The economic fallout from the coronavirus could linger a lot longer and prove far more damaging without international policy coordination, according to Bank for International Settlements staff.
“No one can hide from the consequences of a pandemic, and unilateral macroeconomic policies are doomed to fail,” Emanuel Kohlscheen, Benoit Mojon and Daniel Rees wrote in a bulletin published by the Basel-based institution on Monday.
In the study, they looked at various scenarios taking into account economic spillovers across major economies.
In one model, a “more severe” initial economic hit plus a second wave of the virus, U.S. GDP would be close to 12% below its non-virus level by the end of 2020. In the “less severe” scenario, and with the virus contained quickly, the trough comes this quarter, and is limited to about 5%.
The authors warn that disjointed national efforts raise the chance of a second outbreak wave.
They also say that “even a country that engineers a domestic policy package that successfully limits its domestic slowdown will not be immune from insufficient or ineffective policies put in place in other parts of the world.”
The recommendation comes just as euro-area finance ministers gear up for a conference call to agree on a framework for delivering financial support to the countries worst hit by the pandemic. The outbreak may be starting to abate in Spain and Italy, but economies have suffered due to the severe restrictions on businesses and mobility.
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