Economic impact from covid-19: Constant contact and close coordination are the best

The IMF has created one special blog on the response to the coronavirus. In this inaugural article, Kristalina Giorgieva comments, among other things, “that while quarantining and social distancing is the right prescription to combat covid-19’s public health impact, the exact opposite is needed when it comes to securing the global economy”.

• According to her, constant contact and close coordination are the best medicine to ensure that the economic pain inflicted by the virus is relatively short-lived. Many governments have already taken significant steps, with major measures being announced on a daily basis, however the IMF´s Managing Director provides some recommendations about what else needs to be done; in particular she focus on three areas: 
  • Fiscal: Additional fiscal stimulus will be necessary to prevent long-lasting economic damage. The case for a coordinated and synchronized global fiscal stimulus is becoming stronger by the hour.
  • Monetary policy: Going forward, there may be a need for swap lines to emerging market economies. Investors have removed nearly $42bn from emerging markets since the beginning of the crisis, the largest outflow ever recorded. 
  • Regulatory response: Financial system supervisors should maintain the balance between financial stability, banking system soundness and sustaining economic activity. Banks should be encouraged to use their capital and liquidity buffers, and undertake renegotiation of loan terms for stressed borrowers. 

Kristalina Giorgieva concludes recommending, once again, the “indispensable medicine” to overcome covid-19 “Only through sharing, coordination, and cooperation we will be able to stabilize the global economy and return it to full health”.