Governments’ efforts to stimulate national economies have helped financial markets and central banks brace for the shock of the coronavirus crisis, according to the World Economic Forum (WEF).

Central banks applied lessons from the 2008-09 global financial crisis (GFC) to address funding market impairment “in a matter of days, as opposed to the months it took in some cases during the GFC”, says a new report from the organisation.

This prevented stresses in underlying funding markets from “propagating into market-wide disruptions”.

At the same time, central banks announced plans to expand asset purchase programmes, with the goal of reintroducing liquidity into key asset classes.

Unlike the systemic failures of the GFC over a decade ago, the WEF believes that the current crisis is fundamentally a public health emergency that is becoming an economic downturn as governments battle to prevent the spread of COVID-19.

“Rather than contributing to the problem, banks are now a major part of the solution, due in large part to the strength of their balance sheets,” claims the WEF.

This is because the post-crisis regulatory framework led to substantial increases in the capital held by banks – at least in established economies.

Not only are these banks still relatively stable, but they are also serving as the primary transmission mechanism for much of the business support components of many countries’ fiscal packages.

But whether banks can retain that stability while meeting the needs of the real economy is another matter, says the WEF.

There is also uncertainty about how badly the virus will affect different countries, how long containment measures will need to persist, how effective policy will be at counterbalancing lost economic activity, and the extent to which both households and firms may have changed their behaviour.

The report also warns that the financial markets may not have considered deeply enough the risks of a severe, protracted recession in advanced economies, leading to a new credit crunch as banks face escalating losses despite central bank support.

Further doubts remain over the bulk of companies in the mid market, cautions the WEF.

“Whereas many small businesses and large corporates have been targeted by a range of fiscal and central bank support programmes, participants said they feel that mid-size firms have been largely excluded.”

There are other risks in a global economy, warns the report. The economic and financial crisis in developing economies may be much more severe than in advanced economies.

So what does the WEF advise policymakers to do in the months ahead? The organisation recommends four key priorities.

  • Flattening the curve of business mortality must be a policy priority as well as protecting public health. This means that governments will have to expand the size and scope of support programmes over time.


  • Policymakers must ensure that the financial system remains capable of safely meeting the public’s need for financial services through digital channels.


  • Governments, including regulators and central banks, must continue to coordinate policy on a global level to help maintain financial stability. Within countries, policy guidance must be clear and consistent across regulatory agencies – a significant challenge for the UK once the Brexit transition period ends on 31 December.


  • And finally, advanced economies may need to further expand the support offered to emerging markets and developing economies.


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