While the spread of coronavirus has been rapid, evidence of a coordinated global response has been slower to emerge. There are, however, signs in the past week that this is starting to change. Below, the CBI outlines some of the initiatives beginning to take shape, identifies trends and potential risks and sets out how global business organisations are working together.
There is a growing need for an international response
The COVID-19 outbreak has predominantly been dealt with at national levels to date, as governments around the world protect public health and deal with an unprecedent threat to domestic economies. That makes sense: countries must first get their own houses in order. One of the most positive signals to the global markets in the last week came from the $1.8tn economic relief package for the US economy agreed by President Trump and the US Senate on 25 March.
But there have also some more worrying signals, including in trade. According to Global Trade Alert at the University of St Gallen, 46 export curbs on medical supplies have been introduced by 54 governments since the beginning of the year. Thirty-three of those export curbs have been announced since the beginning of March. Business are concerned that trade restrictions are adding to the disruption to supply chains and create a risk that temporary measures could mark a shift towards greater protectionism in future.
While efforts to restrict trade in vital goods are understandable, a co-ordinated response has the best chance of managing the crisis, building global resilience against recession and co-ordinating post-COVID recovery planning when we eventually get there.
Central banks have one part to play in a much bigger picture
Central banks’ ability to stimulate the economy is limited. With interest rates already very low globally, these institutions don’t have the same firepower at their disposal as they did going into previous recessions. At the same time, the economic fall-out will be largely dictated by the trajectory of the virus itself and how people and firms alter their behaviour as a result. In contrast to past recessions governments/fiscal policies will play a much more central role in supporting the economy.
But central banks still have an important role to play in helping keep the costs of credit as low as possible and in ensuring financial markets continue to function.
Globally, central banks have been quick to act to ensure that the financial system can continue to channel funding to where it is needed, through the resumption of asset purchases and dusting down crisis-era liquidity facilities. Central banks may now need to go further and expand the range of tools they are currently deploying. And if they do, international co-operation will be vital. One of the most important lessons from the global financial crisis was that actions by a major central bank in one part of the world can have significant spill-overs elsewhere.
The G7 and G20 are kicking into action
While leading central banks have been working behind the scenes, there have fewer public signals. That is now beginning to change.
On 24 March finance ministers and central bank governors form the G7 group of leading democracies (US, UK, Japan, Germany, France, Italy, Canada) said that they will continue to expand fiscal and monetary actions for as long as it takes to overcome the economic impact of the coronavirus.
Two days later, leaders of the larger G20 group of the world’s largest economies (including the G7, China, India, Russia, Brazil) came together for a virtual summit under Saudi Arabian Presidency on 26 March. In a joint statement they committed to do “whatever it takes” to reduce the social and economic damage of the coronavirus pandemic.
Specific G20 actions included:
- Tasking Finance Ministers and Central Bank Governors to coordinate on a regular basis
- Tasking members’ Health Ministers to develop a set of G20 urgent actions on jointly combatting the pandemic by their next ministerial meeting in April
- Coordination, including with the private sector, towards rapid development, manufacturing and distribution of diagnostics, antiviral medicines, and vaccines,
- Agreement to close the financing gap in the WHO Strategic Preparedness and Response Plan.
G20 Trade Ministers including Liz Truss are meeting on 30 March to discuss the importance of trade flowing during the crisis.
The WTO - and some members – are speaking out against trade restrictions
The World Trade Organisation has also lent its support for greater co-ordination. Ahead of the G20 summit World Trade Organisation Director-General Roberto Azevedo addressed WTO members on Wednesday 25 March and stressed the need for a global response to the pandemic, noting that coordinated efforts will increase collective recession-fighting power. The WTO also called for transparency over restrictions on trade in some goods, which it continues to document with daily updates on its website.
Individual governments have also spoken out for free trade. On the same day as Azevedo spoke Trade Ministers from Canada, Australia, Chile, Brunei and Myanmar joined forces with New Zealand and Singapore by committing to keep supply chains open and remove any existing trade restrictive measures on essential goods, especially medical supplies, in the face of the Covid-19 crisis.
UK Ministers are sending some similar signals. UK Trade Minister Greg Hands spoke to his Czech, Swedish, French and Italian opposite numbers on 26-27 March about the need to keep global supply chains operating, particularly in pharmaceutical and medical equipment.
But the direction of travel is still unclear
It is still too early to claim that we are seeing an international response along the lines of the co-ordinated efforts to tackle the global financial crisis in 2008.
Welcome as the latest G20 commitments are, there is still a lack of detail as to what specifically the G20 will do to deliver on these goals and no clarity when the G20 will next meet.
Concerns remain that the impact of the crisis could be to increase global tensions (particularly if a blame game develops between the west and China) and to push governments to prioritise national security – including by reducing interdependence of supply chains – over economic openness.
The CBI is reaching out to members and international business organisations to make the case for co-ordinated action
The CBI has been actively reaching out to other leading business federations including the German BDI, US Chamber, the Japanese Keidanren to share best practice and to discuss a co-ordinated business response. Working with BusinessEurope the CBI fed into a Message to the members of the European Council ahead of their video conference on 26 March 2020, highlighting the business priorities for action to the crisis and how to keep trade going.
Elsewhere, the CBI is working with partner federation to publicly call for a co-ordinated international response. On 27 March the Global Business Coalition - which brings together 16 business federations including the CBI and its US, Japanese German and French counterparts - issued two joint statements supporting consolidated efforts to mitigate the harm to the global economy, asking G20 countries to cut export restrictions on medical gear.
As business and governments’ everywhere continue to explore the best means to respond to the pandemic, the CBI is seeking members views on the international response to the crisis, both for short-term crisis management and for medium-term crisis recovery. Please contact EmailtoTradeLondon@cbi.org.uk if you wish to input.