Photo/Illutration Pedestrians wearing face masks pass by a screen showing more than an 800-point plunge in the benchmark Nikkei average index on Feb. 28 in Tokyo’s Chuo Ward. (Asahi Shimbun file photo)

Economic stability is vital for ensuring steady progress in the nation’s battle against the new coronavirus outbreak.

The government should take necessary actions with the speed and the flexibility required to deal with this kind of crisis.

The finance ministers and central bank governors of the Group of Seven (G-7) leading industrial nations held an emergency conference call on March 3 to discuss the epidemic’s impact on the world economy and policy measures they should take.

They released a joint statement pledging to use “all appropriate policy tools,” including fiscal stimulus, to safeguard the global economy from the fallout of what is on the brink of turning into a virus pandemic.

The U.S. Federal Reserve responded to the threat posed by the COVID-19 with a half-percentage point cut in policy interest rates in strong action taken at an emergency policy meeting.

Since mid-February, stock markets in most major countries have tumbled. Japanese indicators of consumer spending have plunged, signaling that the effects of the spread of the virus are beginning to make themselves felt.

The Organization for Economic Cooperation and Development (OECD) has cut its forecast of real global economic growth for 2020 to 2.4 percent, down 0.5 point from the 2.9-percent expansion it projected in November.

The Paris-based international research body has lowered its growth forecast for Japan to an anemic 0.2 percent.

Global growth could be even weaker if the virus spreads further in Asia and the developed world as a whole, it has warned.

To contain the coronavirus epidemic, restrictions on movements of people and goods and contacts between people should be accepted to a certain degree. But the economically vulnerable could take the biggest hit from any sharp contraction of economic activity.

This could also cause negative effects on efforts to maintain public health and bring the crisis under control.

The governments and central banks around the world need to remain vigilant and go all out to prevent a global economic meltdown.

Domestic demand is likely to keep shrinking in Japan for the time being due to drops in exports to China, spending by foreign tourists, consumption linked to events and people’s activities outside their homes.

In addition to steps to provide financial support to businesses and to protect jobs and income of workers that will be hit directly, policy measures should also be taken to goose overall domestic demand.

The Japanese economy was already wobbly even before the eruption of the virus. Delays in responses could throw it into a downward spiral.

As many public works projects have been put on hold while citizens have been urged to avoid going out for nonessential purposes as part of the efforts to rein in the epidemic, ordinary fiscal stimulus measures may prove less effective than expected.

Some companies have started scaling production down due to disruptions in global supply chains.

With little room left for further fiscal or monetary expansion, the Japanese government needs to make the best use of what remains in its policy toolbox.

For now, the government should focus on steady implementation of sufficient spending on related health care and infection prevention and control efforts while preparing additional measures to shore up the livelihoods of low-income consumers.

As countries are taking various economic measures, the government should also keep close watch on the currency market so that it can respond to any sharp change in foreign exchange rates.

It is almost impossible to gauge how long this crisis will continue. When the spread of the virus starts to slow, however, the damaging economic effects will probably begin to ease as well.

The private sector should not allow itself to become excessively pessimistic. Companies should continue investment in necessary equipment, facilities and human resources.

This is the time for Japanese companies to tap into the massive cash reserves they built up during good economic times.

--The Asahi Shimbun, March 6

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