Former Reserve Bank of India Governor, Raghuram Rajan said that the best economic tonic for the coronavirus shock is to contain its spread and worry about stimulus later.
‘People want to have a sense that there is a limit to the spread of this virus perhaps because of containment measures or because there is hope that some viral solution can be found,’ the renowned economist told Bloomberg.
‘There is little central banks can do, and while more government spending would help, the priority should be on convincing companies and households that the virus is under control,’ said Rajan, who is a professor at the Chicago Booth School of Business.
He also warned that the virus outbreak will force companies to rethink supply chains and overseas production facilities. ‘People have shifted from extreme confidence in markets to extreme panic, all within one week,’ he added.
Rajan’s comments have come at a time when deadly coronavirus has affected the global economy much more than the 2008 financial crisis. On Friday, the Indian stock market plunged by a record 1448 points leading to a wipeout of â¹ 5 lakh crore. The bloodbath on Dalal street came after Japan’s Nikkei lost 2.5 per cent due to growing uncertainty over the Olympics scheduled for July-August this year. The Australian and South Korean markets too dropped by 3 per cent and 1.4 per cent respectively.
The economists at Bank of America alerted their clients on Thursday that the estimates for global growth in the financial year 2020 stand at 2.8 per cent, the slowest since 2009. The International Monetary Fund also signalled a fall in global growth forecast, saying that the virus is going to have an impact on growth.
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