Global Economy Engulfed in Fear, Emergency Economic Stimulus Needed

[Asia Economy Beijing=Special Correspondent Park Sun-mi, Reporter Lee Hyun-woo, Reporter Jung Hyun-jin] As the world grows increasingly fearful of the economic impact caused by the novel coronavirus disease (COVID-19), efforts to devise countermeasures are intensifying. Last week’s stock market crash originating in the United States sent domino shockwaves through Asia and Europe, leading to views that stabilization measures before this week’s market openings are more important than ever.

In the United States, as confirmed cases gradually increase, pessimistic economic forecasts are emerging. Ed Hyman, Chairman of U.S. investment bank Evercore ISI, said in an interview with CNBC on the 1st (local time), "The U.S. GDP growth rate for the second and third quarters of this year could fall to 0%," adding, "While some argue the market is overreacting, all data and circumstances are fueling market anxiety and uncertainty." Bank of America (BoA) recently downgraded its U.S. economic growth forecast for this year to 1.6%, which can be interpreted as not ruling out a pessimistic scenario.

The U.S. Federal Reserve (Fed) has shifted its stance from holding the benchmark interest rate steady to lowering it amid worsening economic outlooks. Fed Chair Jerome Powell said on the 28th of last month, "We will act appropriately to support the economy and use our tools," hinting at the possibility of a rate cut. Analysts expect at least a 0.25 percentage point rate cut at the March Federal Open Market Committee (FOMC) meeting. Goldman Sachs further forecasts that the Fed will lower rates by 0.75 percentage points by June.

However, opinions differ on how much a rate cut will help companies hit by the COVID-19 crisis. The reason is that lowering the benchmark rate immediately will not necessarily increase consumption or resolve difficulties in procuring materials for factories affected by COVID-19, thus providing little economic benefit. Goldman Sachs warned that if COVID-19 spreads widely or the economy falls into a "recession," earnings of S&P 500 companies this year could be flat at 0% or decline as much as -13%.

In China, the epicenter of COVID-19, there is a high possibility that additional economic stimulus measures will be announced within this month. Liu Xuezhe, an analyst at Bank of Communications China, said, "Fiscal and monetary policies will be further eased in the coming weeks," adding, "The fiscal deficit target for this year is expected to be raised above last year’s (2.8% of GDP) to allow for the issuance of special-purpose bonds that can be invested in infrastructure projects." He further noted, "It remains necessary to lower banks’ reserve requirement ratios and interest rates to ensure funds flow into the real economy." Earlier, China’s National Bureau of Statistics announced that China’s manufacturing Purchasing Managers’ Index (PMI) for February fell to 35.7, the lowest level ever recorded.

In Europe, Italy, where COVID-19 is spreading most severely, will inject 3.6 billion euros (approximately 4.8 trillion won) this week to reduce the economic impact on companies. Tax credits will be provided to companies whose sales have dropped by more than 25%, and tax reductions and cash support will be promoted for the healthcare system.

China’s state-run media Global Times urged in an editorial that the world must take resolute action in the fight against COVID-19, stating, "Economic losses caused by the spread of the epidemic are unavoidable. Every country must prepare for financial losses far greater than expected." The editorial emphasized the need for active economic stimulus measures.

This content was produced with the assistance of AI translation services.