G7 finance, central bank chiefs to hold talks amid outbreak

WASHINGTON: 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.

The announcement cheered Wall Street, and the benchmark Dow Jones Industrial Average gained over 3.0 percent to 26,2220.86, continuing the morning rally after it dropped 12.4 percent last week, its worst since 2008.

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

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

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 Monday.

“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 head of France’s central bank said governments rather than central banks should take action for the moment.

Banque de France chief Francois Villeroy de Galhau told BFM Business television the outbreak has mostly caused disruptions for businesses, which are better addressed with “targeted measures” from governments rather than monetary policy from central banks.

De Galhau said monetary policy was already 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

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.”

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

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.

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.

Le Maire declined to be more specific.

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 International Monetary Fund has warned the already-fragile global economy will see slower growth as a result of the virus.

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.

“It’s too early to say for certain, but some are beginning to say it isn’t out of the question for a recession maybe in Italy and Germany,” Breton said on BFMTV/RMC radio.

Germany’s economy narrowly escaped recession with flat growth in the final quarter of last year.

With exports of manufactured goods, in particular to China, a considerable part of its economy, Germany will feel a larger impact from the economic disruption in China than its eurozone peers.