would hold talks amid the coronavirus outbreak, sending the Dow up over 3.0 percent (AFP Photo/Johannes EISELE)

Washington (AFP) - Finance ministers and central bank chiefs from G7 countries will hold talks Tuesday amid rising global uncertainty over the coronavirus epidemic, the US Treasury said Monday.

US Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell "will lead a call with their G7 counterparts tomorrow morning," the department confirmed in a statement.

Governments have been scrambling to respond to the outbreak which has now killed more than 3,000 people, including six in the United States, and infected almost 90,000 as it spreads to more and more countries, inflaming fears of widespread economic disruption.

Top finance officials in Europe also tried to calm fears about a damaging economic downturn as a result of the epidemic, as did the continent's central bank.

"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.

Britain's Chancellor of the Exchequer Rishi Sunak echoed her comments in a late Monday night statement, saying, "We are well prepared for this global threat and, as the wider economic picture becomes clearer, we stand ready to announce further support where needed."

G7 and eurozone finance ministers will hold conference calls to "coordinate their responses" to the impact of the coronavirus's impact, French Finance Minister Bruno Le Maire announced earlier in the day.

"We will have that meeting by phone -- because you need to avoid traveling too much -- for the G7 to coordinate its response," Le Maire said on France 2 television.

A similar meeting of eurozone finance ministers will be held on Wednesday, he said.

"There will be coordinated action," he said.

The announcement cheered Wall Street, which rebounded from its worst week since 2008, when it dropped 12.4 percent, and the benchmark Dow Jones Industrial Average gained 5.0 percent to 26,706.17.

Markets in London and Paris also rebounded, but Frankfurt closed in the red.

But Banque de France chief Francois Villeroy de Galhau said governments rather than central banks should take action for the moment.

The outbreak has mostly caused disruptions for businesses, which are better addressed with "targeted measures" from governments, he told BFM Business television.

De Galhau said monetary policy already was very accommodative with ample low-rate funds for banks to support firms.

"If we need to do more and we believe that it will be effective, we could do it, but we're not there yet," he said.

- The necessary support -

US economists also doubt whether an interest rate cut by the Federal Reserve would be effective against the economic disruption caused by the epidemic.

Powell on Friday issued a statement pledging the Fed would "use our tools and act as appropriate to support the economy."

The Bank of England, for its part, said it was monitoring the situation and working closely with domestic "as well as our international partners to ensure all necessary steps are taken to protect financial and monetary stability."

Le Maire pledged the French government would provide the necessary support for domestic companies.

"We will demonstrate total solidarity towards entrepreneurs who are on the front line," he said, noting that the government already had decided to let suppliers out of their contracts due to the coronavirus.

While the outbreak has yet to shutter or slow many factories outside of China, it has already hit the transportation and tourism sectors and seen companies scale back travel and cancel conventions.

France's famed Louvre museum, a key attraction in one of the world's top tourism destinations, closed Sunday and the US called off the ASEAN leaders summit set for April.

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.

- Growth slashed -

Powell in his statement Friday acknowledged the epidemic poses a risk to growth, and a closely-watched US industry survey Monday showed the manufacturing sector slowed sharply in February due to the virus, having only just shown signs of recovery from the impact of the US trade war with China.

The IMF has warned the already-fragile global economy will see slower growth as a result of the virus.

Le Maire said that the economic impact of the coronavirus on France's economy will be greater than previous estimates.

"Now that the epidemic has hit many more countries, in particular France, the impact of the coronavirus on French growth will be much more significant" than if it had been contained to France, he said.

Until now, the French government has forecast 1.3 percent growth for this year, and two weeks ago Le Maire said he expected the coronavirus to shave 0.1 percentage points off that.

Meanwhile, the EU's Internal Market Commissioner, Thierry Breton, said the coronavirus could tip Germany and Italy into recession, though it is too early to tell.