Coronavirus impacts could include deflation, loss of output - IMF
The coronavirus pandemic and economic shutdowns could have multiple second-order impacts such as deflation in some economies, a loss of output, permanently-shifted supply chains and a re-evaluation of regulation, the director of the International Monetary Fund’s monetary and capital markets department said. “For some countries around the world, it is dangerous to keep expanding public sector debt, because it may be unsustainable, but in the major advanced economies like the US and many European economies, the problem is more one of deflationary pressures,” said Tobias Adrian in an interview.
Adrian also said he was concerned about a persistent loss of output as the economy cannot be simply switched off and back on and there “may be a permanent change in the structure of the economy and supply chains may shift permanently.” “The initial story was that we will shut down the economy and restart and (all is) back to normal,” said Adrian. “I worry the economic structure gets damaged in the meantime, (that) there is scarring, businesses get shut, people are unemployed, you can’t go back to where you left off.” “I do expect some shake out in the asset management industry where some of the funds that have weaker balance sheets are hit harder” by corporate distress, said Adrian. “The Fed and the Treasury can’t protect everyone to the same degree.”