Economic lockdowns and shutdowns across the globe amid COVID-19 outbreak could have multiple second-order impacts such as deflation, loss of output, permanently-changed supply chains and a re-evaluation of regulation in several economies, International Monetary Fund (IMF) has said.
IMF, the world’s largest multilateral lender, Monday released the much-awaited Global Financial Stability Report which makes clear that the current crisis presents a very serious threat to the stability and health of the global financial system.
According to IMF’s monetary and capital markets department director Tobias Adrian, it is too dangerous to keep expanding public sector debt for some of the countries around the world because it might be unsustainable. However, in major advanced economies such as the United States and many European ones, the problem is more about deflationary pressures.
Adrian also suggested that he was concerned about a consistent loss of output as economies take time to recover and supply chains shift permanently.
“The initial story was that we will shut down the economy and restart and all will be back to normal. I worry that the economic structure gets damaged in the meanwhile and that there is scarring, businesses get shut, people are unemployed, you can’t go back to where you left off,” he added.
Economists suggest that the disinflationary trend will continue for a while. There might even be a short period of outright deflation, some suggest. US consumer prices experienced a record drop in more than five years in March, and a further drop is likely as COVID outbreak continues to suppress demand for several goods and services.
(Agencies)