GENEVA, June 30 (Xinhua) — The Bank for International Settlements (BIS) said on Tuesday central banks play a crucial role together with financial and fiscal authorities in a concerted response to the COVID-19 crisis, urging governments to take the lead to promote a strong and sustainable recovery.
The BIS, an umbrella body dubbed “central bank for the world’s central banks” and based in the Swiss city of Basel, said in its flagship annual economic report that the lender of last resort role of central banks has evolved as they seek to cushion the blow to the global economy.
“The pandemic is the defining event of a generation,” said Agustin Carstens, general manager of the BIS. “Central banks’ response was swift and forceful and stopped a financial collapse from adding to the burden on firms and households by stabilizing the financial system to preserve the flow of credit.”
“The life support measures during the first phase should lay the foundation for the recovery once lockdowns are lifted. However, despite these measures, uncertainty may hold back aggregate demand and the pace of recovery,” he added.
That message comes just days after the International Monetary Fund (IMF) slashed its forecasts for the global economy once again, warning that public finances will deteriorate significantly as governments attempt to combat the fallout from the coronavirus crisis.
The global lender now estimates a contraction of 4.9 percent in global gross domestic product in 2020 compared with the 3 percent drop it predicted in April.
Commenting on the global economic outlook, Catherine Mann, global chief economist at Citibank, told Xinhua: “Although the recent data are positive, a bounce that looks like a V-shape is not the sustained recovery that is necessary to recoup the income lost on account of the COVID crisis.”
“Sectors, countries, and certain demographics are disproportionately affected, and their recovery will be slow,” she said.
To kick-start a world economy in deep recession, global central banks have delved into their toolboxes and unleashed trillions of dollars in stimulus to boost both supply and demand.
“How governments will respond to a second wave has the potential to make or break the economic recovery,” said Frank Hausler, chief investment strategist at Vontobel Asset Management in Zurich. “Central banks have demonstrated their determination to do ‘whatever it takes’ and reacted very well and swiftly. This should help to alleviate concerns over financial stability.”
The BIS also said that debt restructuring will be required as resources shift from shrinking to growing sectors.
“Central banks are fully aware of the challenges ahead as the outlook for the world economy is still highly uncertain,” Carstens said. “Monetary policy alone cannot be the engine of growth. A premium needs to be put on keeping fiscal policy on a sustainable path through timely consolidation.” Enditem