The new coronavirus pandemic is engendering a global economic crisis of unprecedented proportions.
The International Monetary Fund recently issued a dire warning about the economic devastation the COVID-19 could bring, saying, “It is very likely that this year the global economy will experience its worst recession since the Great Depression.”
The IMF predicts the U.S. economy will shrink by 5.9 percent this year while the euro zone will suffer an even bigger economic contraction of 7.5 percent. Japan will see its economy shrivel by 5.2 percent, the world body forecasts.
Global economic output is projected to fall by 3.0 percent, compared with the 0.1 percent slide recorded in 2009, the year following the collapse of U.S. investment bank Lehman Brothers that triggered a global financial crisis.
But these forecasts could prove to be optimistic since they are based on assumptions that the spread of the virus will be contained in several months, allowing nations to ease restrictions on economic activity, including quarantines and “lockdowns,” sometime in the second half of this year.
If the pandemic lasts longer, the IMF said, the global economic downturn could be much more severe, possibly making it harder for many countries to control the outbreak due to swelling budget deficits.
All nations need to resist the temptation of optimism about the economic outlook and take measures to mitigate the economic fallout based on grim projections.
What makes this economic crisis particularly serious is the lack of a potential driver of global recovery.
During the global recession that began in 2008, China helped the world economy regain health by cobbling together a gargantuan pump-priming economic package worth a staggering 4 trillion yuan (57 trillion yen at the exchange rate at the time).
But China is now struggling with its own economic problems, including a contraction of its working population and excessive debt burdens weighing on local governments and state-owned enterprises.
Beijing can ill afford to stimulate economic growth with massive government spending again.
Most governments are currently too preoccupied with efforts to control the spread of the coronavirus at home and protect the livelihoods of people to pay too much attention to the situation in other countries.
But overcoming this global economic crisis requires close and effective cooperation among countries.
Even if a nation succeeds swiftly in bringing the outbreak under control at home and its economy starts picking up, it could be hit by a second or third wave of infection from the rest of the world.
From this point of view, the agreement reached April 16 by finance ministers and central bankers of the Group of 20 major nations to suspend bilateral government loan payments for more than six dozen of the world’s poorest countries is a welcome move to help them deal with the health and economic crises precipitated by the coronavirus pandemic.
It is important that not only industrial nations, but also China, the leading bilateral lender to many of these poor nations, have signed up to the G-20’s debt relief initiative.
But the effectiveness of the agreement hinges on whether all the creditor nations, including China, will disclose all relevant information concerning the suspension of debt service payments for the needy countries. This will not happen unless there is solid mutual trust among the countries.
Many countries currently impose tight restrictions on the entry of foreign visitors as part of their efforts to contain the virus. Some countries, including Russia and Kazakhstan, have begun to curb food exports to expand their domestic stockpiles.
After the Great Depression, countries rushed to raise tariffs and form exclusive economic blocs, setting the stage for World War II.
If this pandemic leads to tighter border controls and inward-looking policies around the world, international cooperation will be seriously undermined.
As one of the main beneficiaries of free trade, Japan should lead a global campaign against the danger of naked protectionism.