The echoes of 2008 are becoming deafening. The past weekend delivered a second shock — an oil price war— on top of the economic disruption of the coronavirus. A third jolt will follow, as the sharp falls in financial markets destroy wealth and magnify the damage to the economy. The declines in safe bond yields to historic lows show just how pessimistic investors have become about the outlook for global growth. Yet while the scale of the falls in markets is similar to 12 years ago, what is lacking — but still much needed today — is a co-ordinated global policy response.
In the autumn of 2008 the centre of global policymaking shifted from the G7 rich democracies to the G20, whose inaugural leaders’ summit took place that November. The US, under president George W Bush and the incoming Barack Obama, played a vital leadership role, along with Britain’s prime minister Gordon Brown. Similar voices are sadly lacking today, and the spirit of multilateralism that flowered a dozen years ago has shrivelled under Donald Trump. The current holder of the G20 presidency is Saudi Arabia — whose brinkmanship with Russia triggered the oil price conflict.
The nature of this crisis is different, too. The 2008 shock first paralysed the financial system, which caused a collapse in demand. Covid-19 is an economic shock, hitting both supply — through factory shutdowns, disrupted supply chains and travel restrictions — as well as demand. Consumers who are ill or trying to avoid falling ill go out less and spend less. As the crisis progresses, a cash crunch looms both for companies experiencing falling revenues and consumers losing their incomes or jobs.