As coronavirus outbreaks have become more threatening outside China in recent days, attention has turned to the likely damage to global output and to the possible reaction of macroeconomic policymakers. This has become urgent with the  catastrophic decline in China’s PMI business surveys yesterday. The question now is whether a global recession can be avoided.

While the health risks from the virus seem lower than seasonal influenza, the response of the public health authorities has been fairly draconian in many affected regions, causing large drops in industrial and consumer activity. 

Until Friday, the official response of macro policymakers in the advanced economies (AEs) to these events had been rather complacent. Leading  Federal Reserve officials  had said that they were monitoring the extent of the global economic shock and that they had scope to act, but they saw no urgency to cut interest rates. The  European Central Bank and Bank of England have reacted similarly.