Finance ministers and central bankers of the G7 issued a joint statement Tuesday pledging to “use all appropriate policy tools” to support the global economy during the spread of the COVID-19 virus.
The group’s comments followed a conference call to discuss the economic impact of the situation.
The statement said they are closely monitoring the spread of the coronavirus disease and its impact on markets and economic conditions.
“Given the potential impacts of COVID-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks,” the group said.
“Alongside strengthening efforts to expand health services, G7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase. G7 central banks will continue to fulfill their mandates, thus supporting price stability and economic growth while maintaining the resilience of the financial system.”
The G7 statement was quickly followed by an announcement from the U.S. Federal Reserve that it was delivering an emergency rate cut to help offset the economic impact of the coronavirus.
In a statement, the Fed said it was cutting rates by half a percentage point to a target range of 1.0 per cent to 1.25 per cent.
“The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate,” the Fed said.
The Bank of Canada will release its next interest-rate decision Wednesday. Expectations that the bank will lower its key interest rate have increased sharply in recent days as economists have slashed forecasts for global growth in light of the virus. The bank’s rate has been at 1.75 per cent since October, 2018.
Speaking with reporters in Halifax, Prime Minister Justin Trudeau said Finance Minister Bill Morneau has been in close contact with his counterparts in both the G7 and the G20.
“We are co-ordinating globally to try and make sure that there is a lesser impact on the global economy,” Mr. Trudeau said. “We also recognize that there will be impacts on Canadian businesses, on Canadian entrepreneurs, and we will always look for ways to minimize that impact and perhaps give help where help is needed.”
Scotiabank economist Derek Holt said the G7 statement fell short of expectations.
"The G7 failed miserably if the goal of holding a call that they themselves hyped was to calm markets,” he said in a research note, adding that the G7 has a history of foot-dragging. "But the letdown might reflect genuine belief that the virus is no biggie, a view that is certain to be tested further. Or maybe policymakers think they know better than markets, something that has often not worked out well in the end. Or it might reflect difficulty in getting everyone onside given wide variations in the amount of combined monetary and fiscal policy room that is available.”
Capital Economics economist Jennifer McKeown said the G7 statement leaves the door open to interest-rate cuts, but did not make any firm commitments.
“The G7 statement falls short of hopes of a coordinated policy response and raises the risk that central banks will disappoint market’s expectations in the months ahead,” she said in a note.
With a report from Kristy Kirkup in Ottawa
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