The Wall Street Journal - 13.03.2020

A8| Friday, March 13, 2020 **** THE WALL STREET JOURNAL.

THE CORONAVIRUS PANDEMIC

Tohoku University School of

Medicine. “That may trigger an-

other large outbreak in China.”

The emphasis on limiting

international exposures has

bolstered the perception that

China has efficiently and effec-

tively addressed the out-

break—a narrative the govern-

ment has promoted, despite

initially playing down the vi-

rus’s spread for weeks before

taking decisive action.

Beijing criticized some

countries, notably the U.S., for

raising travel alerts against

China and for chartering

flights to evacuate their citi-

zens. As the virus has spread

more quickly outside China

than inside, the Chinese gov-

ernment itself has evacuated

its overseas citizens, including

200 Chinese nationals from

Iran, where 8,000 people have

been infected.

On Monday, Beijing authori-

ties asked foreigners in partic-

ular to minimize unnecessary

travel and to wear masks out-

side, saying the pressure has

mounted to control imported

cases of infection as the epi-

demic worsens globally. The

week before, they had said

anyone arriving from South

Korea, Italy, Iran or Japan—

countries battling recent

surges in infections—would

have to quarantine for 14 days.

And on Wednesday, Beijing

officials ordered anyone enter-

ing China—even from countries

with nonserious virus condi-

tions—to confine themselves at

home for 14 days, effective im-

mediately. Short-term travelers

entering China will be required

to stay in designated hotels

and to submit to nucleic acid

testing, and are forbidden from

leaving the hotel until test re-

sults are obtained.

On the ground, foreigners

have sometimes been singled

out. In a Beijing neighborhood

near the Forbidden City, local

government workers delivered

a message to two Americans

living in adjacent bungalows

last week, translated into Eng-

lish and shown to them on a

cellphone: “Don’t have too

much contact with foreign

friends to avoid spreading the

disease.” The workers didn’t

contact their Chinese neighbors.

In Shanghai, Jared T. Nel-

son, who runs a compliance

startup, said he has received

visits from local police at home

and his office inquiring about

any recent travel abroad.

On Saturday, two policemen

knocked on Mr. Nelson’s apart-

ment door to ask when he re-

turned to the city. When he

told them about his January

trip to Hangzhou, a coastal city

100 miles southwest of Shang-

hai, they said it didn’t count.

They asked about trips outside

China, and explained that they

were checking foreigners in

the area who might need to

undergo quarantine. They left

after inspecting the passport

of Mr. Nelson, who hasn’t been

abroad since 2018.

“There’s a perception that

everything is under control

here, but out of control

abroad,” the 36-year-old Wyo-

ming native said. “All of us

who are obviously foreign—

we’re potentially carriers.”

Some analysts immediately

compared her performance un-

favorably with that of Mr.

Draghi, whose promise to do

“whatever it takes” to preserve

the euro helped end the region’s

debt crisis during his tenure.

The ECB said it would roll

out cheap loans for banks, at

an interest rate as low as mi-

nus 0.75%, and step up bond

purchases under its €2.6 tril-

lion ($2.9 trillion) bond-buy-

ing program.

But the bank left its key in-

terest rate unchanged at mi-

nus 0.5%. Investors had widely

expected the ECB to cut rates

by at least 0.1 percentage

point, after major central

banks including the Federal

Reserve and Bank of England

announced aggressive rate

cuts in recent days.

“The overall scale of the

package, given that the econ-

omy is likely heading for re-

cession, is modest,” said Nick

Kounis, an analyst with Dutch

bank ABN Amro.

Instead, Ms. Lagarde called

repeatedly on the region’s gov-

ernments to take on more of

the burden of supporting

growth. Crucially, she indicated

that the ECB wouldn’t step in

to support Southern European

governments if they came un-

der pressure from investors.

“We are not here to close

spreads. There are other tools

and other actors to deal with

these issues,” Ms. Lagarde said.

European stock indexes fell,

the euro tumbled against the

dollar and yields of Italian 10-

year government bonds jumped

to the highest level in months.

“How can she say such a

thing? The ECB should never

say this,” tweeted Guntram

Wolff, a German economist who

is the director of Brussels think

tank Bruegel. “We have just

massively increased the risks of

a euro-area crisis resulting

from the Covid19 shock. OMG.”

In a subsequent TV inter-

view, Ms. Lagarde sought to

redirect her remarks, saying

that the ECB would seek to

avoid the fragmentation of the

eurozone and that its tools

were available to Italy.

But the mixed messages un-

derscored to investors the lim-

itations of an ECB steered by

Ms. Lagarde, an attorney and

former French finance minis-

ter who is the only ECB presi-

dent without prior central-

bank experience. Investors

grew to count on wave after

wave of monetary stimulus

from Frankfurt during Mr.

Draghi’s eight-year term,

which ended in October.

“The bigger concern is that

it shows how unfamiliar she

still is with language, which

especially in such stressful

times is not helpful,” said Oli-

ver Rakau, an economist with

Oxford Economics.

The ECB is seeking to sup-

port a eurozone economy that

is likely headed for recession,

dragged down by business

bottlenecks, softening con-

sumer demand and the lock-

downof the region’s third-big-

gest economy, Italy.

The eurozone economy

could shrink 1.2% in 2020, ac-

cording to research firm Capi-

tal Economics.

Thursday’s decision comes

amid a deep split in the ECB,

which Ms. Lagarde could strug-

gle to bridge.

Many ECB officials are wor-

ried about the adverse side ef-

fects of a long period of easy

money and the pressure nega-

tive rates place on banks.

FRANKFURT—European
Central Bank President Chris-
tine Lagarde unveiled a mod-
est stimulus package to shield
the region’s economy from the
fast-spreading coronavirus, but
the action raised concerns the
central bank may be unwilling
or unable to move forcefully
against a shock that has rico-
cheted through Europe.
Ms. Lagarde emphasized the
limits of what the ECB can do to
mitigate the economic damage
of the virus, remarks that sug-
gested she might be less willing
to use the sort of extraordinary
measures that her predecessor,
Mario Draghi, rolled out.

BYTOMFAIRLESS

ECB Offers Stimulus, but Plan Draws Criticism

SYDNEY—Australia said it

would spend $11.42 billion to

try to stave off a recession

that would be its first in

nearly three decades, as gov-

ernments globally step up ef-

forts to put together an eco-

nomic response to the

coronavirus pandemic.

Prime Minister Scott Morri-

son on Thursday said the

spending would target small

and midsize businesses, the

unemployed and pensioners,

and would supplement the

$1.56 billion in funding for

pop-up respiratory clinics and

other health-care measures

announced this week.

The fiscal support comes

less than two weeks after Aus-

tralia’s central bank cut inter-

est rates to a record-low 0.5%.

The stimulus plan involves

giving small and midsize busi-

nesses cash grants, and raising

the threshold for employers to

write off assets against their

tax bill, among other mea-

sures.

“We’re not looking to cut

and paste from people’s prob-

lems in other economies,” Mr.

Morrison said. “This is based

on our diagnosis of what is

happening in the Australian

economy, and the best way to

deal with that.”

Australia’s response illus-

trates how economies that nav-

igated the world-wide financial

crisis more than a decade ago

without a recession are vulner-

able to devastating shocks this

time around, even as local in-

fections of coronavirus remain

low relative to countries at the

center of the outbreak.

On Wednesday, Australia

confirmed 112 cases of corona-

virus, including three deaths.

BYDAVIDWINNING

ANDJAMESGLYNN

Australia

Moves to

Head Off

Downturn

BEIJING—As China grows
more optimistic about contain-
ing the spread of coronavirus
within the country, it is con-
fronting a potential threat to its
recovery: the rest of the world.
Epidemic-control efforts
have turned to foreigners in
China in recent days as con-
firmed cases within the coun-
try have slowed. Police officers
and local government workers
have made house calls specifi-
cally to check whether expatri-
ates recently traveled to an-
other country where they could
have contracted the virus.
The shift in focus comes as
China attempts to recast the
coronavirus as a global issue
and touts its own handling of
the epidemic. The govern-
ment’s draconian but seem-
ingly effective lockdowns of
cities have helped reduce per-
son-to-person contact and slow
the spread of Covid-19, the dis-
ease caused by the virus.
Meanwhile, the World
Health Organization on
Wednesday declared the new
coronavirus a pandemic. Con-
firmed cases are rising in
other parts of Asia, the U.S.
and Europe, and more than
4,500 people have died glob-
ally, with the majority of them
in China. All of Italy was
placed under quarantine on
Tuesday; the virus’s death toll
there rose above 1,000 on
Thursday, and the number of
infected patients topped
15,000.
Within China, imported
cases outnumbered domestic
cases outside Hubei province
for six consecutive days as of
Wednesday, the National
Health Commission said. In
one week, total imported cases
rose to 85 from 20 on Wednes-
day. Beijing authorities said
Wednesday that one imported
case had come from the U.S.
“The number of these im-
ported cases is likely to in-
crease,” said Hitoshi Oshitani, a
professor of virology at Japan’s

BYSTEPHANIEYANG
ANDSTUWOO

As China Recovers, It Scrutinizes Foreigners

oli, an economist at JPMorgan

Chase.

President Trump’s an-

nouncement Wednesday night

of a 30-day ban on some travel

to the U.S. from Europe to con-

tain the spread of the virus

came as global air traffic was

already falling.

While cancellations and

postponements of public activ-

ities in the U.S.—such as pro-

fessional and college baseball,

hockey and basketball games,

Broadway shows and Austin’s

South by Southwest festival—

may help slow the spread of

the virus, it will inevitably take

a toll on consumer spending,

economists said.

“It’s going to be massively

disruptive to the economy,”

said Joshua Shapiro of con-

sulting firm MFR Inc.

“You go to a sporting event,

not only do you buy a ticket.

You buy some beers, maybe

you go to dinner first. You go

out afterwards. You’re spend-

ing money,” Mr. Shapiro said.

“It’s not just the ticket to the

event, it’s the plane ticket, it’s

the hotel. It’s all these people

working at these places.”

As U.S. benchmark crude

crashed to near $30 a barrel

this week, shale firms an-

nounced a string of drilling

and spending cuts that will

squeeze hundreds of energy

service companies that employ

the bulk of the industry’s

workforce.

Apache Corp.said it would

drop all of its rigs in the Perm-

ian basin of Texas and New

Mexico, shift resources over-

seas and slash its quarterly

dividend by 90%.

Matador Resources Co.

plans to cut half of its drilling

rigs by the end of June, while

executives and board members

take pay cuts.

Marathon Oil Corp.plans

to slash at least $500 million

in spending, halt all drilling

and fracking in Oklahoma and

reduce activity in the Permian,

where it has four rigs and one

fracking crew.

If enough producers throttle

down all at once, and drilling

rigs are idled for an extended

period, energy-service firms

will have to cut workers and

prices, and over time, growing

U.S. oil production would flat-

ten and decline.

JPMorgan Chase said

Thursday it now thinks the

economy will fall into reces-

sion in the first half of this

year, ending the expansion

that began in 2009. It expects

output to fall by an annual rate

of 2% in the first quarter and

by another 3% in the second

quarter. The bank expects the

economy to return to solid

growth in the second half, as-

suming a “fiscal response” of

$500 billion from Congress.

The Institute of Interna-

tional Finance predicts the

global economy will grow

about 1% this year, the small-

est gain since the global finan-

cial crisis in 2009 and a level

that would likely mean many

countries would fall into reces-

sion.

A recession can take months

to show up in economic data.

Most likely, it would first

become visible in sentiment

readings, new claims for un-

employment insurance bene-

fits, and eventually in spending

and investment data.

Through last week, U.S. em-

ployers generally appeared to

resist the urge to lay off work-

ers. New jobless claims fell last

week, to a historically low

level of 211,000, the Labor De-

partment said Thursday.

But IHS Markit said last

week that business activity in

the U.S. service sector—repre-

senting industries from restau-

rants to health-care provid-

ers—fell in February for the

first time since 2013.

ECB President Christine

Lagarde on Thursday echoed

other central bankers who

have recently said there are

limits to how much monetary

policy can do in the current

crisis and called on other pol-

icy makers to use fiscal policy,

such as tax and government

spending measures, to provide

support.

“An ambitious and coordi-

nated fiscal stance is now

needed in view of the weak-

ened outlook and to safeguard

against the further material-

ization of downside risks,” she

said.

—David Harrison,

Nick Timiraos, Tom Fairless,

and Harriet Torry

contributed to this article.

shock of the coronavirus—but

didn’t cut its key interest rate,

which is already below zero.

U.S. stocks initially pared

their losses, but later resumed

their fall after the U.S. Federal

Reserve said it would inject

more than $1.5 trillion into

short-term funding markets on

Thursday and Friday to pre-

vent ominous trading condi-

tions from creating a sharper

economic contraction.

Across the U.S.—the world’s

largest economy—authorities

this week have canceled or

postponed a swelling number

of commercial flights, industry

conferences, music festivals,

sports events and other public

activities, while oil producers

are being slammed by a drop

in crude prices. All this in-

creases the chances that the

record-long economic expan-

sion will end in coming

months, economists said.

“We are going into a global

recession. The necessary mea-

sures to contain the spread of

the virus make that unavoid-

able,” wrote Vítor Constâncio,

a former vice president of the

European Central Bank, on

Twitter Thursday.

In the U.S. alone, “the

chances of a recession are go-

ing way up,” said Michael Fer-

ContinuedfromPageOne

Fears of

Recession

Are Rising

China has touted its handling of the coronavirus outbreak. Above, a health screening area outside a residential compound in Beijing.

NG HAN GUAN/ASSOCIATED PRESS

Airline and cruise

company shares led

the meltdown in

Thursday’s market.

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