ALEX BRUMMER: If world tips over precipice – because we ignore its needs – Britain goes with it


ALEX BRUMMER: If the rest of the world tips over a financial precipice – because we ignore its needs – Britain goes with it

The UK death toll from coronavirus breaks through the 1,000 mark. We all gawp at the zig-zags of Trump’s White House as it seeks to steer a path between controlling the disease and keeping America open for business. And Italy and Spain have become the models for where Britain may be fast heading. 

Early readings on the UK economic impact are far from encouraging, in spite of the safety nets. Output to decline by up to 15 per cent in the second quarter, the budget deficit to zip up to £200 billion (more than the £155 billion peak after the financial crisis) and the jobless rate more than doubling to 8 per cent. 

Experience suggests when faced with economic mountains to climb, Britain does well. An open economy and flexible labour and product markets work to our advantage. 

Standing in line: However bad the impact of coronavirus on Western economies, it is going to be infinitely worse for emerging markets and poorer frontier economies

Standing in line: However bad the impact of coronavirus on Western economies, it is going to be infinitely worse for emerging markets and poorer frontier economies

That cannot be the case if the rest of the world is stricken too. The emerging market crisis of 1998 immediately came back to haunt a Blair/Brown-led Labour government with missed growth forecasts and a rising deficit. 

However bad the impact of coronavirus on Western economies, it is going to be infinitely worse for emerging markets and poorer frontier economies. A key instruction for all of us living in Britain is regular 20-second hand-washing. 

But imagine trying that on the Greek island of Lesbos, where a camp for Syrian refugees has swelled to more than 20,000 following recent assaults by President Bashar Assad’s forces. 

The camp is reliant on just one water stand pipe. Amid Britain’s toilet paper traumas, the regular misery in the rest of the world, compounded by the export of Covid19, receives little public attention. 

Abiy Ahmed, the Nobel Prize-winning prime minister of Ethiopia, warns that fragile African economies at the best of times are staring into an abyss. Washing hands, he notes, is an ‘unaffordable luxury’ for half his own population.

Already the International Monetary Fund and World Bank are overwhelmed by the virus fallout. A paper by JP Morgan, a bank with a history of lending in the underdeveloped world, notes that 80 countries already have approached the IMF for emergency funding. In emerging markets, the current turmoil is exacerbated by capital flows. 

Sterling has been hurt by the ‘kindness of strangers’ wearing thin. Credit ratings agency Fitch has cut the UK’s rating from AA to AA-, reflecting fears that the debt-to-GDP ratio could rise to 100 per cent. 

If that is what is happening for the UK, which never defaulted on its debt, imagine the flood of capital outflows from less-trusted economies. 

JP Morgan cites Argentina and Turkey as countries with funding needs, and South Africa and Malaysia not far behind. It also warns of funds leaving Peru, the Czech Republic and Russia. 

The IMF has geared up for the onslaught by building a $1 trillion war chest of emergency loans – the first $80.6m going to Kyrgyz Republic last week. The World Bank, where the UK has a big say through its foreign aid budget, is promising to fast-track $14 billion to health needs in coronavirus-affected countries. 

It already has 60 nations knocking on it door. Debt relief, rightly, will be high on the agenda when the IMF/World Bank hold a virtual spring meeting next month. 

The self-absorbed, moaning minnies queuing outside supermarkets don’t know how well off they are. And if the rest of the world tips over a precipice – because we ignore its needs – Britain goes with it.

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