March 3, 2020 / 1:31 PM / in a month

Analyst View: G7 vows 'all appropriate tools' to battle virus damage but no specifics

LONDON (Reuters) - G7 finance ministers and central bank governors said on Tuesday they were committed to using “all appropriate policy tools” to support economic growth but stopped short of outlining specific measures to contain damage from the coronavirus.

People cross a bridge over a major thoroughfare that is clogged with slow moving traffic during evening rush hour, as the country is hit by an outbreak of the novel coronavirus, in Beijing, China, March 3, 2020. REUTERS/Thomas Peter

Expectations of a coordinated policy response by developed economies have risen in recent days but the statement confirmed an earlier Reuters report that the group was not ready to announce concrete policy steps.

European shares shed gains, the yen rose and bond yields fell, reflecting markets’ disappointment. But the message failed to dent bets on policy easing by the U.S. Federal Reserve and other central banks — a 50 basis-point rate cut remains priced for the Fed’s March 18 meeting.

Here are analyst views on the G7 statement

KALLUM PICKERING, SENIOR ECONOMIST, BERENBERG, LONDON:

“Policymakers are getting out early and ahead of a any major disruptions outside China that could come from the coronavirus outbreak....If the risks become a reality, fiscal and monetary policy do not have the full tools to face this shock.”

“That doesn’t mean it cannot be effective and help stem a market panic...Fiscal policy can also deal with firms that have cash flow problems if there’s a shut down in the economy.”

“Fundamentally the global economy is in good shape and not ready for a recession. Once these temporary stresses have passed the economy should spring back.”

ANTOINE BOUVET, SENIOR RATES STRATEGIST, ING, LONDON

“The statement was in line with expectations, saying they will monitor the situation without any specifics.”

“You need to look at the country-by-country reaction as this will differ. We expect a 50 bps cut from the Fed in the U.S. for instance, and nothing from the ECB in March.”

STEPHEN GALLO, EUROPEAN HEAD OF FX STRATEGY AT BMO GROUP

“Given the nature of these crises and the fact this is a supply shock, there’s not much central banks can do. Monetary policy is relatively ineffective when people are bedridden with a virus. Co-ordination of policy is tough even when you don’t have a fragmented situation globally. Different countries have different degrees of capacity to respond to the distress in financial markets.”

SCOTT BROWN, CHIEF ECONOMIST AT RAYMOND JAMES IN ST PETERSBURG, FLORIDA

“Yesterday there were a lot of news reports saying that people were excited that the G7 finance ministers and central bankers were going to get together and do something about it. I don’t think there is a whole lot they can do.”

“You may see some rate cuts in the United States but rates are already pretty low in the rest of the world. There isn’t a whole lot of scope for fiscal policy but that sentiment seemed to fuel a lot of the strength yesterday.”

SAMEER GOEL, CHIEF STRATEGIST ASIA MACRO, DEUTSCHE BANK, SINGAPORE

“It’s not an economic shock, it’s a shock driven by a non-economic factor. It’s still not clear how big the problem ultimately is, or could be, and until you know that, it’s hard to know how much medicine to apply to it.”

DAISUKE UNO, CHIEF STRATEGIST, SUMITOMO MITSUI BANK CORP, TOKYO

“You can’t give what you haven’t got. That is more or less true of every (G7) country. The euro zone and Japan already have negative interest rates, effective limit of monetary easing even if they want to. As for fiscal stimulus, it may have some effect after the epidemic is over but it cannot make people go out to spend.

SELENA LING, HEAD OF RESEARCH AND STRATEGY, OCBC, SINGAPORE

“G7 communiques have certainly lost most of their weight in recent years, they just have a hodgepodge of things they want to do and things they are hoping to do.

“I don’t think (talk) is enough to reclaim all the lost ground.”

Reporting by Reuters markets teams in London, New York, Tokyo, Bengaluru and Singapore

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