Global Policy Responses to COVID-19
As of April 2, 2020
COVID-19 is wreaking havoc on nearly every aspect of the global economy. It is clear now that what was originally a supply-side shock—and to a lesser extent an export demand shock for the global economy—has morphed into something far more pernicious. The unique nature of the pandemic, and the government actions to stem the trajectory of the outbreak, is severely impacting global manufacturing, production, and supply chains worldwide. As households hunker down, the demand side of the world economy is also experiencing broad-based headwinds. With each new data point, it becomes painfully clear, the global economy has entered a full-blown recession.
As unprecedented as the crisis is, it’s being met by a wholly unprecedented global policy response. In the U.S., the Federal Reserve responded within the first weeks of March by cutting the target range to effectively 0%, and quickly escalated its financial market support throughout the month. The Fed’s balance sheet has already expanded by over $1 trillion in March alone. On the fiscal policy side, the U.S. Congress and President Trump have already responded with three pieces of legislation totaling more than $2.3T, or 11% of 2019 nominal U.S. GDP. For perspective, after the start of the Great Recession in December 2007, it took the U.S. Congress 10 months to pass the Troubled Asset Relief Program (TARP) and it took the Federal Reserve 11 months to implement quantitative easing (QE). The full fiscal stimulus pumped into the economy throughout 2008, 2009 and 2010 combined totaled about 10% of 2007 GDP.
In other parts of the world, the response has been equally timely and aggressive. In Germany, the combined €1T in direct stimulus and guarantees its government is providing amount to nearly 30% of GDP. In Asia Pacific, substantial “synchronized stimulus” on this scale has never been witnessed. Further, Japan is currently working on its third fiscal package valued at ¥60T—more than 10% of GDP—the largest individual fiscal package pursued, dwarfing the April 2009 stimulus deployed after the Lehman Crisis which totaled ¥56.8T. From Europe and the UK to countries throughout Asia and the Americas, central banks and governments have been called to action—and they are stepping up.
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