ALEX BRUMMER: If the rest of the world falls over a financial precipice – because we ignore needs – Britain agrees
The British death toll from coronavirus is breaking the 1000 mark. We are all yawning at the zigzags of the White House of Trump as it tries to break the path between controlling the disease and keeping America open for business. And Italy and Spain have become the models that Britain can go to quickly.
Early reading of the UK’s economic impact is far from encouraging, despite the safety nets. Production will decline by 15 percent in the second quarter, the budget deficit will reach £ 200 billion (more than the £ 155 billion peak after the financial crisis) and the unemployment rate will more than double to 8 percent.
Experience shows that Britain is doing well when faced with economic mountains to climb. An open economy and flexible labor and product markets work to our advantage.
Queuing: No matter how bad the effect of coronavirus is on western economies, it will be infinitely worse for emerging markets and poorer frontier economies
That cannot be the case if the rest of the world is also affected. The emerging market crisis of 1998 immediately returned to a Blair / Brown-led Labor government with missed growth forecasts and a widening deficit.
However severe the effect of coronavirus on western economies, it will be infinitely worse for emerging markets and poorer frontier economies. An important instruction for all of us living in Britain is to wash hands regularly in 20 seconds.
But imagine trying that on the Greek island of Lesbos, where a Syrian refugee camp has risen to over 20,000 after recent attacks by President Bashar Assad’s troops.
The camp relies on only one water level pipe. Amid British toilet paper trauma, regular woes in the rest of the world, exacerbated by exports of Covid19, receive little public attention.
Abiy Ahmed, the Nobel Prize-winning Prime Minister of Ethiopia, warns that fragile African economies are staring into an abyss at the best of times. Washing hands, he notes, is an “unaffordable luxury” for half of his own people.
The International Monetary Fund and the World Bank are already overwhelmed by the effects of the virus. A paper by JP Morgan, a bank with a history of lending in the underdeveloped world, notes that 80 countries have already approached the IMF for emergency financing. In emerging markets, current turmoil is exacerbated by capital flows.
Sterling has been hurt by the ‘kindness of strangers’ who is wearing thin. Credit rating agency Fitch has downgraded the UK rating from AA to AA, reflecting fears that the debt ratio could rise to 100 percent.
If that is the case for the UK, which has never defaulted on its debt, imagine the flow of capital outflows from less trusted economies.
JP Morgan cites Argentina and Turkey as countries with funding needs, and South Africa and Malaysia not far behind. It also warns against funds leaving Peru, the Czech Republic and Russia.
The IMF has prepared for the attack by building a $ 1 trillion war chest for emergency loans – the first $ 80.6 million went to the Kyrgyz Republic last week. The World Bank, where the UK has a large share of its foreign aid budget, promises to accelerate $ 14 billion for health needs in countries affected by coronavirus.
60 nations are already knocking on the door. Debt relief will rightly be high on the agenda when the IMF / World Bank holds a virtual spring meeting next month.
The introverted, groaning minnies queuing at supermarkets don’t know how good they are. And if the rest of the world tilts over an abyss – because we ignore its needs – Britain will agree.