The worst of the economic crisis unleashed by the COVID-19 pandemic is likely over, European Central Bank (ECB) President Christine Lagarde said yesterday, but added that the new normal would look different from what was before.
“We probably have passed the lowest point. I say that with some trepidation because, of course, there could a severe second wave if we learn anything from the Spanish Flu,” she told an online conference.
“We are not going to return to the ‘status quo.’ It’s going to be different. The recovery is going to be incomplete and transformational,” she said.
The hardest hit industries — such as airlines, hospitality and entertainment — will emerge from the crisis “in a different shape,” while new sectors might arise, she said.
The recovery would also be at different paces.
“It’s going to be a continent at a time,” Lagarde said.
The IMF predicted in its latest forecasts on Wednesday that the world economy would contract by 4.9 percent this year, before growing 5.4 percent next year.
By region, the contraction is most dramatic for the eurozone, which is set to see the economy shrink 10.2 percent.
China, in contrast, could yet post growth of 1 percent for this year, the IMF said.
Lagarde, a former IMF chief, said she believed central banks have been playing their part to mitigate the damage.
“The central banks I think have responded massively, diligently to the challenge and we will continue to do so,” she said.
PRICE STABILITY
“Call it whatever it takes, call it using all the levers... The mandate is the same — our mandate is price stability,” she said.
However, while central banks have in the past complained about being asked to do the heavy lifting while governments keep their coffers tightly shut, Lagarde said that this time “what is very special is that for once, monetary policies and fiscal polices worked hand in hand.”
In Europe, Germany has taken the lead in digging deep into its treasury, unleashing more than 1 trillion euros (US$1.12 trillion) of aid to shore up the economy.
German Chancellor Angela Merkel and French President Emmanuel Macron have also sketched out the backbone of the 750 million euros fund proposed by European Commission President Ursula von der Leyen to bolster the bloc’s economy.
The move blasts through Germany’s traditional fierce opposition to “subsidize” other member state outgoings, as it would include grants — with no repayment obligation — to those hardest hit by the crisis.
However, the plan is still being debated in Brussels, with the so-called “frugal” countries, such as Austria and the Netherlands, leading the opposition.
VITAL INVESTMENTS
Lagarde said the recovery money had to be used wisely, and stressed the importance of investing in digital and green projects in Europe.
“I hope those two backbones of investment plans will survive the negotiation process that always happens in Brussels,” Lagarde said.
However, she added that a deal would likely not emerge by the next EU summit on July 17 and 18.
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