Covid-19 damaging to the world economy but unlikely to induce new financial crisis

WASHINGTON – The novel coronavirus (Covid-19) pandemic that is affecting over 200 countries and regions will be damaging to the world economy but “unlikely” to induce a new global financial crisis, said a U.S. economist.

“There will be financial disruptions and the fiscal cost of rescue will severely burden the U.S. government’s budget position for a long time to come. But it won’t induce a domestic or global financial crisis,” Sourabh Gupta, a senior fellow at the Washington-based Institute for China-America Studies, told Xinhua on Wednesday.

He gave three reasons. First, the Covid-19 crisis is a public health crisis, instead of a structural financial crisis like the 2008 crisis.

Second, the 2008-09 Global Financial Crisis had caught the international financial system “flat-footed,” but it is “much better positioned this time,” both in terms of preparedness, including banking sector capital cushions, as well as the availability of a broader set of central bank financial instruments to combat a financial meltdown, Gupta said.

Finally, the federal reserve “still has ample space on its balance sheet to douse the economy with cheap money and backstop the financial system,” he said.