Central bankers and political leaders of the United States and other economic powers on Tuesday expressed their resolve to combat economic damage from the coronavirus, but stopped short of promising interest rate cuts or other immediate rescue measures.
The joint statement of solidarity showed that the leaders of the so-called G7 nations, which also includes Britain, Canada, France, Germany, Italy and Japan, are capable of cooperation. But the statement fell short of the more aggressive action that investors have been hoping for and that many economists say is needed to prevent the virus outbreak from undermining global growth.
In a statement, the group said that the G7 finance ministers and central bankers “are closely monitoring the spread of the coronavirus disease” and added, “given the potential impacts of Covid-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.”
“Alongside strengthening efforts to expand health services, G7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase” the statement said.
Global policymakers added that “central banks will continue to fulfill their mandates, thus supporting price stability and economic growth while maintaining the resilience of the financial system.”
Stock markets in Asia and Europe rose earlier on Tuesday as investors anticipated coordinated action by central bankers and finance ministers. Australia’s central bank cut its main policy rate to 0.5 percent Tuesday, a record low.
The announcement underlines what a fraught moment this is for the world’s economy. The coronavirus outbreak has torn across the globe, sickening about 90,000 people. While the vast majority of those are still in China, where the infections first surfaced, major outbreaks have also taken hold in South Korea, Japan, Iran and Italy, and cases are climbing in other countries. Six deaths have been reported in the United States.
The virus could exact a heavy economic toll in the G7 countries, as it leads to quarantines, shutters factories, and hits investor and consumer confidence. But central bankers have limited ability to act, because borrowing costs are already low across major economies.
While the Federal Reserve still has leeway to cut interest rates, the European Central Bank and Bank of Japan have spent the last decade struggling to lift inflation and growth and have all but exhausted their monetary policy weapons. They probably prefer to husband their resources until the extent of the economic damage becomes clearer.
Political leaders in hard-hit countries such as Italy have been promising relief to business whose sales have collapsed because people are staying home and factories are closed. But governments in countries like Germany have been reluctant to increase spending, which would mean taking on more debt.
President Trump has continued to pressure the Federal Reserve to cut rates, saying the central bank is putting the United States at a disadvantage to other countries with lower borrowing costs. He did so again on Tuesday morning, saying his handpicked chair, Jerome H. Powell, “has called it wrong from day one. Sad!”
Australia on Tuesday started what is expected to be a global round of central bank responses to the coronavirus. The Reserve Bank of Australia cut a key rate by a quarter of a percentage point to 0.5 percent, a record low.
“It is too early to tell how persistent the effects of the coronavirus will be and at what point the global economy will return to an improving path,” the bank’s governor, Philip Lowe, said in a statement.