Financial Times Europe - 06.03.2020

2 ★ FINANCIAL TIMES Friday6 March 2020

companiesthat face temporary cash

flow difficulties.

The US

There is little appetite among Fed poli-

cymakers for negative rates. That leaves

the Fed close to what it now calls the

“effective lower bound” ero. Mr Powellz

has called this the “pre-eminent mone-

tary policy challenge of our time”.

The Fed will useasset purchases and

forward guidance aggressively if it has

to, but Mr Powell has ruled out anything

beyond rate cuts for now.Congress and

the White House on Wednesday agreed

an $8bn appropriation for public health

measures. President Donald Trump has

proposed a one-year payroll tax cut,

while members of the US Chamber of

Commerce have suggested expanding a

business loan programme for disasters,

but neither are a formal policy proposal.

Additional reporting by Brendan Greeley in

Washington

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budget surplus to do more,” said one

member of the ECB’s governing council.

The UK

Even with rates close to all-time lows,

outgoing governor Mark Carney

believes the Bank of England has fire-

power equivalent to a 2.5 percentage

point rate cut if it uses more quantita-

tive easing, forward guidance and cheap

loans to banks.

Andrew Bailey, incoming BoE gover-

nor,said on Wednesdayit was likely the

central bank and UK government would

soon need to provide bridging finance to

small companies.

Chancellor Rishi Sunak will announce

the UK’s fiscal response to coronavirus

inthe Budget next week. With a deficit

of less than 2 per cent of national

income the UK faces no specific fiscal

constraints, although the government is

considering targeted relief for affected

households and companies rather than

a broader stimulus. Ministers have

urged them to show tolerance towards

issue in a pandemic is to avoid liquidity

squeezes leading to SME bankruptcies,

ie targeted liquidity measures to cir-

cumvent the negative growth chain

reaction of containment, confidence,

credit quality, bank capital constraints

and defaults, that is in play now,” said

Lena Komileva, chief economist at G+

Economics.

The EU is prepared to relax its fiscal

rules to counteract the economic

impact of the coronavirus, but only tem-

porarily, Mário Centeno, head of the

eurogroup of eurozone finance minis-

ters, said on Wednesday. The European

Commission last weekearmarked

€232mto help contain the disease and

Italy has announceda €3.6bn stimulus

packagewhile seeking permission to

widen its deficit.

ECB officials are pushing for more

support from governments, particularly

from countriessuch as Germany, which

is in a healthy fiscal position. “Co-ordi-

nation is basically a code word for

putting pressure on Germany to use its

Prime Minister Shinzo Abe is trying to

launch a targeted fiscal stimulus, prom-

ising wage subsidies.The economy was

already reeling from October’s con-

sumption tax rise, but reversing that is

politically difficult.

The eurozone

Given the debate about the downsides of

negative rates in Europe, a cut from the

European Central Bank is unlikely to be

Christine Lagarde’s preferred option.

The ECB could beef upcheap loans to

banks, or encourage banks to be lenient

with companies that run into trouble.

Italian bank UniCredit hasintroduced

similar mea- sures. If necessary, the ECB

couldjoinother central banks to

launch a co -ordinated

liquidity injection into

the banking system.

“The main policy

C H R I S G I L E S— LONDON
R O B I N H A R D I N G— TOKYO
M A RT I N A R N O L D— FRANKFURT

This week’s emergency rate cut by the
US Federal Reserve was in stark con-
trast to past global economic crises,
when the central bank acted alongside
its peers.
Other members of the G7 group of
leading nations held off, instead issuing
a bland statement pledging to use “all
appropriate policy tools” to address the
fallout from coronavirus. According to
officials, the muted response was
because coronavirus does not need
shock-and-awe tactics but targeted
measures. That leaves each central
bank to consider what action to take.

Japan

The question for the Bank of Japan is
whether the yen holds at ¥107. The BoJ’s
big worry is that the Fed rate cut leads to
a weaker dollar, hurting Japan’s exports.
Governor Haruhiko Kuroda has
vowed“to provide ample liquidity and
ensure stability in financial markets
through appropriate market operations
and asset purchases”, after which the
BoJ bought almost $1bn in equity
exchange traded funds, a daily record.
But privately the BoJ concedes doubts
about whether the benefits of further
action would outweigh the costs.
Kiichi Murashima, chief economist at
Citi in Tokyo, said his base case was for
increased equity purchases at the next
BoJ meeting, but hewas “highly scepti-
cal” about the potential for rate cuts.
“At least historically, it has been quite
important for Japanese policymakers to
be seen to act [with other central banks]
in a co-ordinated manner,” said Mr
Murashima. “But it is questionable how
much weight they actually put on it.”
Financial support —
in government sub-
sidies, banking
forbearance and a
BoJ liquidity facil-
ity — ismore likely.
Corporate balance
sheets are generally
in good shape, but the
disappearance of Chi-
nese tourists has led to a
string of recent bank-
ruptcies. The gov-
ernment is seek-
ing ways to tide
vulnerable com-
panies over.

FINANCIAL TIMES
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TO M H A N C O C K— LONDON
S I M E O N K E R R —DUBAI

New cases of coronavirus in Wuhan, the
city at the centre of China’s coronavirus
epidemic, could drop to zero by the end
of the month, an expert with the coun-
try’s top panel on battling the illness has
said.
Residents of Wuhan and surrounding
Hubei province have been largely con-
fined to their homes for more than a
month after transport links with neigh-
bouring provinces were closed and pri-
vate cars banned from streets.
The city, which has been mostly cut

off from the rest of China since late Janu-

ary, recorded 131 new cases yesterday,

with just 8 cases found elsewhere in

China. The number was likely to fall to

zero by the end of the month, said Zhang

Boli of China’s national health commis-

sion. Other restrictions imposed across

the country could be relaxed within two

months, he said.

“I estimate that by the end of April,

except for Hubei, the rest of the country

can basically take off their face masks

and resume normal life,” he told the

state-run People’s Daily newspaper.

The apparent peaking of the outbreak

in China, where total cases have

exceeded 80,000, stands in contrast to

the growing number of infections across

the rest of the world, with countries

from the rest of Asia, Europe and the US

taking measures to control the spread.

The number of US patients with coro-

navirus had risen to at least 149, includ-

ing 10 people who had died, the Centers

for Disease Control and Prevention

reported yesterday. It has tallied 49

cases among repatriated Americans and

passengers on the Diamond Princess

cruise ship. The 100 remaining cases

include 17 from person-to-person

spread and 53 whose cause remains

under investigation.

California, which has imposed a state-

wide emergency along with the states of

Washington and Florida, hasthe largest

number of infected patients among 13

states that have reported cases.

Yesterday, the United Arab Emirates

called on residents to avoid cross-bor-

der travel and imposed quarantine

restrictions to limit the spread of the

virus — a blow to the oil-rich state’s posi-

tion as a global business hub.

The seven-member federation said

people returning from abroad might be

subject to quarantine provision, and

mandated educational staff and stu-

dents returning from abroad to a two-

week isolation at home.

The UAE this week said schools would

close for four weeks from Sunday.

Italy would increase to €7.5bn the

value of measures to help mitigate the

impact of coronavirus, said Giuseppe

Conte, Italy’s prime minister, as Rome

stepped up its effort to contain the larg-

est outbreak in Europe.

Roberto Gualtieri, economy minister,

said he expected the boost from an ini-

tial €3.6bn stimulus to add €6.3bn to

Italy’s budget deficit target, or around

0.35 per cent of gross domestic product.

Measures being considered include

support to families and parents who

have to stay home to look after their

children, an increase in national health-

care funding, redundancy benefits and

measures to support businesses strug-

gling because of the emergency.

Italy has ordered all schools and uni-

versities to shut until March 15 and pub-

lic gatherings and sporting events have

been banned in most affected regions.

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H E N RY F OY —MOSCOW

L AU R A P I T E L— ANKARA

C H LO E C O R N I S H— BEIRUT

Russia and Turkey announced a cease-

fire in the embattledSyrian province of

Idlib s part of a deal that solidifiesa

recent gains by the regime of Bashar

al-Assad.

After hours of talks in Moscow, follow-

ing weeks of mounting tension between

the two leaders, presidents Vladimir

Putin and Recep Tayyip Erdogan

declared that a halt to months of fight-

ing would begin at midnight last night

along existing front lines.

Russia and Turkey back opposing

sides in Syria’s nine-year civil war, and

had risked being drawn into direct con-

flict by a recent escalation in Idlib that

has forced hundreds of thousands of

civilians in the province to flee.

“We do not always agree with our

Turkish partners in our assessments of

what is happening in Syria, but each

time at critical moments, relying on the

high level of bilateral relations we have

achieved, we still manage to find com-

mon ground on the disputed issues that

have arisen,” Mr Putin told a joint press

conference following the talks.

Mr Erdogan, who last week unleashed

a Turkish military assault in retaliation

for the death of dozens of Turkish sol-

diers in the province, said that Ankara’s

aim was “preventing the humanitarian

crisis [in Idlib] from worsening”.

The Turkish president said that those

displaced from their homes by recent

fighting would be helped to return,

without providing further details. Mr

Erdogan said that Turkey would “pre-

serve its right to respond to any attacks

by the regime in the strongest way”.

Ankara had repeatedly demanded in

recent weeks that the Syrian regime

withdraw to the boundaries of a 2018

Turkish-Russian agreement and threat-

ened to use force to push pro-Assad

troops back if they refused to comply.

But Mr Erdogan appeared to drop

those demands during yesterday’s visit.

A joint memorandum agreed by the

two sides announced that a “security

corridor” would be established to the

north and south of the strategic M

highway that runs from east to west

through the province. There was no

commitment for the withdrawal of Syr-

ian regime forces from recently cap-

tured territory, including the north-

south M5 highway that links the city of

Aleppo with the country’s south.

Sinan Ulgen, chairman of the Istan-

bul-based think-tank Edam, said the

deal was “more restrictive from the

Turkish standpoint”, leaving Ankara in

control of a smaller patch of territory

than before. “The positive side is that a

ceasefire has been reached,” he added.

Mr Assad has long vowed to retake

“every inch” of Syria, including Idlib, its

last rebel redoubt. The offensive by his

Russian-backed forces in the province

has triggered what aid groups have

described as the worst humanitarian

crisis of Syria’s nine-year civil war.

Close to 1m people have been forced

to flee, with most of them heading north

towards the border with Turkey, after

aerial bombardments intensified fol-

lowing the 2018 ceasefire that broke

down in spring last year.

Editorial Comment age 8p

Coronavirus

Wuhan appears to stem tide of infections

New cases in Chinese city

head for zero in contrast

to spread in rest of world

‘I estimate that by the end

of April, except for Hubei,

the rest of the country can

take off their face masks’

Syria

Putin and

Erdogan agree

ceasefire to

end fighting

in Idlib

Rate cut Fed going it alone bucks history of collaboration

Some central banks have more room to cut than others

Central bank policy rates ()

-



     

US Federal Funds target rate

ECB policy rate

Bank of England bank rate

Bank of Japan policy rate

Sources: Refinitiv; IMF

Some have more capacity for asset purchases

Central bank assets as a  of GDP^







      

US (Federal Reserve)

Eurozone (ECB)

UK (BoE)

Japan (BoJ)



Government financing costs have fallen sharply

-year government bond yields ()

-



Jan  

US

Japan Germany

France

Italy

UK

Mar

Indebtedness varies greatly across the main economies

General government net debt as a  of GDP ()*

   

Japan

Italy

France

US

UK

Germany

* IMF forecast

S U N Y U— ZHUMADIAN

Li Zhenguo is trying to return to work

after five weeks at home in Zhumiao, a

village in central Henan province.

But there is no public transport between

Zhumiao and the nearest city of Zhu-

madian. From there Mr Li, 51, could

take ahigh-speed trainto southern

Guangdong province where he works in

a battery factory.

Even if he somehow could make it to

the station, though, he could not afford

the fare. Thehigh-speed traincosts

more than three times the regular serv-

ice, which has notrun since January.

“I can’t go anywhere until traffic

returns to normal,” said Mr Li.

Tens of millions of Chinese migrant

workers, mostly from thehinterland,

are also stranded. Since thelunar new

year holiday they have beentryingto

return to coastal plants after Beijing

restricted traffic to contain coronavirus.

The toll the travel curbs have taken on

the economy underlines the challenges

China faces. Beijing says 70 per cent of

big business is operating but the figures

for small factories in particular are dire.

The Ministry of Industry and Informa-

tion Technology said last week that less

than a third of small and medium-sized

businesses, which employ almost 80 per

cent of China’s labour force,are operat-

ing normally.

“Labour shortage is making any effort

to kick start the economy a futile one,”

said Larry Hu, an economist at Mac-

quarie Group.

Since Beijing declared the epidemic a

national emergency in January, local

governments aveh imposed strict curbs

onmovement, particularly in rural

areas, where roadblocks prevent travel

between neighbouring villages.

The virus may be showing signs of

abating — new infections have fallen to

zero in many provinces, official figures

show — but rural authorities ave beenh

reluctant to ease the lockdown.

In Zhumiao, where no case has been

reported, villagers must pass at least

three checkpoints to get to the nearest

bus station, which is closed. To leave the

village for work, locals need a certificate

from an employer stating the business

has reopened, and have to pledgenot to

return until the epidemic has ended.

The rules amount to a travel ban for

those without a formal job. Zhang Yan-

wei of Zhumiao said he had put off a trip

to the north-western city of Lanzhou to

find plumbing work as he did not have a

contract. “There is nothing I can do

except wait,” said Mr Zhang, 31.

By the end of last week, less than a

fifth of Zhumiao’s adult population had

left, according to local officials. Before

the holiday almost the entire working

age population worked elsewhere.

But these problems are not unique to

Zhumiao. AWuhan university survey

last week of 104 villages in 12 inland

provinces found that less than a third of

adults had left for work after the lunar

new year. Normally between 80 and 90

per cent of adults travel for work.

Factories are desperate for workersto

run the assembly lines, and China’s

manufacturing purchasing managers’

index, a gauge of economic health, fell to

a record low of 35 in February. The 50

mark separates monthly growth from

contraction.

Beijing has tried to improve labour

mobility, and many coastal cities have

arranged buses and even aircraft to pick

up workers. The effort, however, has

been frustrated because local officials

have been zealous in enforcing the

travel curbs for fear of being accused of

helping spread the virus.

“Local governments will face political

pressurebecause the outflow of workers

could translate into an export of risks,”

said a scholar in Wuhan. “Their best

option isto wait until [Beijing] says the

turning point has come.”

Disease prevention remains a priority

in Zhumiao. An official at Qihai town-

ship, to which Zhumiao belongs, said

talks on resuming buses were under

way but cautioned: “Our main job is to

eliminate the virus, and free movement

of people will make our work harder.”

Disease prevention

Travel bans keep China’s villagers from their factory jobs

Health alert: a banner related to the

virus is displayed at a Beijing market

Fiscal

stimulus:

Shinzo Abe

I N T E R N AT I O N A L

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Nasdaq CompositeFTSEurorst 300FTSE 100Euro Stoxx 50Dow Jones Ind7369.5220703.38 20659.32 0.211500.725902.743481.675897.557373.72 -0.063475.271493.750.180.470.

FTSE All-ShareCAC 40Xetra DaxNikkeiHang Seng19063.22 19217.48 -0.804011.0124301.09 24392.05 -0.3712256.43 12203.00 0.445089.645069.044011.80 -0.020.

FTSE All World $297.99297.730.

$ per ££ per €$ per €CURRENCIES1.074Mar 301.2490.8591.0751.241prev0.

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