The economic impact of the coronavirus pandemic could lead from a health catastrophe to a financial crisis in countries struggling to cope, the Singapore Minister of Commerce warned on Thursday.
Many countries are now “fiscal challenged” and few have the ability to pursue monetary policy because interest rates are currently so low, Singapore’s Minister of Trade and Industry Chan Chun Sing told CNBC. “This is a dangerous situation,” he said.
“We are concerned that if we are not careful, some countries may go beyond a health crisis to an economic crisis to a financial crisis,”
“Because if you can’t have a healthy budget balance, you have to borrow. If you can’t borrow, you have to print money. If you print money, you will devalue your currency, and it will be so.” take the stability of the entire global financial system very seriously, which has a real impact on the real economy, “he added.
The outbreak has prompted large institutions and banks to cut their forecasts for the global economy. In a March report, the Organization for Economic Cooperation and Development said it had downgraded its 2020 growth forecasts for almost all economies. S & P Global Ratings predicts that global growth will go to zero.
“Not many countries, like Singapore, have the resources from our reserves to inject the necessary liquidity into the system,” said Chan.
Singapore has announced three stimulus packages totaling $ 59.9 billion ($ 41.9 billion) in total since the onset of the outbreak, accounting for around 12% of the country’s gross domestic product.
Chan urged the world’s major economic powers to strengthen their leadership in these difficult times to create “stability” for the global financial system.
“We need to make sure that we have made concerted efforts (by) everyone, especially for the larger economic blocs, to take the lead for us, to stabilize the financial system and prevent impact, as this can become a cascading impact and a vicious cycle from a health crisis to an economic crisis and a financial crisis, “he said.
Singapore, a tiny Southeast Asian country, was one of the earliest countries outside of China to report cases of coronavirus disease with the official name COVID-19.
Protectionism could “break through” global supply chains
As the pandemic worsened worldwide, some countries have also become more protectionist. Chan warned that this could pose a risk to global supply chains.
Fear of food protectionism has increased in recent weeks. Some countries have stopped exporting supplies to ensure their own food security. For example, Vietnam has cut travel exports and Russia has stopped processing grain exports. Some governments have also hoarded supplies.
Chan told CNBC: “We have to imagine that the world will not be the same after the virus … What we see is that at this point some countries are responding with increased protectionist measures, sometimes under the guise of nationalist pressure. “
However, the global production system is “closely intertwined” and the countries are interdependent, he emphasized.
“What we fear most in this crisis is that people who take more protectionist measures may accidentally break the global supply chain,” Chan warned.
– CNBC’s Yen Nee Lee and Huileng Tan contributed to this report.