The COVID-19 outbreak in China presents another reason for nations with fiscal surpluses to boost their spending and support the global economy, the head of the Organisation for Economic Cooperation and Development (OECD) said.
“It’s a call to arms,” OECD secretary-general Angel Gurria said in an interview with Bloomberg TV in Saudi Arabia on Saturday. “Look at what’s going on. Already we were in a slowdown, we had trade tensions, investment was suffering. And now we have the coronavirus.”
He was doubtful that these unnamed nations have yet been convinced that they should boost their infrastructure and other spending.
“We’re not doing a very good job in terms of transmitting this requirement,” he said from Riyadh, where he’s attending meetings for G20 nations.
The guardians of the world economy are convening this weekend amid mounting fears that the outbreak poses a greater threat to global growth than expected just a few weeks ago.
Economists warn that the virus fallout is only just beginning.
“The global economy and financial markets have not seen the full impact of the coronavirus outbreak yet,” Citigroup Inc economists led by Catherine Mann wrote in a note titled “Waiting for the Global Impact” that warned of a “dramatic” first quarter slowdown in China.
Slumping activity will add to pressure on governments and central banks to respond with more support for their economies, while also raising doubts about their capacity to respond.
Central banks in Asia have already stepped up action, with Indonesia, the Philippines, and Thailand cutting rates recently, and others, such as Singapore, planning significant fiscal stimulus.
China has lowered a range of policy rates this month, and speculation is rising that the Bank of Korea could also deliver a cut this week.
Still, global debt is at record levels and interest rates in the world’s biggest economies are already at historic lows.
While the first phase of a trade deal between the US and China late last year was a welcome step, disputes over commerce are still too common, Gurria said.
“Trade tensions have already cost us more than 1 percent of the growth of the world,” he said. “Let’s bring them down. What about the cars, the uncertainty about European cars being exported to the US?”
Major economies are unified in the belief that there should be a multilateral deal on taxing the digital economy, he said.
US Secretary of the Treasury Steven Mnuchin personally assured the OECD in a letter in December last year that the US backed the idea, while talks in Riyadh have made progress, he said.
“There was a reaffirmation,” he said. “The world is all moving — 137 countries are moving into the design, details and numbers, the mechanics of a way in which we can tax the digital economy.”
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