the bank of finland will make a strong contribution not only to the management of climate risks but also to the promotion of financial literacy among the general public. both projects are part of our work on behalf of a stable economy and sustainable growth. * * * distinguished guests, the rapid decline in production that the coronavirus has caused in china and elsewhere in recent weeks has rapidly and drastically reshaped the global economic outlook for the current year. 1 / 5 bis central bankers'speeches [ slide 2. health first – damage to the economy must be mitigated ] protecting the health of the public must take precedence during a pandemic. however, the contingency measures put in place to contain the virus also come with economic ramifications. public authorities will inevitably play a key role in mitigating the economic damage, and that also applies to the central bank. countries have responded to the economic crisis with crisis packages that aim to support their respective economies in the coming months and limit the length of the crisis. the highest urgency lies in securing the funding to businesses and the liquidity of the banking and financial system. however, economic output and confidence are likely to make strides only when the general public can see and trust that the pandemic is getting under control or, at least, that it can be controlled. [ slide 3. chinese economy contracted sharply in january and february ] at this time, the economic outlook can only be examined by looking at different alternative scenarios, as there is no historical precedent for current events. for the calculations in the first scenario, one can make use of statistical data on developments in china between january and february. output contracted sharply during this period. it is likely that we will see significant declines in aggregate output in other countries as well when the statistical data for march becomes available. global financial markets have seen exceptional volatility in recent weeks, especially as the valuations of risky investment assets have fallen. the uncertainty about what comes next is profound. the depth and duration of the recession will largely be determined by how the virus spreads, but also by the economic policy measures taken in response to the crisis. what gives hope is the fact that china, taiwan, hong kong and singapore have made significant progress in controlling the epidemic. this has been achieved through comprehensive and extensive measures. businesses will feel the economic impact of the coronavirus across a broad front, both in terms of production difficulties and in terms of reduced demand for their products. the issue of working capital finance may prove

economic shocks. a more recent concern in some countries is the build up of a potentially excessive exposure of the domestic financial system to domestic ( non - indexed ) government debt. before turning to discuss the policy implications of these remaining vulnerabilities, i would like to emphasize that advances in institutional development can never be taken for granted. indeed, as we have seen in the past, populist policies can easily cause setbacks in this area. therefore, it is crucial to maintain the political support to institutional reform that fosters financial development. in this regard, strong property rights and a legal system that enforces contracts quickly and fairly are of particular importance. as many of you may recall, we discussed the topic of globalization and financial stability last summer here in banco de espana and safeguarding these two factors were deemed as essential to avoiding pitfalls in financial liberalization. 2. possible " anatomy " of the next crisis and the policies to increase resilience to shocks the region weathered relatively well the may - june 2006 financial market correction, but this episode showed that it has not become immune to shocks emanating from the global financial system. while the " threshold of pain " has clearly improved, the resiliency of the system in the face of a more pronounced external shock remains untested. against this background, there is no room for complacency. so, what might a more serious external shock look like and how can the authorities prepare the economies for such an eventuality? the region seems particularly vulnerable to the combination of a possible recession in the us and falling commodity prices. let me elaborate on this a bit to examine the anatomy of a worst case scenario. i want to emphasize that i am by no means implying that this type of outcome is likely and that there would inevitably be important differences between the countries in the region. nevertheless, and at the risk of overgeneralising and oversimplifying, i think that it is useful to examine how a vicious circle might unfold in order to draw some policy conclusions. • a recession in the us ( triggered e. g. by wider decline in housing and other asset prices ) would hit harder those latin american countries that have the strongest trade links with the us, such as mexico, venezuela and ecuador. a weaker us demand could well lead to a significant slowdown in china. direct impact on the region might be relatively limited as the direct trade links between china and latin america are relatively weak, despite some increases in recent years