Global Economic Effects of COVID-19
Changes from March 26, 2020 to April 10, 2020
This page shows textual changes in the document between the two versions indicated in the dates above. Textual matter removed in the later version is indicated with red strikethrough and textual matter added in the later version is indicated with blue.
Contents
- Overview
- Estimated Economic Effects
- Policy Response
- Global Growth
- Global Trade
- Economic Policy Challenges
- Economic Developments
- Policy Responses
- The United States
- Monetary Policy
- Fiscal Policy
- Europe
- The United Kingdom
- Japan
- China
- Multilateral Response
- International Monetary Fund
- World Bank and Regional Development Banks
- International Economic Cooperation
- Estimated Effects on Developed and Major Economies
- Emerging Markets
- Looming Debt Crises
- Other Affected Sectors
- Conclusions
Figures
Tables
Summary
Since the CovidCOVID-19 outbreak was first diagnosed, it has spread to over 150190 countries and all U.S. states. The pandemic is having a noticeable impact on global economic growth. Estimates so far indicate the virus could trim global economic growth by at least 0.5% to 1.5%, but thecould rise to 2.0% per month if current conditions persist. Global trade could fall by 13% to 32%, depending on the depth and extent of the global economic downturn. The full impact will not be known until the effects of the pandemic peak. This report provides an overview of the global economic costs to date and the response by governments and international institutions to address these effects.
Overview
Since theThe World Health Organization (WHO) first declared CovidCOVID-19 a world health emergency in January 2020, the virus . Since the virus was first diagnosed in Wuhan, China, it has been detected in over 150 countries and all U.S. states.1 The infection has sickened more than 490,000190 countries and all U.S. states.1 In early March, the focal point of infections shifted from China to Europe, especially Italy, but by April 2020, the focus shifted to the United States, where the number of infections was accelerating. The infection has sickened over 1.5 million people, with thousands of fatalities. More than 80 countries have closed their borders to arrivals from countries with infections, ordered businesses to close, and instructed their populations to self-quarantine.2 After a delayed response, central banks have engaged in a, and closed schools to an estimated 1.5 billion children.2 In late January 2020, China was the first country to impose travel restrictions, followed by South Korea and Vietnam. Over the four-week period from mid-March to early April 2020, more than 17 million Americans filed for unemployment insurance, raising the prospect of a deep economic recession and a significant increase in the unemployment rate.3
After a delayed response, central banks are engaging in an ongoing series of interventions in financial markets and national governments are announcing spending initiatives to stimulate their economies. Similarly, international organizations are taking steps to provide loans and other financial assistance to countries in need. The Federal Reserve, in particular, has taken extraordinary steps not experienced since the 2008-2009 global financial crisis to address the growing economic effects of COVID-19, and the U.S. Congress approved a historic fiscal spending package. In other countries, central banks have lowered interest rates and reserve requirements, announced new financing facilities, and relaxed capital buffers and, in some cases, countercyclical capital buffers,4 adopted after the 2008-2009 financial crisis, potentially freeing up an estimated $5 trillion in funds.5 Capital buffers were raised after the financial crisis to assist banks in absorbing losses and staying solvent during financial crises. In some cases, governments have directed banks to freeze dividend payments and halt pay bonuses.
On March 11, the WHO announced that the outbreak was officially a pandemic, the highest level of health emergency.3 It has become clear that the outbreak is negatively impacting6 A growing list of economic indicators makes it clear that the outbreak is having a significant negative impact on global economic growth.4 7 Global trade and gross domestic product (GDP) are forecast to decline sharply at least through the first half of 2020. The global pandemic is affecting a broad swath of international economic and trade activities, from tourismservices generally to tourism and hospitality, medical supplies and other global value chains, consumer electronics, and financial markets to energy, transportation, food, and a range of social activities, to name a few. The health and economic crises could have a particularly negative impact on the economies of developing countries that are constrained by limited financial resources and where health systems could quickly become overloaded. Without a clear understanding of when the global health and economic effects may peak and some understanding of the impact on economies, forecasts must necessarily be considered preliminary. Efforts to reduce social interaction to contain the spread of the virus are disrupting the daily lives of most Americans and adding to the economic costs.
Economic Forecasts
Global Growth
The economic situation remains highly fluid. Uncertainty about the length and depth of the health crisis-related economic effects are fueling perceptions of risk and volatility in financial markets and corporate decision-making. In addition, uncertainties concerning the global pandemic and the effectiveness of public policies intended to curtail its spread are adding to market volatility.
The Organization for Economic Cooperation and Development (OECD) on March 2, 2020, lowered its forecast of global economic growth by 0.5% for 2020 from 2.9% to 2.4%, if the economic effects of the virus peakpeaked in the first quarter of 202058 (see Table 1). If the The OECD estimated that if the economic effects of the virus do not peak in the first quarter, as now seems unlikely, the OECD estimates that the global economy could only grow by 1.5% in 2020. peaked in the first quarter, which is now apparent that it did not, global economic growth would increase by 1.5% in 2020. That forecast now seems to have been highly optimistic.
On March 23, 2020, OECD Secretary General Angel Gurria stated that:
The sheer magnitude of the current shock introduces an unprecedented complexity to economic forecasting. The OECD Interim Economic Outlook, released on March 2, 2020, made a first attempt to take stock of the likely impact of COVID-19 on global growth, but it now looks like we have already moved well beyond even the more severe scenario envisaged then…. the[T]he pandemic has also set in motion a major economic crisis that will burden our societies for years to come.6
Concerns over economic and financial risks have whipsawed financial markets as investors have searched for safe-haven investments, such as the benchmark U.S. Treasury 10-year security, which experienced a historic drop in yield to below 1% on March 3, 2020.7 The yield dropped again to historic levels on March 6, 2020, and March 9, 2020, as investors moved out of stocks and into Treasury securities due in part to concerns over the impact the pandemic would have on economic growth and expectations the Federal Reserve would lower short-term interest rates for a second time in March 2020.8
In overnight trading in various sessions between March 8, and March 24, U.S. stock market indices moved sharply (both higher and lower), triggering automatic circuit breakers designed to halt trading if the indices rise or fall by more than 5% when markets are closed.9 By March 19, 2020, investors were also moving out of corporate and municipal bonds, a traditional safe-haven investment, as firms and other financial institutions attempted to increase their cash holdings. Compared to previous financial market dislocations in which stock market values declined while bond prices rose, stock and bond values fell at the same time in March, 2020 as investors reportedly adopted a "sell everything" mentality to build up cash reserves.10
Before the COVID-19 outbreak, the global economy was struggling to regain a broad-based recovery as a result of the lingering impact of growing trade protectionism, trade disputes among major trading partners, falling commodity and energy prices, and economic uncertainties in Europe over the impact of the UK withdrawal from the European Union. Individually, each of these issues presented a solvable challenge for the global economy. Collectively, however, the issues weakened the global economy and reduced the available policy flexibility of many national leaders, especially among the leading developed economies. In this environment, COVID-19 could have an outsized impact. While the level of economic effects will eventually become clearer, the response to the pandemic could have a significant and enduring impact on the way businesses organize their work forces, global supply chains, and how governments respond to a global health crisis.10
|
2019 |
2020 |
2021 |
|||
|
November |
Difference |
November |
Difference |
||
|
World |
2.9 |
2.4 |
-0.5 |
3.3 |
0.3 |
|
G20 |
3.1 |
2.7 |
-0.5 |
3.5 |
0.2 |
|
Australia |
1.7 |
1.8 |
-0.5 |
2.6 |
0.3 |
|
Canada |
1.6 |
1.3 |
-0.3 |
1.9 |
0.2 |
|
Euro area |
1.2 |
0.8 |
-0.3 |
1.2 |
0.0 |
|
Germany |
0.6 |
0.3 |
-0.1 |
0.9 |
0.0 |
|
France |
1.3 |
0.9 |
-0.3 |
1.4 |
0.2 |
|
Italy |
0.2 |
0.0 |
-0.4 |
0.5 |
0.0 |
|
Japan |
0.7 |
0.2 |
-0.4 |
0.7 |
0.0 |
|
Korea |
2.0 |
2.0 |
-0.3 |
2.3 |
0.0 |
|
Mexico |
-0.1 |
0.7 |
-0.5 |
1.4 |
-0.2 |
|
Turkey |
0.9 |
2.7 |
-0.3 |
3.3 |
0.1 |
|
United Kingdom |
1.4 |
0.8 |
-0.2 |
0.8 |
-0.4 |
|
United States |
2.3 |
1.9 |
-0.1 |
2.1 |
0.1 |
|
Argentina |
-2.7 |
-2.0 |
-0.3 |
0.7 |
0.0 |
|
Brazil |
1.1 |
1.7 |
0.0 |
1.8 |
0.0 |
|
China |
6.1 |
4.9 |
-0.8 |
6.4 |
0.9 |
|
India |
4.9 |
5.1 |
-1.1 |
5.6 |
-0.8 |
|
Indonesia |
5.0 |
4.8 |
-0.2 |
5.1 |
0.0 |
|
Russia |
1.0 |
1.2 |
-0.4 |
1.3 |
-0.1 |
|
Saudi Arabia |
0.0 |
1.4 |
0.0 |
1.9 |
0.5 |
|
South Africa |
0.3 |
0.6 |
-0.6 |
1.0 |
-0.3 |
Source: OECD Interim Economic Assessment: CoronavirusCOVID-19: The World Economy at Risk, Organization for Economic Cooperation and Development. March 2, 2020, p. 2.
Financial markets from the United States to Asia and Europe are volatile as investors are concerned that the virus is creating a global economic and financial crisis with few metrics to indicate how prolonged and expansive the economic effects may be.11 Between February 14, 2020 and March 23, 2020, for instance, the Dow Jones Industrial Average (DJIA) lost about one-third of its value, as indicated in Figure 1. Expectations that the U.S. Congress would adopt a $2.0 trillion spending package moved the DJIA up by more than 11% on March 24, 2020. For some policymakers, the drop in equity prices has raised concerns that foreign investors might attempt to exploit the situation by increasing their purchases of firms in sectors considered important to national security. Ursula von der Leyen, president of the European Commission, urged EU members to better screen foreign investments, especially in areas such as health, medical research and critical infrastructure.12
According to the OECD's updated forecast: In addition, the OECD argues that China's emergence as a global economic actor marks a significant departure from previous global health episodes. China's growth, in combination with globalization and the interconnected nature of economies through capital flows, supply chains, and foreign investment, magnify the cost of containing the spread of the virus through quarantines and restrictions on labor mobility and travel.14 China's global economic role and globalization mean that trade is playing a role in spreading the economic effects of COVID-19. More broadly, the economic effects of the pandemic are affecting the global economy through three trade channels: (1) directly through supply chains as reduced economic activity is spread from intermediate goods producers to finished goods producers; (2) as a result of a drop overall in economic activity, which reduces demand for goods in general, including imports; and (3) through reduced trade with commodity exporters that supply producers, which, in turn, reduces their imports and negatively affects trade and economic activity of exporters. Annual percent change Historical Optimistic scenario Pessimistic scenario 2018 2019 2020 2021 2020 2021 Volume of world merchandise trade 2.9 -0.1 -12.9 21.3 -31.9 24.0 Exports North America 3.8 1.0 -17.1 23.7 -40.9 19.3 South and Central America 0.1 -2.2 -12.9 18.6 -31.3 14.3 Europe 2.0 0.1 -12.2 20.5 -32.8 22.7 Asia 3.7 0.9 -13.5 24.9 -36.2 36.1 Other regions 0.7 -2.9 -8.0 8.6 -8.0 9.3 Imports North America 5.2 -0.4 -14.5 27.3 -33.8 29.5 South and Central America 5.3 -2.1 -22.2 23.2 -43.8 19.5 Europe 1.5 0.5 -10.3 19.9 -28.9 24.5 Asia 4.9 -0.6 -11.8 23.1 -31.5 25.1 Other regions 0.3 1.5 -10 13.6 -22.6 18.0 Real GDP at market exchange rates 2.9 2.3 -2.5 7.4 -8.8 5.9 North America 2.8 2.2 -3.3 7.2 -9.0 5.1 South and Central America 0.6 0.1 -4.3 6.5 -11 4.8 Europe 2.1 1.3 -3.5 6.6 -10.8 5.4 Asia 4.2 3.9 -0.7 8.7 -7.1 7.4 Other regions 2.1 1.7 -1.5 6.0 -6.7 5.2 Source: Trade Set to Plunge as COVID-19 Pandemic Upends Global Economy, World Trade Organization, April 8, 2020. Notes: Data for 2020 and 2021 are projections; projections for GDP are based on scenarios simulated with the WTO Global Trade Model. The forecast estimates indicate that all geographic regions will experience a double-digit drop in trade volumes, except for "other regions," which consists of Africa, the Middle East, and the Commonwealth of Independent States. North America and Asia could experience the steepest declines in export volumes. The forecast also projects that sectors with extensive value chains, such as automobile products and electronics, could experience the steepest declines. Although services are not included in the WTO forecast, this segment of the economy could experience the largest disruption as a consequence of restrictions on travel and transport and the closure of retail and hospitality establishments. Such services as information technology, however, are growing to satisfy the demand of employees who are working from home. The challenge for policymakers has been one of implementing targeted policies that address what has been expected to be short-term problems without creating distortions in economies that can outlast the impact of the virus itself. Policymakers, however, are being overwhelmed by the quickly changing nature of the global health crisis that appears to be turning into a global trade and economic crisis whose potential effects on the global economy are rapidly growing. If the economic effects of the pandemic continue to grow, policymakers are likely to give more weight to policies that address the immediate economic effects at the expense of longer-term considerations. Initially, many policymakers had felt constrained in their ability to respond to the crisis as a result of limited flexibility for monetary and fiscal support within conventional standards, given the broad-based synchronized slowdown in global economic growth, especially in manufacturing and trade that had developed prior to the viral outbreak. Initially, the economic effects of the virus were expected to be short-term supply issues as factory output fell because workers were quarantined to reduce the spread of the virus through social interaction. The drop in economic activity, initially in China, has had international repercussions as firms experienced delays in supplies of intermediate and finished goods through supply chains. Concerns have grown, however, that the virus-related supply shock is creating more prolonged and wide-ranging demand shocks as reduced activity by consumers and businesses lead to a lower rate of economic growth. As demand shocks unfold, businesses experience a decline in activity, reduced profits, and potentially escalating and binding credit and liquidity constraints. While manufacturing firms are experiencing supply chain shocks, reduced consumer activity through social distancing is affecting the services sector of the economy, which accounts for two-thirds of annual U.S. economic output. In this environment, manufacturing and service firms are hoarding cash, which affects market liquidity. In response, central banks have lowered interest rates where possible and expanded lending facilities to provide liquidity to financial markets and to firms potentially facing insolvency. If the economic effects persist, they can be spread through trade and financial linkages to an ever-broadening group of countries, firms and households. This potentially can further increase liquidity constraints and credit market tightening in global financial markets as firms hoard cash, with negative fallout effects on economic growth. At the same time, financial markets have been factoring in an increase in government bond issuance in the United States and Europe as government debt levels are set to rise to meet spending obligations during an expected economic recession and increased fiscal spending to fight the effects of COVID-19. Unlike the 2008-2009 financial crisis, reduced demand by consumers, labor market issues, and a reduced level of activity among businesses, rather than risky trading by global banks, has led to corporate credit issues and potential insolvency. These market dynamics have led some observers to question if these events mark the beginning of a full-scale global financial crisis.16 Liquidity and credit market issues present policymakers with a different set of challenges than addressing supply-side constraints. As a result, the focus of government policy has expanded from a health crisis to macroeconomic and financial market issues that are being addressed through a combination of monetary, fiscal, and other policies, including border closures, quarantines, and restrictions on social interactions. Essentially, while businesses are attempting to address worker and output issues at the firm level, national leaders are attempting to implement fiscal policies to prevent economic growth from falling sharply by assisting workers and businesses that are facing financial strains, and central bankers are adjusting monetary policies to address mounting credit market issues. In the initial stages of the health crisis, households did not experience the same kind of wealth losses they saw during the 2008-2009 financial crisis when the value of their primary residence dropped sharply. However, with unemployment numbers rising rapidly, job losses could result in defaults on mortgages and delinquencies on rent payments, unless financial institutions provide loan forbearance or there is a mechanism to provide financial assistance. In turn, mortgage defaults could negatively affect the market for mortgage-backed securities, the availability of funds for mortgages, and negatively affect the overall rate of economic growth. Losses in the value of most equity markets in the U.S. Asia, and Europe could also affect household wealth, especially retirees living on a fixed income and others who own equities. Investors that trade in mortgage-backed securities reportedly have been reducing their holdings while the Federal Reserve has been attempting to support the market.17 In the current environment, even traditional policy tools, such as monetary accommodation, apparently have not been processed by markets in a traditional manner, with equity market indices displaying heightened, rather than lower, levels of uncertainty following the Federal Reserve's cut in interest rates. Such volatility is adding to uncertainties about what governments can do to address weaknesses in the global economy. Between late February and early April, 2020, financial markets from the United States to Asia and Europe have been whipsawed as investors have grown concerned that COVID-19 would create a global economic and financial crisis with few metrics to indicate how prolonged and extensive the economic effects may be.18 Investors have searched for safe-haven investments, such as the benchmark U.S. Treasury 10-year security, which experienced a historic drop in yield to below 1% on March 3, 2020.19 In response to concerns that the global economy was in a freefall, the Federal Reserve lowered key interest rates on March 3, 2020, to shore up economic activity, while the Bank of Japan engaged in asset purchases to provide short-term liquidity to Japanese banks; Japan's government indicated it would also assist workers with wage subsidies. The Bank of Canada also lowered its key interest rate. The International Monetary Fund (IMF) announced that it was making about $50 billion available through emergency financing facilities for low-income and emerging market countries and funds available through its Catastrophe Containment and Relief Trust (CCRT).20Similar to the 2007-2009 global financial crisis, central banks are implementingThe OECD estimates that increased direct and indirect economic costs through global supply chains reduced demand for goods and services, and declines in tourism and business travel mean that, "the adverse consequences of these developments for other countries (non-OECD) are significant."11 Global trade, measured by trade volumes, slowed in the last quarter of 2019 and was expected to decline further in 2020, as a result of weaker global economic activity associated with the pandemic, which is negatively affecting economic activity in various sectors, including airlines, hospitality, ports, and the shipping industry.12
|
Figure 1. Dow Jones Industrial Average February 14, 2020 to |
 |
|
Source: Financial Times. |
Source: Financial Times.
Similar to conditions during the 20072008-2009 financial crisis, however, the dollar has emerged as the preferred currency by investors, givenreinforcing its role as the dominant global reserve currency. As indicated in Figure 2, the dollar appreciated more than 3.0% during the period between March 3, and March 13, 2020, reflecting increased international demand for the dollar and dollar-denominated assets. According to a recent survey by the Bank for International Settlements (BIS),1322 the dollar accounts for 88% of global foreign exchange market turnover and is key in funding an array of financial transactions, including serving as an invoicing currency facilitatingto facilitate international trade, accounting. It also accounts for two-thirds of central bank foreign exchange holdings, half of non-U.S. banks foreign currency deposits, and two-thirds of non-U.S. corporate borrowings from banks and the corporate bond market.1423 As a result, disruptions in the smooth functioning of the global dollar market can have wide-ranging repercussions on international trade and financial transactions.
The international role of the dollar also increases pressure on the Federal Reserve essentially to assume the lead role as the global lender of last resort. Similar to conditions during the 2007-2009Reminiscent of the financial crisis, the global economy has experienced a period of dollar shortage, requiring the Federal Reserve to take numerous steps to ensure the supply of dollars to the U.S. and global economies. , including activating existing currency swap arrangements, establishing such arrangements with additional central banks, and creating new financial facilities to provide liquidity to central banks and monetary authorities.24 Typically, banks lend long-term and borrow short-term and can only borrow from their home central bank. In turn, central banks can only provide liquidity in their own currency. Consequently, a bank can become illiquid in a panic, meaning it cannot borrow in private markets to meet short-term cash flow needs. Swap lines are designed to allow foreign central banks the funds necessary to provide needed liquidity to their country's banks in dollars. The pandemic is also affecting global politics as world leaders are cancelling international meetings1525 and some nations reportedly are stoking conspiracy theories that shift blame to other countries.1626
|
Figure 2. U.S. Dollar Trade-Weighted Broad Index, Goods and Services |
 |
|
Source: St. Louis Federal Reserve Bank. Notes: January 2006 = 100. |
The challenge for policymakers is to implement targeted policies that address what has been expected to be short-term problems without creating distortions in economies that can outlast the impact of the virus itself. Policymakers, however, are being overwhelmed by the quickly changing nature of the global health crisis that appears to be turning into a global trade and economic crisis whose potential effects on the global economy are rapidly growing. If the economic effects of the pandemic continue to grow, policymakers are likely to give more weight to policies that address the immediate economic effects at the expense of longer-term considerations. Initially, many policymakers felt constrained in their ability to respond to the crisis, with limited flexibility for monetary and fiscal support within conventional standards, given the broad-based synchronized slowdown in global economic growth, especially in manufacturing and trade, which had developed prior to the viral outbreak.
|
Comparing the Current Crisis and the 2008 Crisis Sharp declines in the stock market and broader financial sector turbulence; interest rate cuts and large-scale Federal Reserve intervention; and discussions of massive government stimulus packages have led some observers to compare the current market reaction to that experienced a little over a decade ago. There are similarities and important differences between the current economic crisis and the global financial crisis of 2008/2009. Foremost, the earlier crisis was rooted in structural weakness in the U.S. financial sector. Following the collapse of the U.S. housing bubble, it became impossible for firms to identify demand and hold inventories (across many sectors (construction, retail, etc.). This led to massive oversupply and sharp retail losses which extended to other sectors of the U.S. economy and eventually the global economy. Moreover, financial markets across countries were linked together by credit default swaps. As the crisis unfolded, large numbers of banks and other financial institutions were negatively affected, raising questions about capital sufficiency and reserves. The crisis, then quickly engulfed credit-rating agencies, mortgage lending companies and the real estate industry broadly. Market resolution came gradually with a range of monetary and fiscal policy measures that were closely coordinated at the global level. These were focused on putting a floor under the falling markets, stabilizing banks, and shoring up investor confidence to get spending started again. Starting in September 2007, The Federal Reserve cut interest rates from over 5% in September 2007 to between 0 and 0.25% before the end of the 2008. Once interest rates approached zero, the Fed turned to other so-called "unconventional measures," including targeted assistance to financial institutions, encouraging Congress to pass the Troubled Asset Relief Program (TARP) to prevent the collapse of the financial sector and boost consumer spending. Other measures included swap arrangements between the Federal Reserve and the European Central Bank and smaller central banks, and so-called "quantitative easing" to boost the money supply. On a global level, the United States and other countries tripled the resources of the IMF (from $250 billion to $750 billion) and coordinated domestic stimulus efforts. Unlike the 2008 crisis, the current crisis began as a supply shock. As the global economy has become more interdependent in recent decades, most products are produced as part of a global value chain (GVC), where an item such as a car or mobile device consists of parts manufactured all over the world, and involving multiple border crossings before final assembly. The earliest implications of the current crisis came in January as plant closures in China and other parts of Asia led to interruptions in the supply chain and concerns about dwindling inventories. As the virus spread from Asia to Europe, the crisis switched from supply concerns to a broader demand crisis as the measures being introduced to contain the spread of the virus (social distancing, travel restrictions, cancelling sporting events, closing shops and restaurants, and mandatory quarantine measures) prevent most forms of economic activity from occurring. Thus, unlike the 2008 crisis response, which involved liquidity and solvency-related policy measures to get people spending again, the current crisis did not start as a financial crisis, but could evolve into one if a recovery in economic activity is delayed. While larger firms may have sufficient capital to wait out a crisis, many aspects of the economy (such as restaurants or retail operations) operate on very tight margins and would likely not be able to pay employees after closures lasting more than a few days. Many people will also need to balance child care and work during quarantine or social distancing measures. During this type of crisis, while monetary policy measures play a part -- and the Federal Reserve has once again cut rates to near zero -- they cannot compensate for the physical interaction that the global economy is dependent upon. As a result, fiscal stimulus will likely play a relatively larger role in this crisis in order to prevent personal and corporate bankruptcies during the peak crisis period. Efforts to coordinate U.S. and foreign economic policy measures will also have an important role in mitigating the scale and length of any global economic downtown. |
Estimated Economic Effects
The economic situation remains highly fluid. Uncertainty about the length and depth of the health crisis-related economic effects are fueling perceptions of risk and volatility in financial markets and corporate decision-making. In addition, uncertainties concerning the global pandemic and the effectiveness of public policies intended to curtail its spread are adding to market volatility.
Before the Covid-19 outbreak, the global economy was struggling to regain a broad-based recovery as a result of the lingering impact of growing trade protectionism, trade disputes among major trading partners, falling commodity and energy prices, and economic uncertainties in Europe over the impact of the UK withdrawal from the European Union. Individually, each of these issues presented a solvable challenge for the global economy. Collectively, however, the issues weakened the global economy and reduced the available policy flexibility of many national leaders, especially among the leading developed economies. In this environment, Covid-19 could have an outsized impact. While the level of economic effects will eventually become clearer, the response to the pandemic could have a significant and enduring impact on the way businesses organize their work forces, global supply chains, and how governments respond to a global health crisis.17
The OECD estimates that increased direct and indirect economic costs through global supply chains reduced demand for goods and services, and declines in tourism and business travel mean that, "the adverse consequences of these developments for other countries (non-OECD) are significant."18 Global trade, measured by trade volumes, slowed in the last quarter of 2019 and was expected to decline further in 2020, as a result of weaker global economic activity associated with the pandemic, which is negatively affecting economic activity in various sectors, including airlines, hospitality, ports, and the shipping industry.19
In addition, the OECD argues that China's emergence as a global economic actor marks a significant departure from previous global health episodes. China's growth, in combination with globalization and the interconnected nature of economies through capital flows, supply chains, and foreign investment, magnify the cost of containing the spread of the virus through quarantines and restrictions on labor mobility and travel.20 China's global economic role and globalization mean that trade is playing a role in spreading the economic effects of Covid-19. More broadly, the economic effects of the pandemic are affecting the global economy through three trade channels: (1) directly through supply chains as reduced economic activity is spread from intermediate goods producers to finished goods producers; (2) as a result of a drop overall in economic activity, which reduces demand for goods in general, including imports; and (3) through reduced trade with commodity exporters that supply producers, which, in turn, reduces their imports and negatively affects trade and economic activity of exporters.
Initially, the economic effects of the virus were expected to be short-term supply issues as factory output fell because workers were quarantined to reduce the spread of the virus through social interaction. The drop in economic activity, initially in China, has had international repercussions as firms experienced delays in supplies of intermediate and finished goods through supply chains. Concerns have grown, however, that the virus-related supply shock is creating more prolonged and wide-ranging demand shocks as reduced activity by consumers and businesses lead to a lower rate of economic growth. As demand shocks unfold, businesses experience a decline in activity, reduced profits, and potentially escalating and binding credit and liquidity constraints. While manufacturing firms are experiencing supply chain shocks, reduced consumer activity through social distancing is affecting the services sector of the economy, which accounts for two-thirds of annual U.S. economic output. In this environment, manufacturing and service firms are hoarding cash, which affects market liquidity. In response, central banks have lowered interest rates where possible and expanded lending facilities to provide liquidity to financial markets and to firms potentially facing insolvency.
If the economic effects persist, they can be spread through trade and financial linkages to an ever-broadening group of countries, firms and households. This potentially can further increase liquidity constraints and credit market tightening in global financial markets as firms hoard cash, with negative fallout effects on economic growth. In some financial markets, fund managers reportedly are selling government securities to increase their cash reserves. At the same time, financial markets are factoring in an increase in government bond issuance in the United States and Europe as government debt levels are set to rise to meet spending obligations during an expected economic recession and increased fiscal spending to fight the effects of Covid-19. Unlike the 2008-2009 financial crisis, reduced demand by consumers, labor market issues, and a reduced level of activity among businesses, rather than risky trading by global banks, has led to corporate credit issues and potential insolvency. These market dynamics have led some observers to question if these events mark the beginning of a full-scale global financial crisis.21
Liquidity and credit market issues present policymakers with a different set of challenges than addressing supply-side constraints. As a result, the focus of government policy has expanded from a health crisis to macroeconomic and financial market issues that are being addressed through a combination of monetary, fiscal, and other policies, including border closures, quarantines, and restrictions on social interactions. Essentially, while businesses are attempting to address worker and output issues at the firm level, national leaders are attempting to implement fiscal policies to prevent economic growth from falling sharply by assisting workers and businesses that are facing financial strains, and central bankers are adjusting monetary policies to address mounting credit market issues.
So far, households have not experienced the same kind of loss in wealth they saw during the 2007-2009 financial crisis when the value of their primary residence dropped sharply. Losses in the value of most equity markets in the U.S. Asia, and Europe, however, could affect household wealth, especially retirees living on a fixed income those and others who own equities. Job losses also could result in defaults on mortgage payments, which could have a negative impact on the market for mortgage-backed securities and, in turn, on the availability of funds for mortgages. Investors that trade in mortgage-backed securities reportedly have been reducing their holdings while the Federal Reserve has been attempting to support the market.22 In the current environment, even traditional policy tools, such as monetary accommodation, apparently are not being processed by markets in a traditional manner, with equity market indices displaying heightened, rather than lower, levels of uncertainty following the Federal Reserve's cut in interest rates. Such volatility is adding to uncertainties about what governments can do to address weaknesses in the global economy.
Policy Response
In response to growing concerns over the global economic impact of the pandemic, G-7 finance ministers and central bankers released a statement on March 3, 2020, indicating they will "use all appropriate policy tools" to sustain economic growth.23 The Finance Ministers also pledged fiscal support to ensure health systems can sustain efforts to fight the outbreak.24 In most cases, however, countries have pursued their own divergent strategies, in some cases including banning exports of medical equipment. Following the G-7 statement, the U.S. Federal Reserve (Fed) lowered its federal funds rate by 50 basis points, or 0.5%, to a range of 1.0% to 1.25% due to concerns about the "evolving risks to economic activity of the coronavirus."25 At the time, the cut was the largest one-time reduction in the interest rate by the Fed since the financial crisis of 2008.
After a delayed response, other central banks have begun to follow the actions of the G-7 countries. Most central banks have lowered interest rates and acted to increase liquidity in their financial systems through a combination of measures, including lowering capital buffers and reserve requirements, creating temporary lending facilities for banks and businesses, and easing loan terms. In addition, national governments have adopted various fiscal measures to sustain economic activity. In general, these measures include making payments directly to households, temporarily deferring tax payments, extending unemployment insurance, and increasing guarantees and loans to businesses.
See the Appendix to this report for detailed information about the policy actions by governments.26
The United States
In a sign of growing concern over strains in financial markets and economic growth, the Federal Reserve (Fed) has taken a number of steps to promote economic and financial stability involving the Fed's monetary policy and "lender of last resort" roles. Some of these actions are intended to stimulate economic activity by reducing interest rates and others are intended to provide liquidity to financial markets so that firms have access to needed funding. In announcing its decisions, the Fed indicated that "….The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States. Global financial conditions have also been significantly affected.27"
Monetary Policy 28
yield on U.S. Treasury securities dropped to historic levels on March 6, 2020, and March 9, 2020, as investors continued to move out of stocks and into Treasury securities and other sovereign bonds, including UK and German bonds, due in part to concerns over the impact the pandemic would have on economic growth and expectations the Federal Reserve and other central banks would lower short-term interest rates.27 On March 5, the U.S. Congress passed an $8 billion spending bill to provide assistance for health care, sick leave, small business loans, and international assistance. At the same time, commodity prices dropped sharply as a result of reduced economic activity and disagreements among oil producers over production cuts in crude oil and lower global demand for commodities, including crude oil.
The drop in some commodity prices has raised concerns about corporate profits and has led some investors to sell equities and buy sovereign bonds. In overnight trading in various sessions between March 8, and March 24, U.S. stock market indexes moved sharply (both higher and lower), triggering automatic circuit breakers designed to halt trading if the indexes rise or fall by more than 5% when markets are closed and 7% when markets are open.28 By early April, the global mining industry had reduced production by an estimated 20% in response to falling demand and labor quarantines and as a strategy to raise prices.29
Ahead of a March 12, 2020, scheduled meeting of the European Central Bank (ECB), the German central bank (Deutsche Bundesbank) announced a package of measures to provide liquidity support to German businesses and financial support for public infrastructure projects.30 At the same time, the Fed announced that it was expanding its repo market transactions (in the repurchase market, investors borrow cash for short periods in exchange for high-quality collateral like Treasury securities) after stock market indexes fell sharply, government bond yields fell to record lows (reflecting increased demand), and demand for corporate bonds fell. Together these developments raised concerns for some analysts that instability in stock markets could threaten global financial conditions.31
On March 11, as the WHO designated COVID-19 a pandemic, governments and central banks adopted additional monetary and fiscal policies to address the growing economic impact. European Central Bank (ECB) President-designate Christine Lagarde in a conference call to EU leaders warned that without coordinated action, Europe could face a recession similar to the 2008-2009 financial crisis.32 The Bank of England lowered its key interest rate, reduced capital buffers for UK banks, and provided a funding program for small and medium businesses. The UK Chancellor of the Exchequer also proposed a budget that would appropriate £30 billion (about $35 billion) for fiscal stimulus spending, including funds for sick pay for workers, guarantees for loans to small businesses, and cuts in business taxes. The European Commission announced a €25 billion (about $28 billion) investment fund to assist EU countries and the Federal Reserve announced that it would expand its repo market purchases to provide larger and longer-term funding to provide added liquidity to financial markets.
President Trump imposed restrictions on travel from Europe to the United States on March 12, 2020, surprising European leaders and adding to financial market volatility.33 At its March 12 meeting, the ECB announced €27 billion (about $30 billion) in stimulus funding, combining measures to expand low-cost loans to Eurozone banks and small and medium-sized businesses and implement an asset purchase program to provide liquidity to firms. Germany indicated that it would provide tax breaks for businesses and "unlimited" loans to affected businesses. The ECB's Largarde roiled markets by stating that it was not the ECB's job to "close the spread" between Italian and German government bond yields (a key risk indicator for Italy), a comment reportedly interpreted as an indicator the ECB was preparing to abandon its support for Italy, a notion that was denied by the ECB.34 The Fed also announced that it would further increase its lending in the repo market and its purchases of Treasury securities to provide liquidity. As a result of tight market conditions for corporate bonds, firms turned to their revolving lines of credit with banks to build up their cash reserves. The price of bank shares fell, reflecting sales by investors who reportedly had grown concerned that banks would experience a rise in loan defaults.35 Despite the various actions, the DJIA fell by nearly 10% on March 12, recording the worst one-day drop since 1987. Between February 14 and March 12, the DJIA fell by more than 8,000 points, or 28% of its value. Credit rating agencies began reassessing corporate credit risk, including the risk of firms that had been considered stable.36
On March 13, President Trump declared a national emergency, potentially releasing $50 billion in disaster relief funds to state and local governments. The announcement moved financial markets sharply higher, with the DJIA rising 10%.37 Financial markets also reportedly moved higher on expectations the Fed would lower interest rates. House Democrats and President Trump agreed to a $2 trillion spending package to provide sick leave, unemployment insurance, food stamps, support for small businesses, and other measures.38 The EU indicated that it would relax budget rules that restrict deficit spending by EU members. In other actions, the People's Bank of China cut its reserve requirements for Chinese banks, potentially easing borrowing costs for firms and adding $79 billion in funds to stimulate the Chinese economy; Norway's central bank reduced its key interest rate; the Bank of Japan acquired billions of dollars of government securities (thereby increasing liquidity); and the Reserve Bank of Australia injected nearly $6 billion into its financial system.39 The Bank of Canada also lowered its overnight lending rate.
The Federal Reserve lowered its key interest rate to near zero on March 15, 2020, arguing that the pandemic had "harmed communities and disrupted economic activity in many countries, including the United States" and that it was prepared to use its "full range of tools."40 It also announced an additional $700 billion in asset purchases, including Treasury securities and mortgage-backed securities, expanded repurchase operations, activated dollar swap lines with Canada, Japan, Europe, the UK, and Switzerland, opened its discount window to commercial banks to ease household and business lending, and urged banks to use their capital and liquidity buffers to support lending.41
Despite the Fed's actions the previous day to lower interest rates, interest rates in the U.S. commercial paper market, where corporations raise cash by selling short-term debt, rose on March 16, 2020, to their highest levels since the 2008-2009 financial crisis as investors called on the Federal Reserve to intervene.42 The DJIA dropped nearly 3,000 points, or about 13%. Most automobile manufacturers announced major declines in sales and production;43 similarly, most airlines reported they faced major cutbacks in flights and employee layoffs due to diminished economic activity.44 Economic data from China indicated the economy would slow markedly in the first quarter of 2020, potentially greater than that experienced during the global financial crisis.45 The Bank of Japan announced that it would double its purchases of exchange traded funds. The G-7 countries46 issued a joint statement promising "a strongly coordinated international approach," although no specific actions were mentioned. The IMF issued a statement indicating its support for additional fiscal and monetary actions by governments and that the IMF "stands ready to mobilize its $1 trillion lending capacity to help its membership." The World Bank also promised an additional $14 billion to assist governments and companies address the pandemic.47
Following the drop in equity market indexes the previous day, the Federal Reserve unveiled a number of facilities on March 17, 2020, in some cases reviving actions it had not taken since the financial crisis. It announced that it would allow the 24 primary dealers in Treasury securities to borrow cash collateralized against some stocks, municipal debt, and higher-rated corporate bonds; revive a facility to buy commercial paper; and provide additional funding for the overnight repo market.48 The UK government proposed government-backed loans to support business; a three-month moratorium on mortgage payments for homeowners; a new lending facility with the Bank of England to provide low-cost commercial paper to support lending; and loans for businesses.
In an emergency session on March 18, the ECB announced a Pandemic Emergency Purchase Program to acquire an additional €750 billion (over $820 billion) in bond purchases.49 The ECB also broadened the types of assets it would accept as collateral for non-financial commercial paper and eased collateral standards for banks.50 The Federal Reserve broadened its central bank dollar swap lines to include Brazil, Mexico, Australia, Denmark, Norway, and Sweden. Automobile manufacturers announced they were suspending production at an estimated 100 plants across North America, following similar plant closures in Europe.51 Major U.S. banks announced a moratorium on share repurchases, or stock buy-backs, denying equity markets a major source of support and potentially amplifying market volatility.52 During the week, more than 22 central banks in emerging economies, including Brazil, Turkey, and Vietnam, lowered their key interest rates.
By March 19, 2020, investors had begun selling sovereign and other bonds as firms and other financial institutions attempted to increase their cash holdings, although actions central banks took during the week appeared to calm financial markets. Compared to previous financial market dislocations in which stock market values declined while bond prices rose, stock and bond values fell at the same time in March 2020 as investors reportedly adopted a "sell everything" mentality to build up cash reserves.53 Senate Republicans introduced the Coronavirus Aid, Relief, and Economic Security Act to provide $1 trillion in spending to support the U.S. economy.
By the close of trading on March 20, the DJIA index had fallen by 17% from March 13. At the same time, the dollar continued to gain in value against other major currencies and the price of oil dropped close to $20 per barrel on March 20, as indicated in Figure 3. The Federal Reserve announced that it would expand a facility to support the municipal bond market. Britain's Finance Minister announced an "unprecedented" fiscal package to pay up to 80% of an employee's wages and deferring value added taxes by businesses.54 The ECB's Largarde justified actions by the Bank during the week to provide liquidity by arguing that the "coronavirus pandemic is a public health emergency unprecedented in recent history." Market indexes fell again on March 23 as the Senate continued to debate the parameters of a new spending bill to support the economy. Oil prices also continued to fall as oil producers appeared to be in a standoff over cuts to production.Figure 3. Brent Crude Oil Price Per Barrel in Dollars Source: Markets Insider.
Financial markets continued to fall on March 23, 2020, as market indexes reached their lowest point since the start of the pandemic crisis. The Federal Reserve announced a number of new facilities to provide an unlimited expansion in bond buying programs. The measures include additional purchases of Treasury and mortgage-backed securities; additional funding for employers, consumers, and businesses; establishing the Primary Market Corporate Credit Facility (PMCCF) to support issuing new bonds and loans and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds; establishing the Term Asset-Backed Securities Loan Facility (TALF), to support credit to consumers and businesses; expanding the Money Market Mutual Fund Liquidity Facility (MMLF) to provide credit to municipalities; and expanding the Commercial Paper Funding Facility (CPFF) to facilitate the flow of credit to municipalities.55 The OECD released a statement encouraging its members to support "immediate, large-scale and coordinated actions." These actions include (1) more international cooperation to address the health crisis; (2) coordinated government actions to increase spending to support health care, individuals, and firms; (3) coordinated central bank action to supervise and regulate financial markets; (4) and policies directed at restoring confidence.56
Reacting to the Fed's actions, the DJIA closed up 11% on March 24, marking one of the sharpest reversals in the market index since February 2020. European markets, however, did not follow U.S. market indexes as various indicators signaled a decline in business activity in the Eurozone that was greater than that during the financial crisis and indicated the growing potential for a deep economic recession.57 U.S. financial markets were buoyed on March 25 and 26 over passage in the Congress of a $2.2 trillion economic stimulus package.
On March 27, leaders of the G-20 countries announced through a video conference they had agreed to inject $5 trillion into the global economy and to do "whatever it takes to overcome the pandemic." Also at the meeting, the OECD offered an updated forecast of the viral infection, which projected that the global economy could shrink by as much as 2% a month. Nine Eurozone countries, including France, Italy, and Spain called on the ECB to consider issuing "coronabonds," a common European debt instrument to assist Eurozone countries fight against COVID-19.58 The ECB announced that it was removing self-imposed limits followed in previous asset purchase programs that restricted its purchases of any one country's bonds.59 Japan announced that it would adopt an emergency sending package worth $238 billion, or equivalent to 10% of Japan annual GDP.60 Despite the various actions, global financial markets turned down March 27 (the DJIA dropped by 900 points) reportedly over volatility in oil markets and concerns that the economic effects of the COVID-19 pandemic were worsening.61
By March 30, central banks in developing countries from Poland, Columbia, South Africa, the Philippines, Brazil, and the Czech Republic reportedly began adopting monetary policies similar to that of the Federal Reserve to stimulate their economies.62 In commodity markets, Brent oil prices continued to fall, reaching a low of $22.76. Strong global demand for dollars continued to put upward pressure on the international value of the dollar. In response, the Federal Reserve introduced a new temporary facility that would work with its swap lines to allow central banks and international monetary authorities to enter into repurchase agreements with the Fed.63 In March and early April, U.S. workers' claims for unemployment benefits reached over 17 million as firms facing a collapse in demand and requirements for employees to self-quarantine began furloughing or laying off employees. Financial markets began to recover somewhat in early April in response to the accumulated monetary and fiscal policy initiatives, but remained volatile as a result of uncertainty over efforts to reach an output agreement among oil producers and the continued impact of the viral health effects.
The Federal Reserve announced on April 8 that it was establishing a facility to fund small businesses through the Paycheck Protection Program. Japan also announced that it was preparing to declare areas around Tokyo to be in a state of emergency and that it would adopt a $989 billion funding package.64
On April 9, OPEC and Russia reportedly agreed to cut oil production by 10 million barrels per day; G-20 ministers were set to discuss the agreement on April 10.65 Eurozone finance ministers also announced a €500 billion (about $550 billion) emergency spending package to support governments, businesses, and workers. The spending measure will be considered by EU leaders the following week. Reportedly, the measure will provide funds to the European Stability Mechanism, the European Investment Bank, and for unemployment insurance.66 The IMF announced that it was doubling its emergency lending capability to $100 billion, in response to requests from more than 90 countries for assistance.67 The Bank of England announced that it would take the unprecedented move of temporarily directly financing UK government emergency spending needs through monetary measures rather than through the typical method of issuing securities to fight the effects of COVID-19.68
Federal Reserve Chairman Jerome Powell, stating that the U.S. economy was deteriorating "with alarming speed," announced that the Fed would provide an additional $2.3 trillion in loans, including a new financial facility to assist firms by acquiring shares in exchange traded funds that own the debt of lower-rated, riskier firms that are among the most exposed to deteriorating economic conditions associated with COVID-19 and low oil prices.69 The U.S. Labor Department reported that 6.6 million Americans filed for unemployment insurance the previous week, raising the total since mid-March to over 17 million.70
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Comparing the Current Crisis and the 2008 Crisis Sharp declines in the stock market and broader financial sector turbulence; interest rate cuts and large-scale Federal Reserve intervention; and discussions of massive government stimulus packages have led some observers to compare the current market reaction to that experienced a little over a decade ago. There are similarities and important differences between the current economic crisis and the global financial crisis of 2008/2009. Foremost, the earlier crisis was rooted in structural weakness in the U.S. financial sector. Following the collapse of the U.S. housing bubble, it became impossible for firms to identify demand and hold inventories across many sectors (construction, retail, etc.). This led to massive oversupply and sharp retail losses which extended to other sectors of the U.S. economy and eventually the global economy. Moreover, financial markets across countries were linked together by credit default swaps. As the crisis unfolded, large numbers of banks and other financial institutions were negatively affected, raising questions about capital sufficiency and reserves. The crisis then quickly engulfed credit-rating agencies, mortgage lending companies, and the real estate industry broadly. Market resolution came gradually with a range of monetary and fiscal policy measures that were closely coordinated at the global level. These were focused on putting a floor under the falling markets, stabilizing banks, and shoring up investor confidence to get spending started again. Starting in September 2007, the Federal Reserve cut interest rates from over 5% in September 2007 to between 0 and 0.25% before the end of the 2008. Once interest rates approached zero, the Fed turned to other so-called "unconventional measures," including targeted assistance to financial institutions, encouraging Congress to pass the Troubled Asset Relief Program (TARP) to prevent the collapse of the financial sector and boost consumer spending. Other measures included swap arrangements between the Federal Reserve and the European Central Bank and smaller central banks, and so-called "quantitative easing" to boost the money supply. On a global level, the United States and other countries tripled the resources of the IMF (from $250 billion to $750 billion) and coordinated domestic stimulus efforts. Unlike the 2008 crisis, the current crisis began as a supply shock. As the global economy has become more interdependent in recent decades, most products are produced as part of a global value chain (GVC), where an item such as a car or mobile device consists of parts manufactured all over the world, and involving multiple border crossings before final assembly. The earliest implications of the current crisis came in January as plant closures in China and other parts of Asia led to interruptions in the supply chain and concerns about dwindling inventories. As the virus spread from Asia to Europe, the crisis switched from supply concerns to a broader demand crisis as the measures being introduced to contain the spread of the virus (social distancing, travel restrictions, cancelling sporting events, closing shops and restaurants, and mandatory quarantine measures) prevent most forms of economic activity from occurring. Thus, unlike the 2008 crisis response, which involved liquidity and solvency-related policy measures to get people spending again, the current crisis did not start as a financial crisis, but could evolve into one if a recovery in economic activity is delayed. While larger firms may have sufficient capital to wait out a crisis, many aspects of the economy (such as restaurants or retail operations) operate on very tight margins and would likely not be able to pay employees after closures lasting more than a few days. Many people will also need to balance child care and work during quarantine or social distancing measures. During this type of crisis, while monetary policy measures play a part—and the Federal Reserve has once again cut rates to near zero—they cannot compensate for the physical interaction that the global economy is dependent upon. As a result, fiscal stimulus will likely play a relatively larger role in this crisis in order to prevent personal and corporate bankruptcies during the peak crisis period. Efforts to coordinate U.S. and foreign economic policy measures will also have an important role in mitigating the scale and length of any global economic downtown. |
In response to growing concerns over the global economic impact of the pandemic, G-7 finance ministers and central bankers released a statement on March 3, 2020, indicating they will "use all appropriate policy tools" to sustain economic growth.71 The Finance Ministers also pledged fiscal support to ensure health systems can sustain efforts to fight the outbreak.72 In most cases, however, countries have pursued their own divergent strategies, in some cases including banning exports of medical equipment. Following the G-7 statement, the U.S. Federal Reserve (Fed) lowered its federal funds rate by 50 basis points, or 0.5%, to a range of 1.0% to 1.25% due to concerns about the "evolving risks to economic activity of the COVID-19."73 At the time, the cut was the largest one-time reduction in the interest rate by the Fed since the global financial crisis.
After a delayed response, other central banks have begun to follow the actions of the G-7 countries. Most central banks have lowered interest rates and acted to increase liquidity in their financial systems through a combination of measures, including lowering capital buffers and reserve requirements, creating temporary lending facilities for banks and businesses, and easing loan terms. In addition, national governments have adopted various fiscal measures to sustain economic activity. In general, these measures include making payments directly to households, temporarily deferring tax payments, extending unemployment insurance, and increasing guarantees and loans to businesses.
See the Appendix to this report for detailed information about the policy actions by individual governments.74 The United StatesIn a sign of growing concern over strains in financial markets and economic growth, the Federal Reserve (Fed) has taken a number of steps to promote economic and financial stability involving the Fed's monetary policy and "lender of last resort" roles. Some of these actions are intended to stimulate economic activity by reducing interest rates and others are intended to provide liquidity to financial markets so that firms have access to needed funding. In announcing its decisions, the Fed indicated that "[t]he COVID-19 outbreak has harmed communities and disrupted economic activity in many countries, including the United States. Global financial conditions have also been significantly affected.75" On March 31, 2020, the Trump Administration announced that it was suspending for 90 days tariffs it had placed on imports of apparel and light trucks from China, but not on other consumer goods and metals.76
Monetary Policy77Forward Guidance
Forward guidance refers to Fed public communications on its future plans for short-term interest rates, and it took many forms following the 2008 financial crisis. As monetary policy returned to normal in recent years, forward guidance was phased out. It is being used again today. For example, when the Fed reduced short-term rates to zero on March 15, it announced that it "expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals."
Quantitative Easing
Large-scale asset purchases, popularly referred to as quantitative easing or QE, were also used during the financial crisis. Under QE, the Fed expanded its balance sheet by purchasing securities. Three rounds of QE from 2009 to 2014 increased the Fed's securities holdings by $3.7 trillion.
On March 23, the Fed announcedannounced that it would increase its purchases of Treasury securities and mortgage-backed securities (MBS)—including commercial MBS—issued by government agencies or government-sponsored enterprises to "the amounts needed to support smooth market functioning and effective transmission of monetary policy.... " These would be undertaken at the unprecedented rate of up to $125 billion daily during the week of March 23. As a result, the value of the Fed's balance sheet is projected to exceed its post-financial crisis peak of $4.5 trillion. One notable difference from previous rounds of QE is that the Fed is purchasing securities of different maturities, so the effect likely will not be concentrated on long-term rates.
Actions to Provide Liquidity
Reserve Requirements
On March 15, the Fed announced that it was reducing reserve requirements—the amount of vault cash or deposits at the Fed that banks must hold against deposits—to zero for the first time everever. As the Fed noted in its announcement, because bank reserves are currently so abundant, reserve requirements "do not play a significant role" in monetary policy.
Term Repos
The Fed can temporarily provide liquidity to financial markets by lending cash through repurchase agreements (reposrepos) with primary dealers (i.e., large government securities dealers who are market makers). Before the financial crisis, this was the Fed's routine method for targeting the federal funds rate. Following the financial crisis, the Fed's large balance sheet meant that repos were no longer needed, until they were revived in September 2019. On March 12, the Fed announcedannounced it would offer a three-month repo of $500 billion and a one-month repo of $500 billion on a weekly basis through the end of the month in addition to the shorter-term repos it had already been offering. These repos would be larger and longer than those offered since September.
Discount Window
In its March 15 announcement, the Fed encouragedDiscount Window
In its March 15 announcement, the Fed encouraged banks (insured depository institutions) to borrow from the Fed's discount window to meet their liquidity needs. This is the Fed's traditional tool in its "lender of last resort" function. The Fed also encouraged banks to use intraday credit available through the Fed's payment systems as a source of liquidity.
Foreign Central Bank Swap Lines
Both domestic and foreign commercial banks rely on short-term borrowing markets to access U.S. dollars needed to fund their operations and meet their cash flow needs. But in an environment of strained liquidity, only banks operating in the United States can access the discount window. Therefore, the Fed has standing "swap lines" with major foreign central banks to provide central banks with U.S. dollar funding that they can in turn lend to private banks in their jurisdictions. On March 15, the Fed reducedreduced the cost of using those swap lines and on March 19 it extended swap lines to nine more central banks.
Emergency Credit Facilities for the Nonbank Financial System
In 2008, the Fed created a series of emergency credit facilities to support liquidity in the nonbank financial system. This extended the Fed's traditional role as lender of last resort from the banking system to the overall financial system for the first time since the Great Depression. To create these facilities, the Fed relied on its emergency lending authority (Section 13(3) of the Federal Reserve Act). To date, the Fed has created six facilities—some new, and some reviving 2008 facilities—in response to COVID-19.
- On March 17, the Fed
revivedrevived the commercial paper funding facility to purchase commercial paper, which is an important source of short-term funding for financial firms, nonfinancial firms, and asset-backed securities (ABS). - Like banks, primary dealers are heavily reliant on short-term lending markets in their role as securities market makers. Unlike banks, they cannot access the discount window. On March 17, the Fed
revivedrevived the primary dealer credit facility, which is akin to a discount window for primary dealers. Like the discount window, it provides short-term, fully collateralized loans to primary dealers. - On March 19, the Fed
createdcreated the Money Market Mutual Fund Liquidity Facility (MMLF), similar to afacilityfacility created during the 2008 financial crisis. The MMLF makes loans to financial institutions to purchase assets that money market funds are selling to meet redemptions. - On March 23, the Fed created two facilities to support corporate bond markets—the Primary Market Corporate Credit Facility to purchase newly issued corporate debt and the Secondary Market Corporate Credit Facility to purchase existing corporate debt on secondary markets.
- On March 23, the Fed revived the Term Asset-Backed Securities Loan Facility to make nonrecourse loans to private investors to purchase ABS backed by various nonmortgage consumer loans.
Many of these facilities are structured as special purpose vehicles controlled by the Fed because of restrictions on the types of securities that the Fed can purchase. Although there were no losses from these facilities during the financial crisis, assets of the Treasury's Exchange Stabilization Fund have been pledged to backstop any losses on several of the facilities today.
Fiscal Policy
In terms of a fiscal stimulus, Congress H.R. 6074 on March 5, 2020 (P.L. 116-123), to appropriate $8.3 billion in emergency funding to support efforts to fight CovidCOVID-19; President Trump signed the measure on March 6, 2020. President Trump also signed on March 18, H.R. 6201 (P.L. 116-127), the Families First CoronavirusCOVID-19 Response Act, that provides paid sick leave and free coronavirusCOVID-19 testing, expands food assistance and unemployment benefits, and requires employers to provide additional protections for health care workers. Other countries have indicated they will also provide assistance to workers and to some businesses. Congress also is considering other possible measures, including contingency plans for agencies to implement offsite telework for employees, financial assistance to the shale oil industry, a reduction in the payroll tax,2979 and extended of the tax filing deadline.3080 President Trump has taken additional actions, including:
- Announcing on March 11, 2020, restrictions on all travel from Europe to the United States for 30 days, directed the Small Business Administration (SBA) to offer low-interest loans to small businesses, and directed the Treasury Department to defer tax payments penalty-free for affected businesses.
3181 - Declaring on March 13, a state of emergency that frees up disaster relief funding to assist state and local governments to address the effects of the pandemic. The President also announced additional testing for the virus, a website to help individuals identify symptoms, increased oil purchases for the Strategic Oil Reserve, and a waiver on interest payments on student loans.
3282 - Invoking on March 18, 2020, the Defense Production Act (DPA) that gives him the authority to require some U.S. businesses to increase production of medical equipment and supplies that are in short supply.
33
83On March 19, the Senate introduced a bill, the Coronavirus25, 2020, the Senate adopted the COVID-19 Aid, Relief, and Economic Security Act (S. 3548), to formally considerimplement President Trump's proposal by providing direct payments to taxpayers, loans and guarantees to airlines and other industries, and assistance for small businesses, actions similar to those of various foreign governments. The bill, set to be adopted March 25, 2020, would:
ProvideHouse adopted the measure as H.R. 748 on March 27, and President Trump signed the measure (P.L. 116-136) on March 27. The law:Provides funding for $1,200 tax rebates to individuals, with additional $500 payments per qualifying child. The rebate begins phasing out when incomes exceed $75,000 (or $150,000 for joint filers).AssistAssists small businesses by providing funding for, forgivable bridge loans; and additional funding for grants and technical assistance; authorizes emergency loans to distressed businesses, including air carriers, and suspends certain aviation excise taxes.CreateCreates a $367 billion loan program for small businesses, establish a $500 billion lending fund for industries, cities and states, a $150 billion for state and local stimulus funds, and $130 billion for hospitals.IncreaseIncreases unemployment insurance benefits, expand eligibility and offer workers an additional $600 a week for four month, in addition to state unemployment programs. 84
EstablishesEstablishspecial rules for certain tax-favored withdrawals from retirement plans; delays due dates for employer payroll taxes and estimated tax payments for corporations; and revise other provisions, including those related to losses, charitable deductions, and business interest.ProvideProvides additional funding for the prevention, diagnosis, and treatment of COVID-19; limit liability for volunteer health care professionals; prioritize Food and Drug Administration (FDA) review of certain drugs; allow emergency use of certain diagnostic tests that are not approved by the FDA; expand health-insurance coverage for diagnostic testing and requires coverage for preventative services and vaccines; and revise other provisions, including those regarding the medical supply chain, the national stockpile, the health care workforce, the Healthy Start program, telehealth services, nutrition services, Medicare, and Medicaid.- Temporarily
suspendsuspends payments for federal student loans and revise provisions related to campus-based aid, supplemental educational-opportunity grants, federal work-study, subsidized loans, Pell grants, and foreign institutions. AuthorizeAuthorizes the Department of the Treasury temporarily to guarantee money-market funds.
For additional information about the impact of CovidCOVID-19 on the U.S. economy see CRS Insight IN11235, COVID-19: Potential Economic Effects.3485
Europe
To date, European countries have not had the kind of synchronized policy response they developed during the 2008-2009 global financial crisis. Instead, they have used a combination of fiscal policies and bond buying by the ECB. Individual countries have adopted quarantines and required business closures, travel and border restrictions, tax holidays for businesses, extensions of certain payments and loan guarantees, and subsidies for workers and businesses. The economic effects of the pandemic reportedly are having a significant impact on business activity in Europe, with some indexes falling farther then they had during the height of the financial crisis and others indicating that Europe may well experience a deep economic recession in 2020.35 86 France, Germany, Italy, Spain, and the UK reported steep drops in industrial activity in March 2020. EU countries have issued travel warnings, banning all but essential travel across borders, raising concerns that even much-needed medical supplies could stall at borders affected by traffic backups.36
The European Commission announced that it was relaxing rules on government debt to allow countries more flexibility in using fiscal policies. The European Central Bank (ECB) announced that it was ready to take "appropriate and targeted measures," if needed. France, Italy, Spain and six other Eurozone countries have argued for creating a "coronabond," a joint common European debt instrument. Similar attempts to create a common Eurozone-wide debt instrument have been opposed by Germany and the Netherland, among other Eurozone members.3789 With interest rates already low, however, it indicated that it would expand its program of providing loans to EU banks, or buying debt from EU firms, and possibly lowering its deposit rate further into negative territory in an attempt to shore up the Euro's exchange rate.3890 ECB President-designate Christine Lagarde called on EU leaders to take more urgent action to avoid the spread of CovidCOVID-19 triggering a serious economic slowdown. The European Commission indicated that it was creating a $30 billion investment fund to address CovidCOVID-19 issues.3991 In other actions:
- On March 12, 2020, the ECB decided to: (1) expand its longer-term refinance operations (LTRO) to provide low-cost loans to Eurozone banks to increase bank liquidity; (2) extend targeted longer-term refinance operations (TLTRO) to provide loans at below-market rates to businesses, especially small and medium-sized businesses, directly affected by
CovidCOVID-19; (3) provide an additional €120 billion (about $130 billion) for the Bank's asset purchase program to provide liquidity to firms that was in addition to €20 billion a month it previously had committed to purchasing.4092 - On March 13, 2020, financial market regulators in the UK, Italy, and Spain intervened in stock and bond markets to stabilize prices after historic swings in indexes on March 12, 2020.
4193 In addition, the ECB announced that it would do more to assist financial markets in distress, including altering self-imposed rules on purchases of sovereign debt.4294 - Germany's Economic Minister announced on March 13, 2020, that Germany would provide unlimited loans to businesses experiencing negative economic activity (initially providing $555 billion), tax breaks for businesses,
4395 and export credits and guarantees.4496 - On March 18, the ECB indicated that it would: create a €750 billion (about $800 billion) Pandemic Emergency Purchase Program to purchase public and private securities; expand the securities it will purchase to include nonfinancial commercial paper; and ease some collateral standards.
4597 In announcing the program, President-designate Lagarde indicated that the ECB would, "do everything necessary." In creating the program, the ECB removed or significantly loosened almost all constraints that applied to previous asset-purchase programs, including a self-imposed limit of buying no more one-third of any one country's eligible bonds, a move that should benefit Italy. - The ECB also indicated that it would make available up to €3 trillion in liquidity through refinancing operations.
4698 Britain ($400 billion) and France ($50 billion) also announced plans to increase spending to blunt the economic effects of the virus. Recent forecasts indicate that the economic effect ofCovidCOVID-19 could push the Eurozone into an economic recession in 2020.4799 - On March 23, 2020, Germany announced that it would adopt a €750 billion (over $800 billion) package in economic stimulus funding.
The United Kingdom
The Bank of England announced on March 11, 2020, that it would adopt a package of four measures to deal with any economic disruptions associated with CovidCOVID-19. The measures include: an unscheduled cut in the benchmark interest rate by 50 basis points (0.5%) to a historic low of 0.25%; reintroducethe reintroduction of the Term Funding Scheme for Small and Medium-sized Enterprises (TFSME) that provides banks with over $110 billion for loans at low interest rates; lowera lowering of banks' countercyclical capital buffer to zero percent, which is estimated to support over $200 billion of bank lending to businesses; and freezea freeze in banks' dividend payments.48100
UK Chancellor of the Exchequer Rishi Sunak proposed a national budget on March 11, 2020, that includes nearly $3.5 billion in fiscal spending to counter adverse economic effects of the pandemic and includes an increase in statutory sick leave by about $2.5 billion in funds to small and medium businesses to provide up to 14 days of sick leave for affected employees. The plan also proposes to give affected workers up to 80% of their salary, or up to £2,500 a month (about $2,800) if they are laid off. Some estimates indicate that UK spending to support its economy could rise to about $60 billion this year.49101 Prime Minister Johnson also announced that all pubs, cafés, restaurants, theatres, cinemas, nightclubs, gyms and leisure centers would be closed.50102 Part of the fiscal spending package includes open-ended funding for the National Health Service (NHS), $6 billion in emergency funds to the NHS, $600 million hardship fund to assist vulnerable people, and tax cuts and tax holidays for small businesses in certain affected sectors.51103 The Bank of England also reduced its main interest rate and supplied the financial markets with additional liquidity.52
Japan
The Bank of Japan, with already-low interest rates, injected $4.6 billion in liquidity into Japanese banks to provide short-term loans for purchases of corporate bonds and commercial paper and twice that amount into exchange traded funds to aid Japanese businesses. The Japanese government also pledged to provide wage subsidies for parents forced to take time off due to school closures.53105 On March 24, 2020, Japan announced that the Summer Olympics set to take place in Tokyo would be postponed by a year, delaying an expected boost to the Japanese economy that was expected from the event.
China
According to a recent CRS InFocus, 54106 China's economic growth could go negative in the first quarter of 2020 and fall below 5% for the year, with more serious effects if the outbreak continues. In early February, China's central bank pumped $57 billion into the banking system, capped banks' interest rates on loans for major firms, and extended deadlines for banks to curb shadow lending. The central bank has been setting the reference rate for China's currency stronger than its official close rate to keep it stable. On March 13, 2020, The People's Bank of China announced that it would provide $78.8 billion in funding, primarily to small businesses, by reducing bank's reserve requirements.55
The International Monetary Fund (IMF) is providing funding to poor and emerging market economies that are short on financial resources.56108 If the economic effects of the virus persist, countries may need to be proactive in coordinating fiscal and monetary policy responses, similar to actions taken by of the G-20 following the 2008-2009 global financial crisis.
Multilateral Response
International Monetary Fund
The IMF initially announced that it is making available about $50 billion for the global crisis response.57109 Following a G20 ministerial call on March 23, IMF Managing Director Kristalina Georgieva announced that the Fund stands ready to deploy all of its $1trillion1 trillion capacity. The Fund is also exploring options to quickly raise financing foremost of which is finalizing agreement on a 2019 agreement to renew and augment the IMF's New Arrangements to Borrow (NAB), a credit line that augments IMF quota resources. Other options to increase IMF resources include a new allocation of special drawing rights (SDRs), sale of IMF gold holdings, selling IMF bonds, developing an expanded network of central bank swap arrangements centered at the IMF.
For low-income countries, the IMF is providing rapid-disbursing emergency financing of up to $10 billion (50% of quota of eligible members) that can be accessed without a full-fledged IMF program. Other IMF members can access emergency financing through the Fund's Rapid Financing Instrument (RFI). This facility could provide about $40 billion for emerging markets facing fiscal pressures from COVID-19. Separate from these resources, the IMF has a Catastrophe Containment and Relief Trust (CCRT), which provides eligible countries with up-front grants for relief on IMF debt service falling due. The CCRT was used during the 2014 Ebola outbreak, but is now underfunded, according to IMF Managing Director Georgieva with just over $200 million available against possible needs of over $1 billion. 58110 On March 11, 2020, the United Kingdom announced that it will contribute £150 million (about $170 million) to the CCRT. To date, the United States has not contributed to the CCRT.59
World Bank and Regional Development Banks
The World Bank announced that it is making up to $12 billion in financing ($8 billion of which is new) immediately available to help impacted developing countries.60112 This support comprises up to $2.7 billion in new financing from the International Bank for Reconstruction and Development (IBRD), the World Bank's market-rate lending facility for middle-income developing countries, and $1.3 billion from the International Development Association (IDA), the World Bank's concessional facility for low-income countries. In addition, the Bank is reprioritizing $2 billion of the Bank's existing portfolio. The International Finance Corporation (IFC), the Bank's private-sector lending arm is making available up to $6 billion. According to the Bank, support will cover a wide range of activities, including strengthening health services and primary health care, bolstering disease monitoring and reporting, training front line health workers, encouraging community engagement to maintain public trust, and improving access to treatment for the poorest patients.
Several years ago, the World Bank introduced pandemic bonds, a novel form of catastrophe financing.61113 The Bank sold two classes of bonds worth $320 million in a program designed to provide financing to developing countries facing an acute epidemic crisis if certain triggers are met. Once these conditions are met, bondholders no longer receive interest payments on their investments, the money is no longer repaid in full, and funds are used to support the particular crisis. In the case of CovidCOVID-19, for the bonds to be triggered, the epidemic must be continuing to grow 12 weeks after the first day of the outbreak. Critics have raised a range of concerns about the bonds, arguing that the terms are too restrictive and that the length of time needs to be shortened before triggering the bonds.62114 Others stress that the proposal remains valid – shifting the cost of pandemic assistance from governments to the private sector, especially in light of the failure of past efforts to rally donor support to establish multilateral pandemic funds.
The Asian Development Bank (ADB) has approved a total of $4 million to help developing countries in Asia and the Pacific.63115 Of the total, $2 million is for improving the immediate response capacity in Cambodia, China, Laos, Myanmar, Thailand, and Vietnam; $2 million will be available to all ADB developing member countries in updating and implementing their pandemic response plans. The ADB also provided a private sector loan of up to $18.6 million to Wuhan-based Jointown Pharmaceutical Group Co. Ltd. to enhance the distribution and supply of essential medicines and protective equipment.
International Economic Cooperation
On March 16, 2020, the leaders of the G-7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) held an emergency summit by teleconference to discuss and coordinate their policy responses to the economic fallout from the global spread of CovidCOVID-19. In the joint statement released by the G-7 leaders after the emergency teleconference summit, the leaders stressed they are committed to doing "whatever is necessary to ensure a strong global response through closer cooperation and enhanced cooperation of efforts."64116 The countries pledged to coordinate research efforts, increase the availability of medical equipment; mobilize "the full range" of policy instruments, including monetary and fiscal measures as well as targeted actions, to support workers, companies, and sectors most affected by the spread of CovidCOVID-19; task the finance ministers to coordinate on a weekly basis, and direct the IMF and the World Bank Group, as well as other international organizations, to support countries worldwide as part of a coordinated global response.65117
News reports indicate that Saudi Arabia, the 2020 chair of the G-20, intends to call an emergency G-20 summit in coming days.66118 The G-20 is a broader group of economies, including the G-7 countries and several major emerging markets.67119 During the global financial crisis, world leaders decided that henceforth the G-20 would be the premiere forum for international economic cooperation. Some analysts have been surprised that the G-7 has been in front of the G-20 in responding to CovidCOVID-19, while other analysts have questioned whether the larger size and diversity of economies in the G-20 can make coordination more difficult.68
Analysts are hopeful that the recent G-7 summit, and movement towards a G-20 summit, will mark a shift towards greater international cooperation at the highest (leader) levels in combatting the economic fallout from the spread of CovidCOVID-19.69121 An emergency meeting of G-7 finance ministers on March 3, 2020, fell short of the aggressive and concrete coordinated action that investors and economists had been hoping for, and U.S. and European stock markets fell after the meeting.70122 More generally, governments have been divided over the appropriate response and in some cases have acted unilaterally, particularly when closing borders and imposing export restrictions on medical equipment and medicine. Some experts argue that a large, early, and coordinated response is needed to address the economic fallout from CovidCOVID-19, but several concerns loom about the G-20's ability to deliver.71123 Their concerns focus on the Trump Administration's prioritization of an "America First" foreign policy over one committed to multilateralism; the 2020 chair of the G-20, Saudi Arabia, is embroiled in its own domestic political issues and oil price war; and U.S.-China tensions make G-20 consensus more difficult.
Meanwhile, international organizations including the IMF and multilateral development banks, have tried to forge ahead with economic support given their current resources. Additionally, the Financial Stability Board (FSB), an international body including the United States that monitors the global financial system and makes regulations to ensure stability, released a statement on March 20, 2020 that its members are actively cooperating to maintain financial stability during market stress related to CovidCOVID-19.72124 The FSB is encouraging governments to use flexibility within existing international standards to provide continued access to funding for market participants and for businesses and households facing temporary difficulties from CovidCOVID-19, while noting that many FSB members have already taken action to release available capital and liquidity buffers.
Estimated Effects on Developed and Major Economies
Among most developed and major developing economies, economic growth at the beginning of 2020 was tepid, but still was estimated to be positive. Countries highly dependent on trade—Canada, Germany, Italy, Japan, Mexico, and South Korea—and commodity exporters are now projected to be the most negatively affected by the slowdown in economic activity associated with the virus.73125 In addition, travel bans and quarantines are taking a heavy economic toll on a broad range of countries. The OECD notes that production declines in China have spillover effects around the world given China's role in producing computers, electronics, pharmaceuticals and transport equipment, and as a primary source of demand for many commodities.74
In early January 2020, before the coronavirusCOVID-19 outbreak, economic growth in developing economies as a whole was projected by the International Monetary Fund (IMF) to be slightly more positive than in 2019. This outlook was based on progress being made in U.S.-China trade talks that were expected to roll back some tariffs and an increase in India's rate of growth. Growth rates in Latin America and the Middle East were also projected to be positive in 2020.75128 These projections likely will be revised downward due to the slowdown in global trade associated with CovidCOVID-19, lower energy and commodity prices, an increase in the foreign exchange value of the dollar, and other secondary effects that could curtail growth. Commodity exporting countries, in particular, likely will experience a greater slowdown in growth than forecasted in earlier projections as a result of a slowdown on trade with China and lower commodity prices.
Emerging Markets
The combined impact of CovidCOVID-19, an increase in the value of the dollar, and an oil price war between Saudi Arabia and Russia are hitting developing and emerging economies hard. Not all of these countries have the resources or policy flexibility to respond effectively. According to figures compiled by the Institute for International Finance (IIF), cumulative capital outflows from developing countries since January 2020 are double the level experienced during the 2008/2009 crisis and substantially higher than recent market events (Figure 3).76
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The impact of the price war and lower energy demand associated with a CovidCOVID-19-related economic slowdown is especially hard on oil and gas exporters, some of whose currencies are at record lows (Figure 45). Oil importers, such as South Africa and Turkey, have also been hit hard; South Africa's rand has fallen 18%77130 against the dollar since the beginning of 2020 and the Turkish lira has lost 8.5%.78
Depending on individual levels of foreign exchange reserves and the duration of the capital flow slowdown, some countries may have sufficient buffers to weather the slowdown, while others will likely need to make some form of current account adjustment (reduce spending, raise taxes, etc.). Several countries, such as Iran and Venezuela, have already asked the IMF for financial assistance and others are likely to follow.79133 (Venezuela's request was quickly rebuffed due to disagreement among the IMF membership over who is recognized as Venezuela's legitimate leader: Nicolás Maduro or Juan Guaidó.80134)
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Source: Created by CRS. Data from Bloomberg. |
Looming Debt Crises
CovidCOVID-19 could trigger a wave of defaults around the world.81135 In Q3 2019—before the outbreak of CovidCOVID-19—global debt levels reached an all-time high of nearly $253 trillion, about 320% of global GDP.82136 About 70% of global debt is held by advanced economies and about 30% is held by emerging markets. Globally, most debt is held by nonfinancial corporations (29%), governments (27%) and financial corporations (24%), followed by households (19%). Debt in emerging markets has nearly doubled since 2010, primarily driven by borrowing from state-owned enterprises.
High debt levels make borrowers vulnerable to shocks that disrupt revenue and inflows of new financing. The disruption in economic activity associated with CovidCOVID-19 is a wide-scale exogenous shock that will make it significantly more difficult for many private borrowers (corporations and households) and public borrowers (governments) around the world to repay their debts. CovidCOVID-19 has hit the revenue of corporations in a range of industries: factories are ceasing production, brick-and-mortar retail stores and restaurants are closing, commodity prices have plunged (Bloomberg commodity price index—a basket of oil, metals, and food prices—has dropped 27% since the start of the year and is now at its lowest level since 1986), and overseas and in some cases domestic travel is being curtailed.83137
Households are facing a rapid increase in unemployment and, in many developing countries, a decline in remittances. With fewer resources, corporations and households may default on their debts, absent government intervention. These defaults will result in a decline in bank assets, making it difficult for banks to extend new loans during the crisis or, more severely, creating solvency problems for banks. Meanwhile, many governments are dramatically increasing spending to combat the pandemic, and are likely to face sharp reductions in revenue, putting pressure on public finances and raising the likelihood of sovereign (government) defaults. Debt dynamics are particularly problematic in emerging economies, where debt obligations denominated in foreign currencies (usually U.S. dollars). Many emerging market currencies have depreciated since the outbreak of the pandemic, raising the value of their debts in terms of local currency.
Governments will face difficult choices if there is a widespread wave of defaults. Most governments have signaled a commitment to or already implemented policies to support those economically impacted by the pandemic. These governments face decisions about the type of assistance to provide (loans versus direct payments), the amount of assistance to provide, how to allocate rescue funds, and what conditions if any to attach to funds. In terms of defaults by governments (sovereign defaults), emergency assistance is generally provided by the IMF, and sometimes paired with additional rescue funds from other governments on a bilateral basis. The IMF and other potential donor countries will need to consider whether the IMF has adequate resources to respond to the crisis, how to allocate funding if the demand for funding exceeds the amount available, what conditions should be attached to rescue funding, and whether IMF programs should be paired with a restructuring of the government's debt ("burden sharing" with private investors).
Other Affected Sectors
Public concerns over the spread of the virus have led to self-quarantines, reductions in airline and cruise liner travel, the closing of such institutions as the Louvre, and the rescheduling of theatrical releases of movies, including the sequel in the iconic James Bond series (titled, "No Time to Die").84138 School closures are affecting millions of1.5 billion children worldwide, challenging parental leave policies.85139 Other countries are limiting the size of public gatherings.
Some businesses are considering new approaches to managing their workforces and work methods. These techniques build on, or in some places replace, such standard techniques as self-quarantines and travel bans. Some firms are adopting an open-leave policy to ensure employees receive sick pay if they are, or suspect they are, infected. Other firms are adopting paid sick leave policies to encourage sick employees to stay home and are adopting remote working policies.86140 Microsoft and Amazon have instructed all of their Seattle-based employees to work from home until the end of March 2020.87
The drop in business and tourist travel is causing a sharp drop in scheduled airline flights by as much as 10%; airlines are estimating they could lose $113 billion in 2020 (an estimate that could prove optimistic given the Trump Administration's announced restrictions on flights from Europe to the United States and the growing list of countries that ae similarly restricting flights),88142 while airports in Europe estimate they could lose $4.3 billion in revenue due to fewer flights.89143 Industry experts estimate that many airlines will be in bankruptcy by May 2020 under current conditions as a result of travel restrictions imposed by a growing number of countries.90144 The loss of Chinese tourists is another economic blow to countries in Asia and elsewhere that have benefitted from the growing market for Chinese tourists and the stimulus such tourism has provided.
The decline in industrial activity has reduced demand for energy products such as crude oil, causing prices to drop sharply, which negatively affects energy producers, renewable energy producers, and electric vehicle manufacturers, but generally is positive for consumers and businesses. Saudi Arabia is pushing other OPEC (Organization of the Petroleum Exporting Countries) members collectively to reduce output by 1.5 million barrels a day to raise market prices. U.S. shale oil producers, who are not represented by OPEC, support the move to raise prices.91145 An unwillingness by Russia to agree to output reductions added to other downward pressures on oil prices and caused Saudi Arabia to engage in a price war with Russia that has driven oil prices below $3025 per barrel, well below at times, half the estimated $50 per barrel break-even point for most oil producing countries.92146 Rising oil supplies and falling demand are combining to create an estimated surplus of 25 million barrels a day and could soon overwhelm storage capacity and challenge the viability of U.S. shale oil production.147 In 2019, low energy prices combined with high debt levels reportedly caused U.S. energy producers to reduce their spending on capital equipment, reduced their profits and, in some cases, led to bankruptcies.93148 Reportedly, in late 2019 and early 2020, bond and equity investors, as well as banks, reduced their lending to shale oil producers and other energy producers that typically use oil and gas reserves as collateral.94
Disruptions to industrial activity in China reportedly are causing delays in shipments of computers, cell phones, toys, and medical equipment.95150 Factory output in China, the United States, Japan, and South Korea all declined in the first months of 2020.96151 Reduced Chinese agricultural exports, including to Japan, are leading to shortages in some commodities. In addition, numerous auto producers are facing shortages in parts and other supplies that have been sourced in China. Reductions in international trade have also affected ocean freight prices. Some freight companies argue that they could be forced to shutter if prices do not rebound quickly.97152 Disruptions in the movements of goods and people reportedly are causing some companies to reassess how international they want their supply chains to be.98153 According to some estimates, nearly every member of the Fortune 1000 is being affected by disruptions in production in China.99
Conclusions
The quickly evolving nature of the CovidCOVID-19 crisis creates a number of issues that make it difficult to estimate the full cost to global economic activity. These issues include, but are not limited to:
- How long will the crisis last?
- How many workers will be affected both temporarily and permanently?
- How many countries will be infected and how much economic activity will be reduced?
- When will the economic effects peak?
- How much economic activity will be lost as a result of the viral outbreak?
- What are the most effective monetary and fiscal policies at the national and global level to address the crisis?
- What temporary and permanent effects will the crisis have on how businesses organize their work forces?
- Many of the public health measures taken by countries such as Italy, Taiwan, South Korea, Hong Kong, and China have sharply impacted their economies (with plant closures, travel restrictions, and so forth). How are the tradeoffs between public health and the economic impact of policies to contain the spread of the virus being weighed?
Appendix. Table A-1. Select Measures Implemented and Announced by Major Economies in Response to CovidCOVID-19
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U.S. Federal Reserve March 3: Cut the target range for the federal funds rate by 0.5 percentage point. March 12: Expanded reverse repo operations, adding $1.5 trillion of liquidity to the banking system. March 15: Cut the target range for the federal funds rate by a full percentage point to a range of 0.00% to 0.25% and restarted quantitative easing with the purchase of at least $500 billion in Treasury securities and $200 billion in mortgage-backed securities. March 16: Increased reverse repo operations by another $500 billion. March 17: U.S. Treasury Secretary Mnuchin approved the Federal Reserve's creation of a "Commercial Paper Funding Facility," (CPFF) through March 17, 2021, which will allows the Fed to create a corporation which can purchase commercial paper, short-term, unsecured loans made by businesses for everyday expenses and authorized up to $10 billion from the Treasury to help cover loan losses incurred under this program. March 17: Relaunched the Primary Dealer Credit Facility (PDCF) for at least six months. Starting March 20, the PDCF will offer short-term loans to banks secured by collateral such as municipal bonds or investment-grade corporate debt. March 18: Launched the Money Market Mutual Fund Liquidity Facility (MMLF) through the end of September, a new program to lend money to banks so they can purchase assets from money market funds. Treasury is offering up to $10 billion to cover loan losses the Fed incurs from the program. March 23: Announced a series of measures designed to stabilize markets, enhance liquidity and stimulate growth. The measures included the roll out of 2 new facilities, the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds. The FOMC removed its caps on planned QE purchases and will now purchase Treasuries and agency mortgage-backed securities "in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy." U.S. Congress March 5: Passed, and the President signed, a bill providing $8.3 billion in emergency funding for federal agencies to respond to the March 13: The House of Representatives passed a March 19: The Senate introduced the Trump Administration March 13: President Trump declared a state of emergency, allowing the Federal Government to distribute up to $50 billion in aid to states, cities, and territories. March 17: The Internal Revenue Service postponed the April 15 tax-payment deadline for 90 days and will waive interest and penalties. (The extension and waiver is available only to individuals and corporations that owe $1 million or $10 million or less, respectively.) March 30: Some Members of the House of Representatives announced they had begun work on a fourth COVID-19 bill targeting a number of issues, including short supplies of medical equipment and protective gear to enhance worker protections, infrastructure needs, and additional payments to individuals. Trump Administration March 13: President Trump declared a state of emergency, allowing the Federal Government to distribute up to $50 billion in aid to states, cities, and territories. March 17: The Internal Revenue Service postponed the April 15 tax-payment deadline for 90 days and will waive interest and penalties. (The extension and waiver is available only to individuals and corporations that owe $1 million or $10 million or less, respectively.) March 17: Administration officials begin negotiations with Members of Congress on a third stimulus package. March 31: President Trump calls for $2 trillion infrastructure spending, possibly as part of fourth COVID-19 stimulus bill. Albania The Bank of Albania March 25: Cut its benchmark interest rate to a record-low 0.5% and its one-day lending rate to 0.9% on to help lending in the economy affected by the COVID-19 outbreak. It also announced that it would inject unlimited liquidity into the banking sector, ensure the normal functioning of the electronic payments system, and that, together with the government, it had agreed to postpone until the end of May all loan repayments by businesses and individuals facing difficulties due to the outbreak. Government of Albania |
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Argentina |
Central Bank of Argentina March 19: Indicated that it would lower reserve requirements for banks that extended special credit lines to small and medium-sized enterprises at a maximum annual interest rate of 24% in a bid to offset the impact of Government of Argentina March 19: Announced a fiscal stimulus package of 700 billion pesos ($11.3 billion) to mitigate the impact of the COVID-19 and support the economy. The main measures include providing credit to productive activities (350 billion pesos), increasing public investments (100 billion pesos), and waiving payroll taxes for firms affected by the |
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Armenia |
March 17: The Central Bank of Armenia cut its key refinancing rate by 25 basis points to 5.25% from 5.5% due to the effects of the |
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Australia |
Reserve Bank of Australia March 3: Cut its benchmark interest rate by 25 basis points to 0.5% due to the significant effect of the March 19: Cut its cash rate by 25 basis points to 0.25% and and introduced a series of measures: (1) targeting the 3-year government bond yield at 0.25% via purchases in the secondary market, (2) providing a three-year term funding facility to authorized deposit-taking institutions worth at least AU$90 billion at a fixed rate of 0.25%, aiming to support credit to small and medium-sized enterprises, (3) fixing the exchange settle balances at the central bank at 10 basis points. It will also continue to provide liquidity by conducting one-month and three-month repo operations until further notice. Longer-term repo operations of six-month maturity or longer would be undertaken at least weekly. The central bank also set out forward guidance, saying that it will not increase the cash rate until progress is made towards full employment and confident that inflation is sustainably within its target band. March 19: Through its daily money market operation, it has injected cash into the banking system (through repurchasing agreements), aiming to ease liquidity constraints in the stressed bond market: AU$12.7 billion (March 19), AU$10.7 billion (March 18), AU$8.8 (March 17), AU$5.9 billion (March 16), and AU$8.8 (March 13). Government of Australia March 12: March 16: The Australian Securities and Investments Commission ordered large equity market participants to reduce their number of executed trades by 25% from the levels executed on March 13, 2020, until further notice. March 19: Announced that the Australian Office of Financial Management (AOFM) will be provided with an investment capacity of $15 billion to enable smaller lenders to continue supporting Australian consumers and small businesses. (AOFM will be able to purchase residential mortgage backed securities and invest in a range of other asset backed securities and warehouse facilities over the next 12 months.) March 22: Announced an additional AU$66.4 billion ($38.5 billion) fiscal package, which extends income support measures for existing welfare and newly unemployed workers, and boosted previously announced measures for businesses such as cash flow and wage subsidies. The government is also expected to give local businesses AU$100,000 if the company has a turnover of less than AU$50 million each year and underwrite 50% of up AU$40 billion in loans offered by local lenders to small and medium sized companies. March 30: Unveiled an economic package of AU$130 billion ($79.85 billion) to subsidize the wages of an estimated 6 million people, marking a third tranche of stimulus designed to limit the fallout of the COVID-19 pandemic on the country's economy. The "job keeper" allowance, which would bring the country's COVID-19-related stimulus so far to A$320 billion (about 15% of Australia's gross domestic product), will provide eligible companies with AU$1,500 every fortnight for six months for each employee. Any company that lost 30% of its revenue can apply for the funds. |
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Austria |
March 18: |
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Bosnia and Herzegovina |
March 17: The prime minister met with the IMF Resident Representative in Bosnia to request assistance from the IMF. The IMF indicated that it may extend a 165 million euros ($181 million) loan to Bosnia under a Rapid Financing Instrument (RFI) to finance the increasing costs sustained by the country's health system in combating COVID-19. |
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Brazil |
Central Bank of Brazil March 18: Cut its benchmark interest rate by 50 basis points to 3.75% to cushion the economic blow of the Government of Brazil March 16: Announced a fiscal stimulus package of 147.1 billion reais ($28.6 billion) to mitigate the impact of the March 16: The National Monetary Council (CMN) approved the measures that will allow banks to (1) increase loans and offer better terms to firms and households over the next six months and (2) extend certain loan maturities for the next six months. It also lowered capital requirements for banks. April 1: Announced that it will cut the IOF financial tax for 90 days. It will be temporary and cost 7 billion reais. It will also extend the deadline for submitting the 2019 base year net income report to June 30 from April 30 and allow companies to postpone payment of certain tax contributions for two months and reduce wages by up to 70% (or the minimum wage) for three months, among other measures.
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Bulgaria
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Government of Bulgaria March 30: Announced it will spend more than 1 billion levs ($566 million) to pay part of workers' salaries in companies whose operations have been hit by the COVID-19 crisis, part of part of an overall 4.5 billion-lev package. March 31: Announced plans to raise the ceiling on new debt it can raise to 10 billion levs due to the COVID-19 pandemic.
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Cambodia Government of Cambodia March 5: Announced that it would allocate $30 million to finance Cambodia's COVID-19 screening and monitoring efforts. March 10: Allocated between $800 million to $2 billion to address the economic impacts of the novel COVID-19 outbreak. |
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Canada |
Bank of Canada March 4: Lowered its target for the overnight rate by 50 basis points to 1.25% (setting the bank rate to 1.5% and the deposit rate to 1%). March 12: Announced that it will broaden the scope of the current Government of Canada bond buyback program and temporarily add new Term Repo operations. March 13: Lowered its benchmark overnight rate to 1.25% from 1.75% in response to the epidemic. March 13: Announced its intention to launch the Bankers' Acceptance Purchase Facility (BAPF), starting the week of March 23, 2020, in an effort to support the continuous functioning of financial markets; it will conduct secondary market purchases of one-month Bankers' Acceptances issued and guaranteed by any Canadian bank and of sufficiently high quality. BAPF operations will be conducted weekly with the purchase amount and reserve rate being adjusted to reflect market conditions. (For the first operation, the Bank of Canada will purchase up to $10 billion of one-month Bankers' Acceptances with a reserve rate of the overnight index swap rate plus 20 basis points.) March 16: Announced that it will broaden eligible collateral for its term repo facility and increase purchases of mortgage-backed securities (Canada Mortgage Bonds). March 27: Cut its overnight interest rate by 50 basis points to 0.25%, its lowest level since June 2010 and the third cut in March, to support an economy hit hard by the outbreak of COVID-19. It also announced that it would begin purchases of CA$5 billion per week of Government of Canada securities in the secondary market. Canadian Government March 6: Announced an investment of CA$27 million to fund March 11: Unveiled CA$1 billion ($750 million) in funding for vaccine research and health measures. March 13: Established a Business Credit Availability Program (BCAP) to support financing in the private sector through the Business Development Bank of Canada (BDC) and Export Development Canada (EDC); it will allow BDC and EDC to provide more than $10 billion of additional support to businesses. March 13: The Office of the Superintendent of Financial Institutions (OSFI) lowered the Domestic Stability Buffer requirement for domestic systemically important banks by 1.25% of risk weighted assets; it will increase the lending capacity of Canada's large banks and support the supply of credit to the economy by more than CA$300 billion. March 25: Almost doubled the value of an aid package previously announced to help people and businesses deal with losses from the COVID-19 outbreak, from CA$27 billion to CA$52 billion ($36.6 billion). It will give people affected by the outbreak CA$2,000 a month, delay student loan repayments, and defer tax payments, among other measures to boost the economy. |
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Chile |
Central Bank of Chile March 16: Cut its benchmark rate by 75 basis points to 1% March 31: Cut its benchmark interest rate by 50 basis points to 0.50% amid the COVID-19 pandemic. Government of Chile March 19: |
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China |
People's Bank of China (PBOC) February 3: Expanded reverse repo operations by $174 billion; added another $71 billion on February 4. February 16: Cut the one-year medium-term lending facility rate by 10 basis points. February 20: Cut the one-year and five-year prime rates by 10 and 5 basis points, respectively. March 13: Lowered bank reserve requirements, freeing up about $79 billion to be PRC Government February: Asked banks to extend the terms of business loans and commercial landlords to reduce rents. February 24: The Asian Infrastructure Investment Bank (AIIB) contributed $1 million in medical equipment to help China control the spread of COVID-19. February 27: Announced a number of tax relief measures to tackle March: Earmarked $15.9 billion to fight the epidemic. March 21: Announced that it would cut fees on a large scale to stimulate private-sector investment and also accelerate the development of "new infrastructure" to help spur the economy. March 19: March 27: The Communist Party's Politburo announced that it would step up macroeconomic policy changes and pursue more proactive fiscal policy. It called for expanding the budget deficit, issuing more local and national bonds, guiding interest rates lower, delaying loan repayments, reducing supply-chain bottlenecks and boosting consumption. |
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Colombia |
Central Bank of Colombia March 18: Government of Colombia March 18: |
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Congo-Kinshasa (Democratic Republic of the Congo) |
March 24: The Central Bank of the Congo cut its base interest rate to 7.5% from 9.0% in order to cushion the economic impact of the |
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Cyprus |
Government of Cyprus March 15: March 23: |
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Czech Republic |
Czech National Bank March 16: The Czech National Bank lowered its main two-week repo rate by 50 basis points to 1.75%, reversing its February rate hike to combat the hit from the virus outbreak. It also raised the number of repo operations that provide liquidity to banks to three times a week from once, noting that bids would be met with zero spread to the repo rate. March 17: Revised the countercyclical capital buffer for exposures located in the Czech Republic to 1.75 %. March 26: Cut its main two-week repo rate by 75 basis points to 1.00% and announced that it was ready to cut interest rates further if needed. Government of the Czech Republic March 9: Adopted a number of economic measures, which will include providing 100 billion CZK ($3.9 billion) in direct support and 900 billion CZK ($34.8 billion) in indirect in the form of guarantees to maintain the employment rate, paying out (through the respective employers) 60% of the average contribution base to employees affected by the quarantine, supporting employers who continue, despite their businesses being shut down, to pay out 100% of the salary to affected employees by covering 80% of salary costs (up to 1.2 billion CZK), and allocating 10 billion CZK ($390 million) to the Czech-Moravian Guarantee and Development Bank for immediate granting of interest-free loans with a one-year deferral with the possibility of a two-year extension for businesses affected by the March 13: Extended the deadline for the filing of tax returns until 1 July and waived fines stemming from the late submission of tax declarations or reports. March 13: The Czech Banking Association (ČBA) will allow banks to voluntarily extend the deadlines on loan and mortgage payments. March 23: April 1: Announced that it had approved a scheme for a moratorium of up to six months on consumer, company, and mortgage loan payments to help the country through the COVID-19 crisis. Denmark Danmarks Nationalbank March 12: Released banks' emergency buffer and will be offering low interest rate loans to banks. March 26: Injected $2.85 billion in loans to Danish banks and financial institutions by auctioning off U.S. dollars in two loans with a maturity date on April 8 and June 19 and a cut-off rate of 0.32 and 0.34, respectively. April 1: Sold $750 million worth of its mint 30-year government bonds in an auction that was held a month early to expedite funding of aid packages due to COVID-19 that is expected to cost the state more than 60 billion Danish crowns ($8.8 billion). Government of Denmark | |||
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Denmark |
Danmarks Nationalbank March 12: Released banks' emergency buffer and will be offering low interest rate loans to banks. Government of Denmark
March 12: March 18: March 31: Announced that it will postpone by three months around 200,000 companies' deadline of end-May to submit their annual reports in an effort to help companies affected by the COVID-19 outbreak. |
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Egypt |
Central Bank of Egypt March 16: Cut by 300 basis points both the overnight lending rate (from 13.25% to 10.25%) and the overnight deposit rate (from 12.25% to 9.25%) in what it described as a "preemptive" move to support the economy in the face of the COVID-19 outbreak. March 23: March 29: Instructed Egyptian banks to apply temporary limits on daily withdrawals and deposits in a move seemingly designed to control inflation and hoarding during the coronavirus' spread, after 30 billion Egyptian pounds ($1.91 billion) were withdrawn from banks in the past three weeks. The daily limit for individuals would be 10,000 Egyptian pounds ($635) and 50,000 pounds for companies. Government of Egypt March 14: March 22: |
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Eswatini (Swaziland) |
March 21: The Central Bank of Eswatini cut its main lending rate by 100 basis points to 5.5%, citing global and domestic economic developments and the impact of |
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European Union |
European Central Bank (ECB) March 12: Announced that it would provide banks with loans at a rate as low as minus 0.75%, below the-0.5% deposit rate, increase bond purchases by 120 billion euros ($135.28 billion) this year (with a focus on corporate debt), and allow euro zone banks to fall short of some key capital and cash requirements (in order to keep credit flowing to the economy). March 18: Launched a new, 750 billion euro ($818 billion) temporary asset purchase program of private and public sector securities to counter the risks posed by the outbreak and escalating diffusion of COVID-19 (the Pandemic Emergency Purchase Programme). Purchases will be conducted until the end of 2020 and will include all the asset categories eligible under the existing asset purchase program. It will also support commercial debt markets by expanding the range of eligible assets under the corporate sector purchase program to nonfinancial commercial paper of sufficient credit quality, and by easing collateral standards by expanding the scope of Additional Credit Claims to include claims related to the financing of the corporate sector. March 26: Announced that under the new 750 billion euro ($818 billion) temporary bond purchase Pandemic Emergency Purchase Program (PEPP), it would not apply self-imposed limits on how many bonds it could buy from any single euro zone country. Under its long-running asset purchase scheme, the ECB has capped bond buys at 33% of each euro zone state's debt. European Commission March 11: Announced a 37 billion euro ($41 billion) "Corona Investment Fund" that would use "spare" money from the EU budget to help businesses, health-care systems, and sectors in need; additionally, the EU's own investment fund will guarantee 8 billion euros ($8.9 billion) of loans to 100,000 small- and medium-sized enterprises and affected companies may be able to delay the payment of their existing loans. March 19: |
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Fiji |
March 18: The Reserve Bank of Fiji cut its Overnight Policy Rate by 25 basis points to 0.25% in order to stimulate demand and cushion the blow to its important tourism industry from the global spread of |
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France |
March 16: March 17: The Autorité des Marchés Financiers (AMF), France's financial-markets authority, stated that it would forbid short selling of stock in 92 companies during the March 17 session. March 17: |
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Gambia |
February 28: The Central Bank of The Gambia lowered its policy rate by 50 basis points to 12.0% amid risks from the |
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Germany | Georgia
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April 1: The government announced that it will put 2 billion lari ($606 million) from its state budget toward helping the economy through the COVID-19 pandemic, in addition to 351 million lari that will be allocated for the healthcare system from the state budget. The government will fund three months' payments for electricity and gas consumption to Georgians who used less than 200 kilowatts of electricity and 200 cubic meters of gas a month in March, April, and May.
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Germany Government of Germany March 13: Pledged to provide unlimited liquidity assistance to German companies hit by the pandemic. (The measure envisages an expansion of loans provided by KfW, the state development bank, and will allow companies to defer billions of euros in tax payments.) The Bundestag also expanded the Kurzarbeit or short-time work scheme, under which companies that put their workers on reduced hours can receive state support. The government also indicated that it would boost investments by €3.1 billion per year (about $3.5 billion) between 2021 and 2024. March 23: March 30: Announced that, in response to COVID-19, it would expand export loan guarantees on short-term payments to include transactions within the EU and with Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland, Britain, and the United States. |
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Ghana |
March 18: The Bank of Ghana (Ghana's central bank) cut its interest rate to 14.5% from 16% due to the negative economic impacts it anticipates from the spread of the |
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Greece |
March 17: March 17: The Hellenic Bank Association will offer businesses hit by the March 30: Announced new tax breaks and economic assistance to thousands of businesses and workers to buffer its economy from a national lockdown triggered by the COVID-19 pandemic. The support measures include a one-off benefit for 1.7 million, or 81% of private sector workers whose jobs are temporarily suspended and payment of their social security contributions for 45 days, extend financial aid for the self-employed, and suspend VAT and tax arrear payments for 800,000 businesses.
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Guatemala March 29: The government announced that it would use nearly $26 million from an emergency fund to help the country's neediest families, as measures to combat the spread of a COVID-19 impact on the economy and jobs, It plans to withdraw 200 million quetzals ($25.8 million) from the emergency fund and give families 1,000 quetzals ($129) to help pay for electricity, water and supplies. |
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Hong Kong |
Hong Kong Monetary Authority March 3: Lowered its base rate charged through the overnight discount window by 50 basis points to 1.5% after the U.S. Federal Reserve delivered a rate cut of the same margin. March 16: Lowered its base rate charged through the overnight discount window to 0.86%, after the U.S. Federal Reserve delivered a rate cut. It also cut the level of capital buffers it requires financial institutions to hold to 1% from 2% of their risk-weighted assets to help companies and lenders weather the impact of the Government of Hong Kong February 26: |
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Hungary |
Hungarian National Bank March 16: Announced emergency steps to help businesses, boosting the range of collateral it accepts from banks and calling on lenders to apply a loan repayment moratorium for firms hit by the coronavirus economic fallout. (It said in a statement that performing corporate loans in domestic banks' balance sheets totaled close to 3.6 trillion forints, and that it would apply a 30% haircut on those, boosting the range of collaterals that can be used and thus also lifting banks' lending potential by more than 2.5 trillion forints ($8.10 billion)). It also offered to inject forint liquidity into the banking system via foreign exchange swaps. March 18: Urged domestic banks to introduce a moratorium on household loan repayments considering the "extraordinary situation" due to the coronavirus crisis, and that if banks did not bring in the measure, the Bank would ask the government to pass a decree enforcing it. It also announced that it was considering restarting its mortgage note buying program to provide more long-term liquidity for the banking system and reduce the financing costs of household loans. March 24: Launched new measures to boost liquidity and flagged further steps if needed to prevent long-term damage to the economy from the coronavirus pandemic. It moved to pump more money into the banking system by introducing a massive fixed-rate collateralized loan instrument. Lending will be provided to banks at a fixed interest rate in unlimited quantity, to support bank lending and also government bond purchases. It also released domestic lenders from the requirement to hold a certain level of cash as reserves. April 1: Announced its collateralized loan tenders, offering liquidity to banks at a fixed rate of 0.9% on various maturities, and that it would offer them to domestic open-ended investment funds, in order to support the government securities market and the real estate market and help offset the fallout from the coronavirus pandemic. Government of Hungary April 4: Created a $2 billion special fund to aid the fight against COVID-19 and it will include contributions from banks and foreign retailers. Hungarian banks will be expected to pay 55 billion forints ($163 million) in the fund this year, with multinational retailers adding 36 billion forints. Local governments will have to divert vehicle taxes amounting to a total of 34 billion forints to the fund, while political parties will pay half of their central budget revenue to the fund for a total of 1.2 billion forints. April 6: Announced a stimulus package, which includes subsidized loans to Hungarian companies and funds to preserve jobs. It would amount to 18%-20% of gross domestic product (GDP), including National Bank of Hungary programs. The prime minister said that the government was ready to pay some of the wage costs of companies forced to cut working hours, would support investments with 450 billion forints ($1.3 billion), and would provide targeted support for sectors such as tourism, the food industry, and construction. Subsidized loans to companies will total more than 2 trillion forints, while pensioners will get one month's extra pension to be disbursed in four tranches from early 2021. |
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Iceland |
The Central Bank of Iceland March 11: Cut its benchmark interest rate by 50 basis points to 2.25%, as it tries to alleviate the potential impact of the March 18: Cut its key interest rate for the second time in a week by 50 basis points to 1.75% and reduced the banks' countercyclical capital buffer to 0% from 2%. March 23: Announced that it would start buying up treasury bonds in order to boost liquidity and support government plans to increase spending to help the economy weather the Government of Iceland March 10: Announced an action plan to respond to the economic impact of COVID-19, which includes deferring taxes and levies, providing temporary relief to the tourism industry, and accelerating ongoing and planned infrastructure projects. March 21: Announced a 230-billion-krona ($1.6 billion) package (8% of gross domestic product) to cushion the impact of |
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India |
Reserve Bank of India March 12: Announced a $2 billion injection into the foreign-exchange market to support the rupee. March 13: Announced a plan to add liquidity through short-term repurchase operations. March 14: Plans to infuse 250 billion rupees ($3.4 billion) into the system through short-term repurchase operation. March 19: Announced that it will buy bonds on the open market for a total of 100 billion Indian rupees ($1.35 billion) due to mature between 2022 and 2025 to try to keep all market segments liquid and stable. March 27: Lowered its benchmark repo rate by 75 basis points to 4.40% and announced several other steps to tackle the impact of COVID-19 on various industries from the lockdown, some of which include cutting banks' cash reserve ratio and targeted long term repos operations. The reverse repo rate was reduced by 90 basis points to 4%. Government of India March 15: Pledged $10 million towards South Asian Association for Regional Cooperation (SAARC) " March 15: Is reportedly "pushing" state-run banks to approve new loans amounting to 500 billion-600 billion rupees by the end of March. March 26: Announced a 1.7-trillion-rupee ($22.6 billion) economic stimulus plan providing direct cash transfers and food security measures to give relief to millions of poor people hit by a nationwide lockdown over COVID-19. It will provide direct cash transfers to 200 million women and the elderly, hand out free cooking gas cylinders to 83 million poor families, and help feed about 800 million poor people over the next three months by distributing 5 kilograms of staple food-grains wheat or rice for each person free of cost, with a kilogram of pulses for every low-income family. The government outlined plans for medical insurance cover of 5 million rupees ($66,000) for every frontline health worker, from doctors, nurses and paramedics to those involved in sanitary services. |
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Indonesia |
Bank Indonesia (Bank Sentral Republik Indonesia) February 20: Cut the seven-day reverse repurchase rate by 25 basis points to 4.75%. March 19: Cut the seven-day reverse repurchase rate by 25 basis points to 4.50% and indicated that it will intensify intervention to ensure market confidence and liquidity. It has purchased government bonds to combat capital outflows amid the March 25: Announced with the country's financial regulator that currency market and stock trading hours will be limited next week as part of efforts to contain the spread of Government of Indonesia February 25: March 13: March 17: March 31: Announced a national public health emergency and that it would spend 405.1 trillion rupiah ($24.85 billion) more on COVID-19 response, social welfare programs, and economic stimulus, including a 3 percentage point cut in corporate tax rates to 22%. |
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Iran |
Central Bank of Iran February/March: Indicated that it would help small businesses affected by the March 12: Requested $5 billion emergency funding from the International Monetary Fund's Rapid Financing Instrument to help Iran fight the March 17: Allocated at least 250 million euro to import medicine and medical equipment required to fight COVID-19. Government of Iran March 12: Asked the United Nations to allocate resources to help it tackle COVID-19 and facilitate imports as a way of boosting the country's sanctions-hit healthcare system. March 15: Announced a series of banking, welfare and tax relief measures to support businesses and families as the March 23: The European Union's High Representative of the Union for Foreign Affairs and Security Policy (Josep Borrell) announced that the EU would provide 20 million euros in humanitarian aid to Iran to help alleviate the March 26: President Hassan Rouhani wrote to Supreme Leader Ayatollah Ali Khamenei requesting permission to withdraw $1 billion from the country's sovereign wealth fund (the National Development Fund) to support the healthcare system, which is overstretched by the COVID-19 outbreak. March 28: Announced that it would allocate 20% of its annual state budget to fighting the pandemic in the country. The budget allocation, amounting to about 1,000 trillion rials, would include grants and low-interest loans to those affected by COVID-19, Rouhani said. While the allocated amount is worth some $6.3 billion at the rial's free market exchange rate of about 160,000 rials per dollar, the government may decide to allocate some of the funds at the official rate of 42,000 (which is used to subsidize food and medicine). |
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Ireland |
March 9: The government announced that it will set aside 3 billion euros ($3.44 billion) to provide additional funding to the health service (435 million euros), boost workers' sick pay and benefits (2.4 billion euros), and offer liquidity assistance to businesses affected (200 million euros). |
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Israel |
Bank of Israel March 18: Announced it would allocate up to $15 billion for swap transactions between currencies for domestic banks, part of a move aimed at shoring up the Israeli economy amid the April 6: Cut its benchmark interest rate to 0.1% from 0.25%, its first rate cut in five years, expanded its repo transactions so that the agreements can include corporate bonds—in addition to government bonds—as security, and will provide loans to banks for a term of three years (with a fixed interest rate of 0.1%) with the goal of increasing the supply of bank credit to small businesses. The size of the plan will be 5 billion shekels. Government of Israel March 9: The Finance Ministry announced that it was opening a 4 billion-shekel credit line for banks to lend money to small and medium-sized businesses facing a cash crisis with a high-level government guarantee. March 11: Will expand an aid package (for a second time) to help the country deal with the March 16: Will expand its aid package (for a third time) to help businesses hurt by the March 30: Announced that it will spend 80 billion shekels ($22 billion) to help the economy weather the COVID-19 crisis—70 billion shekels in addition to 10 billion already promised to boost welfare services for those who have lost their jobs or are on unpaid leave and to assist the private sector. It includes a 20-billion-shekel social safety net, with stipends for those who lost income; 40 billion shekels earmarked to assist businesses with tax breaks, loans, and other services; about 10 billion for the healthcare system; and nearly 8 billion will be spent to speed up the recovery. |
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Italy |
Government of Italy April 6: Announced a new emergency decree aimed at granting liquidity and bank loans worth more than 400 billion euros to companies hit by COVID-19. The new legislation, combined with a previous stimulus package in March, would allow banks to offer credit totaling over 750 billion euros ($809.78 billion). |
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Japan |
Bank of Japan March 16: Announced that it would (1) double its upper limit of annual purchases of exchange traded funds to 12 trillion yen ($112.46 billion) and of real-estate investment trusts to 180 billion yen ($1.7 billion) per year, (2) expand its upper limit of its corporate bond balance and commercial paper balance by 1 trillion yen ($9.5 billion) each, and (3) start a lending program for commercial banks, providing them with one-year loans in exchange for corporate collateral worth 8 trillion yen ($75.6 billion). Japanese Government February 13: Unveiled a set of measures worth 15.3 billion yen ($140 million) to fight the spread of March 10: Unveiled a second package of measures totaling 430.8 billion yen ($4.1 billion) in spending to cope with the fallout of the March 23: Announced that it is working on a package of measures to combat the widening economic fallout from the | |||
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Kazakhstan |
April 6: Announced a 108 trillion yen ($989 billion, equivalent to 20% of gross domestic product) stimulus package, Japan's largest ever, to rescue the COVID-19-hit economy. It will include cash handouts worth 6 trillion yen for households and small businesses hit by the virus and offers businesses deferrals on tax and social service costs worth 26 trillion yen. The first phase of the package aims to stop job losses and bankruptcies, while a second round of aid, after the virus is contained, will try to support a V-shaped economic recovery.
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Kazakhstan National Bank of Kazakhstan April 3: Cut its policy rate to 9.5% from 12.0% in an unscheduled move aimed at boosting economic growth. Government of Kazakhstan March 23: The president ordered state-owned companies to start selling part of their foreign currency revenue on the domestic market to support the local tenge currency (and to pay out up to 100% of last year's profits in dividends) in order to soften the impact of the oil price crash and the April 2: Announced that it plans to borrow $3 billion on foreign capital markets to finance its budget deficit this year, due to the collapse in energy prices and the additional stimulus spending amid the COVID-19 outbreak. |
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Kenya |
Central Bank of Kenya March 23: Government of Kenya March 16: The World Bank announced that it is making $60 million available to Kenya's health sector to help it deal with the COVID-19 outbreak. March 24: | |||
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Kuwait |
March 16: The Central Bank of Kuwait cut by 100 basis points its deposit rate to 1.5% and its overnight, one-week, and one-month repo rates to 1%, 1.25%, and 1.75%, respectively. |
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Malaysia |
March 25: Announced that the value-added tax rate would be cut to 14% from 16% and corporation tax would be reduced to 25% from 30% under plans scheduled to come into force by April, and that there would be 100% tax relief for Kenyans earning a monthly income of up to 24,000 Kenyan Shillings ($226) to increase their disposable income. Kuwait Central Bank of Kuwait March 16: Cut by 100 basis points its deposit rate to 1.5% and its overnight, one-week, and one-month repo rates to 1%, 1.25%, and 1.75%, respectively. April 2: Announced a stimulus package to support vital sectors and small and medium enterprises (SMEs) amid the fallout from the COVID-19 pandemic. It cut capital adequacy requirements by 2.5%, eased the risk weighting for SMEs to 25% from 75%, raised the maximum lending limit to 100% from 90%, and increased the maximum financing for residential real estate developments to the value of the property or the cost of development. The measures are expected to raise banks' lending capacity by 5 billion dinars ($16 billion). Government of Kuwait April 1: Announced measures aimed at shoring up its economy against the pandemic, including soft long-term loans from local banks to provide liquidity for small and medium-sized enterprises and directing government agencies to pay obligations to the private sector as soon as possible. Malaysia Government of Malaysia March 27: Announced a stimulus package worth 250 billion ringgit ($58.28 billion), its second in a month, to help cushion the economic blow from the pandemic. It includes a 25 billion ringgit direct fiscal injection by the government aimed at helping families and business owners; one-off payments and discounts on utilities for people whose livelihoods have been affected; 1 billion ringgit for a food security fund; and a 50 billion ringgit loan scheme for larger companies, which will offer guarantees of up to 80% of the sum borrowed to shore up working capital in the corporate sector. |
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Mauritius |
March 10: The Bank of Mauritius cut its key repo rate by 50 basis points to 2.85% amid the COVID-19 outbreak, which is expected to have a significant impact on the domestic economy. |
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Mexico |
Banxico (Bank of Mexico) February 13: Cut its key rate by 25 basis points to 7.0%. March 19: Lowered its benchmark interest rate by 50 basis points to 6.50% in an out-of-cycle cut in a bid to support the country's financial markets, reduced the rates on its additional ordinary liquidity facility, and cut by 50 billion pesos ($2.06 billion) the monetary regulation deposit that private banks must observe. |
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Moldova |
National Bank of Moldova March 4: Cut its main interest rate by 100 basis points to 4.50%, citing the domestic disinflationary trend and global economic concerns related to the March 20: Cut its main interest rate for the second time in March to 3.25% from 4.50% in order to support banking system amid markets volatility due to the |
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Mongolia |
March 11: The Central Bank of Mongolia cut its policy rate 100 basis points to 10.0% in response to increased uncertainties in connection with the spread of |
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Morocco |
March 15: Morocco's King Mohammed VI ordered the creation of a 10 billion-dirham ($1 billion) fund to upgrade health infrastructure, help vulnerable economic sectors such as tourism, maintain jobs, and mitigate the social repercussions of the outbreak. March 17: Bank Al-Maghrib (Central Bank of the Kingdom of Morocco) cut its benchmark interest rate by 25 basis points to 2% in order to help shore up economic activity following a drought and the outbreak of |
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Netherlands |
March 12: The Tax Authority will allow companies affected by March 17: |
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New Zealand |
Reserve Bank of New Zealand March 16: Cut the official cash rate by 75 basis points to a record low of 0.25%, and pledged to keep it at this level for at least 12 months. March 22: Announced that it will purchase up NZ$30 billion ($17 billion) of government bonds in the secondary market over the next 12 months. It will seek to buy NZ$750 million bonds a week across a range of maturities, via an auction process. March 24: Reduced banks' core funding ratios to 50% from 75% to help banks make credit available. March 30: Announced that it was deploying more tools to provide additional liquidity to the corporate sector and support market functioning to offset the impact of the pandemic. A new weekly Open Market Operation—to be held each Tuesday—will provide liquidity in exchange for eligible corporate and asset-backed securities by offering up to NZ$500 million ($300 million) for terms out to approximately three months, starting on March 31. The bank also will offer to purchase government bonds maturing on May 15, 2021, for liquidity management purposes. Government of New Zealand March 16: Announced a spending package of NZ$12.1 billion ($7.3 billion), equivalent to 4% of GDP in an attempt to fight the effects of March 24: Announced that retail banks will offer a six-month principal and interest payment holiday for mortgage holders and small business customers whose incomes have been affected by the economic disruption from COVID-19. The government and the banks will also implement a NZ$6.25 billion ($3.62 billion) Business Finance Guarantee Scheme for small and medium-sized businesses. It will include a limit of NZ$500,000 per loan and will apply to firms with a turnover of between NZ$250,000 and NZ$80 million per annum (the government will carry 80% of the credit risk, with the other 20% to be carried by the banks). |
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Norway |
Norges Bank March 13: Cut its key interest rate to 1% from 1.5%, as it seeks to counter the economic impact of the March 20: Cut its key policy rate by 75 basis points to 0.25% from 1.0% in a bid to alleviate the economic impact from the Government of Norway March 13: Announced that it would pay a greater part of the bill for all companies seeking to make temporary layoffs, suspended all airport fees for the first six months of 2020, and lifted for a period of 10 months the tax charged for each passenger. March 31: Will increase further its daily purchase of Norwegian currency to 2 billion crowns ($190 million) per day from 1.6 billion crowns in order to make funds available for the government's fiscal budget. (On March 18, it announced that it would increase it to 1.6 billion Norwegian crowns per day from 500 million crowns.) Government of Norway March 13: Announced that it would pay a greater part of the bill for all companies seeking to make temporary layoffs, suspended all airport fees for the first six months of 2020, and lifted for a period of 10 months the tax charged for each passenger. March 15: Announced that it would offer companies at least 100 billion Norwegian crowns ($9.7 billion) in funding in the form of loan guarantees (50 billion crowns to small and medium sized companies seeking bank loans) and bond issues (50 billion crowns to large firms issuing corporate bonds). In addition, payments of payroll taxes will be postponed. March 20: Presented legislation that would temporarily reduce the value-added tax, postpone tax filing deadlines and add worker and business protections under a 280 billion kroner ($24 billion) plan to boost the economy amid the pandemic. Along with the tax provisions, the legislative package includes two previously announced lending programs that the government said would provide up to 100 billion kroner in support for Norwegian businesses, improving their access to credit to ensure liquidity. |
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Oman |
March 18: The Central Bank of Oman announced that it will provide about 8 billion Omani rials ($20.8 billion) in extra liquidity to banks as one of several measures aimed at supporting the economy. It also asked banks to cut banking fees, adjust capital and credit ratios, allow repayment postponements for up to six months, and facilitate lending, particularly in sectors affected by the |
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Pakistan |
State Bank of Pakistan March 17: Cut its key interest rate by 75 basis points to 12.50% in response to the anticipated slowdown due to COVID-19, provided additional support to investment, offering a new package of 100 billion rupees ($630.5 million) for investment in the manufacturing sector to fund investors at 7% percent for 10 years., and announced that it would refinance banks to provide 5 billion rupees ($31.5 million) at a maximum of 3% for the purchasing of equipment used to fight the March 24: Cut its benchmark interest rate for the second time in a week, lowering it by 150 basis points to 11% amid considerable uncertainty about how the Government of Pakistan March 24: Announced a financial-relief package of more than 1 trillion rupees ($6.3 billion) to support the economy and poorer workers. It will include help to the export and industry sectors, tax breaks, procurement of medical and other equipment required to fight the pandemic, and the distribution of a monthly cash stipend among the poor. |
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Paraguay |
Central Bank of Paraguay March 13: Cut its benchmark interest rate by 25 basis points to 3.75%, as part of a series of measures aimed at dealing with the impact of the Government of Paraguay March 13: |
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Peru |
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Philippines |
Central Bank of the Philippines (Bangko Sentral ng Pilipinas) March 13: The government instructed the Government Service Insurance System and the Social Security System "to take advantage of the low stock prices" and "support the stock market by at least doubling their daily average purchase volumes" from 2019. March 29: Announced that that as part of the 90 billion soles stimulus plan announced on March 29, the Bank would inject 30 billion soles into banks for loans to mainly smaller companies to help cover their working capital. April 2: Announced that it is preparing a major bond issuance to help underwrite an unprecedented stimulus package to counter the economic impact of the fast-spreading pandemic. Government of Peru March 29: Announced that it is planning an economic stimulus package worth around 90 billion soles ($26.41 billion or 12% of gross domestic product) to support citizens and the key mining sector that have been impacted by COVID-19. It will have three phases of 30 billion soles each: containing the disease, ensuring companies' payment chains by granting credit guarantees, and reactivating production, particularly in the copper industry.
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Philippines Central Bank of the Philippines (Bangko Sentral ng Pilipinas) March 19: Cut the rate on its overnight reverse repurchase facility by 50 basis points to 3.25%, authorized a temporary relaxation of regulations on compliance reporting by banks, calculations of penalties on required reserves and single borrower limits, and approved a temporary reduction to zero of the term spread on rediscounting loans relative to the overnight lending rate. March 23: Revealed it would purchase up to 300 billion Philippine peso ($5.9 billion) worth of short-term securities under a repurchase agreement with the Bureau of the Treasury in a bid to inject a fresh round of liquidity into the market and to keep a lid on interest rates in the process. March 24: Announced a 200 basis points reduction in the reserve requirement ratio (RRR) to calm financial markets and boost lending. The cut, effective March 30, will bring the ratio to 12% and ensure there is sufficient liquidity to counter the economic impact of the Government of the Philippines March 13: Instructed the Government Service Insurance System and the Social Security System "to take advantage of the low stock prices" and "support the stock market by at least doubling their daily average purchase volumes" from 2019.
March 16: The government announced a 27.1-billion peso package to help fight the March 17: The Philippine Stock Exchange halted all stock, bond and currency trading until further notice, after President Rodrigo Duterte placed Luzon, the country's economic powerhouse, under "enhanced community quarantine". March 22: The Philippine Congress is reportedly drafting a stimulus package of at least 200 billion pesos ($3.9 billion) as part of a supplemental budget to shore up the economy from the impact of the March 19: The Philippine Stock Exchange reopened with shortened hours. |
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Poland |
National Bank of Poland March 17: Cut its benchmark interest rate by 50 basis points to 1.0% from 1.5% in response to the Government of Poland March 18: Announced an economic stimulus package of 212 billion zloty ($52 billion, or approximately 9% of gross domestic product) to assist entrepreneurs and employees during the COVID-19 crisis. It consists of 5 pillars: employee safety, company financing, health protection, strengthening the financial system, and a public investment program. Specific measures include holidays in debt repayments and social contributions, loan guarantees, as well as payments of salaries to those unable to work. March 26: Announced that the state bank BGK will issue bonds worth around 16 billion zlotys ($3.9 billion) in 2020-2021 as part of a wider plan to combat the coronavirus impact on the economy. The state will buy the bonds back in 2021-2025, spending around 2.5 billion zlotys a year in the first year and then around 3.7 billion zlotys annually. |
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Portugal |
Government of Portugal March 18: |
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Qatar |
Qatar Central Bank March 16: Cut the deposit rate by 50 basis points to 1%, lending rate by 100 basis points to 2.50%, and repurchase rate (repo) by 50 basis points to 1%. Government of Qatar March 15: The Emir of Qatar announced several measures to shield the economic and financial sectors in the country from the impact of the |
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Romania |
March 20: The National bank of Romania cut its benchmark interest rate by 50 basis points to 2.0% in order to curb the economic fallout from the |
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Saudi Arabia |
Saudi Arabian Monetary Authority March 15: Announced that it had prepared a 50 billion riyal ($13.32 billion) package to help small and medium-sized enterprises cope with the economic impacts of Government of Saudi Arabia March 20: Introduced an additional stimulus package worth 120 billion riyals ($32 billion) to aid businesses, including the postponement of value-added tax (VAT), excise tax, and income tax payments for a period of three months and exemptions of various government levies and fees. | |||
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Serbia |
March 30: Announced that it will finance treatment for anyone infected with COVID-19 in the country, and took steps to boost wheat and livestock supplies amid global fears of a food shortage. Serbia National Bank of Serbia Government of Serbia March 29: Announced that it plans to offer about 5 billion euros ($5.54 billion) in loans and subsidies to businesses to help them cope with the economic impact of COVID-19 and make a one-time payment of 100 euros to every citizen older than 18. The president indicated that the state would use 700 million euros to pay minimum wages of 30,367 dinars ($288.58) and allow tax delays for micro and small enterprises for the three months after the end of the state of emergency to avoid job loss. |
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Seychelles |
March 24: The Central Bank of Seychelles cut its monetary policy rate by 100 basis points to 4.0%, indicating that this was the first phase of its response to the challenge from the spread of the |
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Singapore |
March 30: Announced that it would adopt a 0% per annum rate of appreciation of the policy band starting at the prevailing level of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER), currently slightly below the mid-point of the policy band. Government of Singapore March 26: Unveiled stimulus plan worth around S$48 billion ($33.7 billion) to deal with the economic fallout from COVID-19 (of which S$17 billion will be drawn from the national reserves). A key part of the stimulus package involves ramping up a jobs support scheme first announced in February. The government will now offset up to 25% of the first S$4,600 of workers' monthly wages for a nine-month period (up from the 8% quantum and S$3,600 cap announced in February), while self-employed workers will be eligible to receive monthly payments of S$1,000 for nine months. Some hard-hit sectors will receive additional support: the government would offset up to 50% of wages in the food services sector and up to 75% of wages in the aviation and tourism sectors. A previously announced cash payout to all adult Singaporeans would be tripled and low-income families will also receive grocery vouchers. Slovakia Government of the Slovak Republic |
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South Africa |
South African Reserve Bank March 19: Cut its main lending rate by 100 basis points to 5.25% as it sought to offset the drag from the March 20: Announced measures to inject liquidity into local markets, including intraday overnight supplementary repos to provide liquidity support to clearing banks, lowering the standing facilities' borrowing rate by 100 basis points to 200 basis point below the benchmark repo rate, and lowering the standing facilities' lending rate to the repo rate from the previous rate of repo plus 100 basis points. March 25: Announced that it would begin buying an unspecified amount of government bonds as part of additional emergency policy measures aimed at easing a severe liquidity crunch triggered by the |
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South Korea |
Bank of Korea March 16: Cut the seven-day repurchase rate by 50 basis points to 0.75% in an effort to soften the impact of the March 19: Announced that it will buy government bonds worth 1.5 trillion won ($1.2 billion) to bolster liquidity in the bond market and back short-term liquidity in banks under increased loan demand due to fallout from Government of the Republic of Korea March 3: Announced a 11.7 trillion won ($9.8 billion) stimulus package that includes funding for medical institutions and quarantine efforts, assistance to small- to medium-sized businesses struggling to pay wages to their workers, and subsidies for child care. March 17: The National Assembly approved a supplementary budget worth 11.7 trillion won ($9.4 billion) to help contain COVID-19 and cushion the economic fallout. The government has indicated that it plans to execute at least 75% of its spending within the next two months. March 18: March 20: South Korea's financial authorities and local banks agreed to set up a bond market stabilization fund worth more than 10 trillion won ($7.9 billion) as part of the country's efforts to calm financial markets roiled by the spread of March 24: |
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Spain |
March 17: |
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Sri Lanka |
March 16: The Central Bank of Sri Lanka cut the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by 25 basis points to 6.25% and 7.25%, respectively, and the Statutory Reserve Ratio (SRR) on all rupee deposit liabilities of licensed commercial banks was reduced by 1 percentage point to 4% March 16: The Colombo Stock Exchange was closed until March 19, as the government extended the public holiday in a bid to halt the spread of April 3: The Central Bank of Sri Lanka cut by a further 25 basis points its benchmark interest rates (the Standing Deposit Facility Rate and Standing Lending Facility Rate to 6.00% and 7.00%, respectively), its second such reduction in three weeks, in a move to support the economy amid the coronavirus pandemic. |
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Sweden |
Sveriges Riksbank March 16: Announced that it would buy securities for up to an additional 300 billion Swedish crowns ($31 billion) in 2020 to facilitate credit supply and mitigate the downturn in the economy caused by the Government of Sweden March 16: Presented a package worth more than 300 billion Swedish crowns ($31 billion) to support the economy in the face of the |
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Switzerland |
Government of Switzerland March 13: Unveiled an emergency economic-aid package of roughly 10 billion francs ($10.5 billion) for workers and small businesses. It includes 8 billion francs for "Kurzarbeit," or short-time work, and 580 million francs in guaranteed bank loans. March 20: Announced a new 32 billion franc ($32.56 billion) aid package to support companies and workers hit by the widening COVID-19 outbreak. The bulk of the cash (20 billion francs) will go into guarantees for bank loans to companies at "very modest" interest rates. Firms will be able to get loans worth up to 10% of their revenue, to a maximum of 20 million francs. Amounts of 500,000 francs will be paid out immediately and guaranteed by the government. The government's short-time working scheme would also be extended to fixed-term, temporary workers, and trainees. The package follows one worth 10 billion francs announced on March 13, bringing the total stimulus to 42 billion francs ($42.8 billion). March 31: Announced that it is stepping up its funding plans in response to government measures to cushion the economic impact of the pandemic, doubling the volume of outstanding short-term money market instruments. The Federal Finance Administration (FFA) will increase the outstanding volume of short-term money market instruments, from around 6 billion francs ($6.24 billion) to 12 billion francs, and will once again step up sales of its own Confederation bond holdings. |
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Taiwan |
Central Bank of the Republic of China (Taiwan) March 19: Cut its benchmark rate by 25 basis points to 1.125%, and announced that it would expand the scope of repurchase facility operations and provide banks with T$200 billion ($6.6 billion) of financing to support small and medium sized companies which have been hard hit by the Government of Taiwan February 25: March 12: March 19: The president said that the government would help its hard-hit airline industry access T$50 billion in financing, and did not rule out further economic stimulus. March 19: |
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Thailand |
Bank of Thailand March 20: March 22: Together with the Ministry of Finance and the Securities and Exchange Commission, announced three measures to address liquidity concerns and ensure the functioning of local financial markets: (1) setting up a special facility that allows commercial banks that purchase units in high-quality money market funds or daily fixed-income funds to use them as collateral for liquidity support (initial estimate is 1 trillion baht); (2) creation of a 70-100 billion baht "Corporate Bond Stabilization Fund" that invests in high-quality, newly issued bonds by corporates that cannot fully rollover maturing corporate bonds, and (3) Bank of Thailand will continue to purchase government bonds to provide liquidity to the market. Government of Thailand March 10: March 24: Approved a package of stimulus measures worth at least 117 billion baht ($3.56 billion) to try to mitigate the impact of the coronavirus outbreak. The measures include cash handouts worth 45 billion baht for 3 million workers outside the social security system; soft loans worth 60 billion baht; and tax breaks. Separately, small firms will be offered 10 billion baht of loans and business tax payments will be delayed. March 30: Announced that it is preparing a third stimulus package, worth more than 500 billion baht ($15.3 billion), to alleviate the impact of the coronavirus crisis. March 31: Agreed to triple the number of workers receiving cash handouts to nine million to help ease the impact of the spreading coronavirus. It had previously planned to provide cash handouts of 15,000 baht ($458) each to 3 million workers, taking the total to 45 billion baht ($1.38 billion). Now its total handout will reach 135 billion baht ($4.13 billion). |
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Tunisia |
Central Bank of Tunisia March 17: April 1: Asked banks and financial institutions to suspend the distribution of 2019 dividends and allow customers to defer loan payments for three months as part of a package to ease the social and economic effects of the coronavirus. Government of Tunisia March 21: March 23: The finance minister announced that the International Monetary Fund will disburse $400 million to help the country face the effects of COVID-19. March 28: The European Union granted Tunisia 250 million euros in aid to help it cope with the economic and social effects of the viral outbreak. |
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Turkey |
Central Bank of Turkey March 17: Lowered its benchmark one-week repo rate by 100 basis points to 9.75%, as it responded to the negative impact of the Government of Turkey March 18: |
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Ukraine |
March 19: The government published a new law that will exempt taxpayers from paying the land and property taxes from March 1 to April 30, introduced a moratorium on tax audits from March 18 to May 31, and suspended some tax-related penalties from March 1 to May 31. |
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Uganda |
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United Arab Emirates (UAE) |
April 5: Announced new measures to guarantee liquidity in the banking system in the face of the pandemic, boosting its stimulus to a total of 256 billion dirhams ($70 billion) from a previously announced 100 billion dirhams ($27 billion) package. It also halved banks' reserve requirements for demand deposits to 7% from 14%, which will inject about 61 billion dirhams of liquidity to support banks' lending and liquidity management, extended the duration of a previously announced deferral of loan principal and interest payments for customers until the end of the year, and said banks participating in the scheme can benefit from a capital buffer relief of 50 billion dirhams until December 2021, among other measures. Government of the UAE March 30: Announced that it would inject funding into state-owned Emirates Airlines to help it deal with the impact of COVID-19 on its business. |
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United Kingdom |
Bank of England March 11: Cut its benchmark interest rate by half a percentage point, to 0.25%, revived a program to support lending to small and midsize businesses, and reduced bank capital requirements to further boost credit. March 19: Cut its benchmark rate by 15 basis points to 0.1% to try to mitigate the impact of April 2: Announced that it will double the size of its corporate bond purchase program to at least 20 billion pounds ($24.7 billion), part of a previously announced stimulus package to help the economy. It will begin ramping up its corporate bond purchases through a series of reverse auctions starting on April 7, holding three a week, and it will be able to buy 20 million pounds of any single bond—double the previous amount. UK Government March 11: Announced a stimulus package totaling 30 billion pounds ($39 billion). It will include 7 billion pounds ($8.6 billion) available to support the labor market, 5 billion pounds ($6.1 billion) to help the health-care system, and 18 billion pounds ($22 billion) to support the UK economy, bringing the total fiscal stimulus to 30 billion pounds ($39 billion). (Among the specific measures, there will be a tax cut for retailers, cash grants to small businesses, a mandate to provide sick pay for people who need to self-isolate, subsidies to cover the costs of sick pay for small businesses, and expanded access to government benefits for the self-employed and unemployed.) March 17: Unveiled a package of 350 billion pounds ($424 billion) to support the economy; it includes 330 billion pounds of guaranteed loans for businesses that need cash to pay rent or suppliers, 20 billion pounds of tax cuts and grants for businesses in 2020, a three-month mortgage payment holiday for borrowers affected by the virus, and a one-year "business rates" holiday for businesses in the retail, leisure, and hospitality industry. | |||
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Vietnam |
March 16: The State Bank of Vietnam cut by 100 basis points both its refinance rate (to 5%) and the overnight lending rate in the inter-bank market (to 6%), and by 50 basis points its discount rate (to 3.5%). March 28: Will ease regulations for affected businesses, including simplifying the insolvency system to keep companies trading, easing administrative requirements and barriers to the import of personal protective equipment, and helping new companies produce and distribute hand sanitizer within a matter of days.
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Vietnam State Bank of Vietnam February 24: Ordered commercial banks to eliminate, cut, or delay interest payments on loans to companies facing losses due to the coronavirus outbreak. March 16: Cut by 100 basis points both its refinance rate (to 5%) and the overnight lending rate in the inter-bank market (to 6%), and by 50 basis points its discount rate (to 3.5%). Government of Vietnam March 3: Announced measures worth 27 trillion dong ($1.16 billion) to help businesses cope with the coronavirus epidemic and help the economy stick to its 6.8% growth target this year. They include tax breaks, delayed tax payments, and a reduction in land lease fees. The government will also speed up state spending on infrastructure projects.
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Zimbabwe Reserve Bank of Zimbabwe March 26: Cut its main lending rate to 25% from 35% and set a fixed exchange rate (at 25 Zimbabwe dollars to the U.S. dollar) as part of measures to support the economy. It indicated that it had suspended the managed floating exchange rate system to provide for greater certainty in the pricing of goods and services in the economy. Government of Zimbabwe March 29: Published new exchange control regulations making it legal for Zimbabweans to use electronic and cash foreign currencies in domestic transactions, as the country readies for a 21-day lockdown to prevent the spread of COVID-19. |
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Multi-Country and International Institutions' Responses |
March 4: The International Monetary Fund (IMF) made $50 billion in loans available to deal with the March 3: The World Bank announced an initial package of up to $12 billion in loans for countries to help countries cope with the effects of the March 11: The Inter-American Development Bank (IADB) announced that it has up to $2 billion in resources that can be programmed to countries requesting support for disease monitoring, testing and public health services, and that it could work with countries that have undisbursed loan balances to redirect resources to pandemic-response efforts. March 13: The European Bank for Reconstruction and Development (EBRD) unveiled an emergency €1 billion "Solidarity Package" of measures to help companies across its regions deal with the impact of the March 15: The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the U.S. Federal Reserve, and the Swiss National Bank agreed to lower the pricing on the standing US dollar liquidity swap arrangements by 25 basis points, so that the new rate will be the US dollar overnight index swap (OIS) rate plus 25 basis points. March 16: The European Investment Bank Group (EIBG) proposed a 40 billion euro financing package consists of dedicated guarantee schemes to banks based on existing program for immediate deployment (20 billion euros), liquidity lines to banks to ensure additional working capital support for SMEs and mid-caps (10 billion euros), and asset-backed securities purchasing programs to allow banks to transfer risk on portfolios of SME loans (10 billion euros). March 16: The Islamic Development Bank (IsDB) Group announced that it is setting-up a special "Strategic Preparedness and Response Facility" of $730 million to mitigate the negative health and socio-economic impact of the COVID-19 pandemic. It will include $280 million from the Bank and Islamic Solidarity Fund for Development (ISFD) for sovereign projects and programs, $300 million from International Islamic Trade finance Corporation (ITFC) for trade finance and $150 million from the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) for insurance coverage. March 16: The Central American Bank for Economic Integration (CABEI) granted a nonreimbursable financial package worth $8 million to the eight countries of the Central American Integration System in order to combat the widening economic fallout from the March 18: The Asian Development Bank (ADB) announced a $6.5 billion initial package to address the immediate needs of its developing member countries (DMCs) as they respond to the COVID-19 pandemic. The initial package includes approximately $3.6 billion in sovereign operations for a range of responses to the health and economic consequences of the pandemic, $1.6 billion in non-sovereign operations for micro, small, and medium-sized enterprises, domestic and regional trade, and firms directly impacted, about $1 billion in concessional resources through reallocations from ongoing projects and assessing possible needs for contingencies, and $40 million in technical assistance and quick-disbursing grants. (Since February 2020, ADB has provided more than $225 million to meet urgent needs of both governments and businesses in DMCs.) March 19: The U.S. Federal Reserve announced the establishment of temporary U.S. dollar liquidity arrangements (swap lines) with 9 central banks to help lessen strains in global U.S. dollar funding markets. These new facilities will support the provision of U.S. dollar liquidity in amounts up to $60 billion each for the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Korea, the Banco de Mexico, the Monetary Authority of Singapore, and the Sveriges Riksbank, and $30 billion each for the Danmarks Nationalbank, the Norges Bank, and the Reserve Bank of New Zealand. March 19: The Board of Directors of the New Development Bank approved RMB 7 billion ($1 billion) Emergency Assistance Program Loan to the People's Republic of China. The Program will help finance urgent and unexpected public health expenditures in Hubei, Guangdong, and Henan. March 20: The Development Bank of Latin America (CAF) announced that it has opened an additional $2.5 billion line of credit to support the measures that member countries are taking to mitigate the effects of COVID-19. On March 3, it approved a credit line worth $300 million to manage emergencies related to COVID-19 and the possibility of granting technical help of up to $5 million for initiatives related to the outbreak in countries across the region. March 26: The Group of 20 (G20) announced that it would inject "over $5 trillion into the global economy, as part of targeted fiscal policy, economic measures, and guarantee schemes to counteract the social, economic and financial impacts" of COVID-19. |
Source: Congressional Research Service based on information from news articles and press releases.
Author Contact Information
Footnotes
| 1. |
"Mapping the Spread of the |
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| 2. |
"The Day the World Stopped: How Governments Are Still Struggling to Get Ahead of the Long, Heather, Over 10 Million Americans Applied for Unemployment Benefits in March as Economy Collapsed, The Washington Post, April 2, 2020. https://www.washingtonpost.com/business/2020/04/02/jobless-march-COVID-19. Countercyclical capital buffers require banks to increase their capital buffers during periods of rapid growth in assets (when they are making a lot of loans), to ensure they have sufficient capital to absorb losses during a recession. Countercyclical Capital Buffers, Bank for International Settlements, April 3, 2020. https://www.bis.org/bcbs/ccyb/. Arnold, Martin, "Regulators Free up $500bn Capital for Lenders to Fight Virus Storm," Financial Times, April 7, 2020. https://www.ft.com/content/9a677506-a44e-4f69-b852-4f34018bc45f. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3. |
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Mapping the Spread of the |
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OECD Interim Economic Assessment: |
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COVID-19: Joint Actions to Win the War, Organization for Economic Cooperation and Development, March 23, 2020. https://www.oecd.org/ |
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| 7. |
The price and yield of a bond are inversely related; increased demand for Treasury securities raises their price, which lowers their yield. Levisohn, Ben, The 10-Year Treasury Yield Fell Below 1% for the First Time Ever. What That Means, Barrons, March 3, 2020. https://www.barrons.com/articles/the-10-year-treasury-yield-fell-below-1-for-the-first-time-ever-what-that-means-51583267310. |
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| 8. |
Smith, Colby, Richard Henderson, Philip Georgiadis, and Hudson Lockett, Stocks Tumble and Government Bonds Hit Highs on Virus Fears, Financial Times, March 6, 2020. https://www.ft.com/content/9f94d6f8-5f51-11ea-b0ab-339c2307bcd4. |
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| 9. |
Georgiadis, Philip, Adam Samson, and Hudson Lockett, Stocks Plummet as Oil Crash Shakes Financial Markets, Financial Times, March 9, 2020. https://www.ft.com/content/8273a32a-61e4-11ea-a6cd-df28cc3c6a68. |
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| 10. |
Stubbington, Tommy and Colby Smith, Investment Veterans Try to Get to Grips With 'Broken' Markets, Financial Times, March 20, 2020. https://www.ft.com/content/97186440-6aa0-11ea-800d-da70cff6e4d3. |
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| 11. |
Samson, Adam and Hudson Lockett, Stocks Fall Again in Worst Week Since 2008 Crisis, Financial Times, February 28. https://www.ft.com/content/4b23a140-59d3-11ea-a528-dd0f971febbc. |
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| 12. | Chazan, Guy and Jim Brunsden, Coronavirus Crisis Pushes Europe into Nationalist Economic Turn, Financial Times, March 26, 2020. https://www.ft.com/content/79c0ae80-6df1-11ea-89df-41bea055720b. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Rowland, Christopher and Peter Whoriskey, "U.S. Health System is Showing Why It's Not Ready for a COVID-19 Pandemic," Washington Post, March 4, 2020. https://www.washingtonpost.com/business/economy/the-us-health-system-is-showing-why-its-not-ready-for-a-COVID-19-pandemic/2020/03/04/7c307bb4-5d61-11ea-b29b-9db42f7803a7_story.html. 11.
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Ibid., p. 2. 12.
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Ibid., p. 4. 13.
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Evaluating the Initial Impact of COVID Containment Measures on Activity, Organization for Economic Cooperation and Development, March 27, 2020. 14.
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Goldin, Ian, "COVID-19 Shows How Globalization Spreads Contagion of All Kinds," Financial Times, March 2, 2020. https://www.ft.com/content/70300682-5d33-11ea-ac5e-df00963c20e6. 15.
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Trade Set to Plunge as COVID-19 Pandemic Upends Global Economy, World Trade Organization, April 8, 2020. https://www.wto.org/english/news_e/pres20_e/pr855_e.htm. 16.
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Foroohar, Rana, "How COVID-19 Became a Corporate Credit Run," Financial Times, March 15, 2020. https://www.ft.com/content/f1ea5096-6531-11ea-a6cd-df28cc3c6a68. 17.
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Armstrong, Robert, "Mortgage Investment Funds Become 'Epicenter' of Crisis," Financial Times, March 24, 2020. https://www.ft.com/content/18909cda-6d40-11ea-89df-41bea055720b. 18.
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Samson, Adam and Hudson Lockett, "Stocks Fall Again in Worst Week Since 2008 Crisis," Financial Times, February 28. https://www.ft.com/content/4b23a140-59d3-11ea-a528-dd0f971febbc. 19.
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The price and yield of a bond are inversely related; increased demand for Treasury securities raises their price, which lowers their yield. Levisohn, Ben, "The 10-Year Treasury Yield Fell Below 1% for the First Time Ever. What That Means," Barrons, March 3, 2020. https://www.barrons.com/articles/the-10-year-treasury-yield-fell-below-1-for-the-first-time-ever-what-that-means-51583267310. 20.
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Georgieva, Kristalina, "Potential Impact of the COVID-19 Epidemic: What We Know and What We Can Do," International Monetary Fund, March 4, 2020. https://blogs.imf.org/2020/03/04/potential-impact-of-the-COVID-19-epidemic-what-we-know-and-what-we-can-do/. 21.
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Chazan, Guy and Jim Brunsden, "COVID-19 Crisis Pushes Europe into Nationalist Economic Turn," Financial Times, March 26, 2020. https://www.ft.com/content/79c0ae80-6df1-11ea-89df-41bea055720b. |
Foreign Exchange Turnover in April 2019, Bank for International Settlements, September 16, 2019. https://www.bis.org/statistics/rpfx19_fx.htm. |
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See CRS In Focus IF10112, Introduction to Financial Services: The International Foreign Exchange Market. |
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25.
Politi, James, Brendan Greeley, and Colby Smith, "Fed Sets Up Scheme to Meet Booming Foreign Demand for Dollars," Financial Times, March 31, 2020. https://www.ft.com/content/6c976586-a6ea-42ec-a369-9353186c05bb. |
Taylor, Adam, Teo Armus, and Rick Noak, "Live updates: |
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Shih, Gerry, "China |
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| 18. |
Ibid., p. 2. |
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| 19. |
Ibid., p. 4. |
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| 20. |
Goldin, Ian. Coronavirus Shows How Globalization Spreads Contagion of All Kinds, Financial Times, March 2, 2020. https://www.ft.com/content/70300682-5d33-11ea-ac5e-df00963c20e6. |
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| 21. |
Foroohar, Rana, How Coronavirus Became a Corporate Credit Run, Financial Times, March 15, 2020. https://www.ft.com/content/f1ea5096-6531-11ea-a6cd-df28cc3c6a68. |
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| 22. |
Armstrong, Robert, Mortgage Investment Funds Become 'Epicenter' of Crisis, Financial Times, March 24, 2020. https://www.ft.com/content/18909cda-6d40-11ea-89df-41bea055720b. |
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| 28.
|
|
Georgiadis, Philip, Adam Samson, and Hudson Lockett, "Stocks Plummet as Oil Crash Shakes Financial Markets," Financial Times, March 9, 2020. https://www.ft.com/content/8273a32a-61e4-11ea-a6cd-df28cc3c6a68. 29.
|
|
Hume, Neil, "Mine Closures Bolster Metals Prices as Demand Collapses," Financial Times, April 7, 2020. https://www.ft.com/content/06ef38c9-18d8-427e-8675-a567227397c0. 30.
|
|
Chazan, Guy, David Keohane, and Martin Arnold, "Europe's Policymakers Search for Answers to Virus Crisis," Financial Times, March 9, 2020. https://www.ft.com/content/d46467da-61e1-11ea-b3f3-fe4680ea68b5. 31.
|
|
Smith, Colby and Brendan Greeley, "Fed Pumps Extra Liquidity Into Overnight Lending Markets," Financial Times, March 9, 2020. https://www.ft.com/content/e8c7b5f0-6200-11ea-a6cd-df28cc3c6a68. 32.
|
|
O'Brien, Fergal, "ECB's Lagarde Warns of 2008-Style Crisis Unless Europe Acts," Washington Post, March 11, 2020. https://www.bloomberg.com/news/articles/2020-03-11/ecb-s-lagarde-warns-of-2008-style-crisis-without-urgent-action. 33.
|
|
McAuley, James and Michael Birnbaum, "Europe Blindsided by Trump's Travel Restrictions, with Many Seeing Political Motive," Washington Post, March 12, 2020. https://www.washingtonpost.com/world/europe/europe-blindsided-by-trumps-travel-restrictions-with-many-seeing-political-motive/2020/03/12/42a279d0-6412-11ea-8a8e-5c5336b32760_story.html. 34.
|
|
Arnold, Martin, "ECB Enters Damage-Limitation Mode with Pledge of More Action," Financial Times, March 13, 2020. https://www.ft.com/content/f1cbd4f8-650f-11ea-b3f3-fe4680ea68b5. 35.
|
|
Morris, Stephen, Laura Noonan, Henny Sender, and Olaf Storbeck, "Banks Scramble as Companies Rush to Tap Back-up Credit Lines," Financial Times, March 12, 2020. https://www.ft.com/content/a3513a54-6486-11ea-b3f3-fe4680ea68b5. 36.
|
|
Edgecliffe-Johnson, Andrew, Peggy Hollinger, Joe Rennison, and Robert Smith, "Will the COVID-19 Trigger a Corporate Debt Crisis?" Financial Times, March 12, 2020. https://www.ft.com/content/4455735a-63bc-11ea-b3f3-fe4680ea68b5. Sectors most exposed to debt financing issues include automotive, insurance, capital goods, utilities, oil and gas, technology, aerospace and defense, real estate, telecoms, consumer products, metals, mining and steel, healthcare, retail/restaurants, chemicals, packaging, transportation, media and entertainment, and forest products. 37.
|
|
Fritz, Angela and Meryl Kornfield, "President Trump Declares a National Emergency, Freeing $50 Billion in Funding," Washington Post, March 13, 2020. https://www.washingtonpost.com/world/2020/03/13/COVID-19-latest-news. 38.
|
Werner, Erica, Mike DeBonis, Paul Kane, Jeff Stein, "White House, House Democrats Reach Deal on COVID-19 Economic Relief Package, Pelosi Announces," Washington Post, March 13, 2020. https://www.washingtonpost.com/us-policy/2020/03/13/paid-leave-democrats-trump-deal-COVID-19/.
39.
|
|
Georgiadis, Philip, Hudson Lockett, and Leo Lewis, "European Stocks and US Futures Soar After Historic Rout," Financial Times, March 13, 2020. https://www.ft.com/content/3bab76ac-64cd-11ea-a6cd-df28cc3c6a68. 40.
|
|
Federal Reserve Releases FOMC Statement, Board of Governors of the Federal Reserve System, March 15, 2020. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm. 41.
|
|
Greeley, Brendan, Colby Smith, Adam Samson, Joe Rennison, Katie Martin, and Jennifer Ablan, "Fed Cuts Rates to Zero as Part of Sweeping Crisis Measures," Financial Times, March 15, 2020. https://www.ft.com/content/a9a28bc0-66fb-11ea-a3c9-1fe6fedcca75. 42.
|
|
Rennison, Joe Rennison and Colby Smith, "Investors Call for Fed Help in 'Frozen' Commercial Paper Market," Financial Times, March 16, 2020. https://www.ft.com/content/34213560-677b-11ea-a3c9-1fe6fedcca75. 43.
|
|
Campbell, Peter, Joe Miller, and David Keohane, "European Car Plants Close as Industry Crisis Deepens," Financial Times, March 16, 2020. https://www.ft.com/content/dd76d42a-678b-11ea-a3c9-1fe6fedcca75. 44.
|
|
Smyth, Jamie Smyth, Andrew Edgecliffe-Johnson, Peggy Hollinger, Myles McCormick, David Keohane, and Richard Milne, "Most Airlines Face Bankruptcy by End of May, Industry Body Warns," Financial Times, March 16, 2020. https://www.ft.com/content/30a3a26e-674f-11ea-800d-da70cff6e4d3. 45.
|
|
Weinland, Don and Xinning Liu, "Chinese Economy Suffers Record Blow from COVID-19," Financial Times, March 16, 2020. https://www.ft.com/content/318ae26c-6733-11ea-800d-da70cff6e4d3. 46.
|
|
The G-7 is comprised of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. 47.
|
|
Wheatley, Jonathan, "Surging Dollar, Coronavirus and Oil Slump Hit Emerging Economies," Financial Times, March 18, 2020. https://www.ft.com/content/69fc6e2a-69d3-11ea-a3c9-1fe6fedcca75. 48.
|
|
Politi, James, Brendan Greeley, Colby Smith, and Joe Rennison, "Fed to Lend Against Stocks and Bonds in Bid to Stabilize Markets," Financial Times, March 17, 2020. https://www.ft.com/content/cf485398-689d-11ea-800d-da70cff6e4d3. 49.
|
|
"ECB Announces €750 Billion Pandemic Emergency Purchase Program (PEPP)," European Central Bank, March 18, 2020. https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200318_1~3949d6f266.en.html. 50.
|
|
Arnold, Martin, "ECB to Launch €750 Billion Purchase Program in Response to Coronavirus," Financial Times, March 18, 2020. https://www.ft.com/content/5919c6fb-1f5f-315d-8353-94f04afcf340. 51.
|
|
Campbell, Peter and Claire Bushey, "Ford, General Motors and Fiat Chrysler Agree Widespread Shutdown," Financial Times, March 18, 2020. https://www.ft.com/content/feae3808-6949-11ea-800d-da70cff6e4d3. 52.
|
|
Henderson, Richard, "Bank-Led Freeze on Stock Buybacks Could Spread Across US Market," Financial Times, March 18, 2020. https://www.ft.com/content/b1fa1688-68f6-11ea-a3c9-1fe6fedcca75. 53.
|
|
Stubbington, Tommy and Colby Smith, "Investment Veterans Try to Get to Grips With 'Broken' Markets," Financial Times, March 20, 2020. https://www.ft.com/content/97186440-6aa0-11ea-800d-da70cff6e4d3. 54.
|
|
Parker, George Parker, Chris Giles, and Sebastian Payne, "Sunak Turns on Financial Firepower to Help Workers," Financial Times, March 20, 2020, https://www.ft.com/content/826d465a-6ac3-11ea-a3c9-1fe6fedcca75. 55.
|
|
Federal Reserve Announces Extensive New Measures to Support the Economy, Board of Governors of the Federal Reserve System, March 23, 2020. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm. 56.
|
|
Gurria, Angel, COVID-19: Joint Actions to Win the War, Organization for Economic Cooperation and Development, March 23, 2020. https://www.oecd.org/coronavirus/#op-ed. 57.
|
|
Arnold, Martin Arnold and Valentina Romei, "Business Activity Crashes to Record Low in Eurozone," Financial Times, March 24, 2020. https://www.ft.com/content/f5ebabd4-6dad-11ea-89df-41bea055720b. 58.
|
|
Dombrey, Daniel, Guy Chazan, and Jim Brunsden, "Nine Eurozone Countries Issue Call for 'Coronabonds,'" Financial Times, March 26, 2020. https://www.ft.com/content/258308f6-6e94-11ea-89df-41bea055720b. 59.
|
|
Arnold, Martin and Tommy Stubbington, "ECB Shakes Off Limits on New €750bn Bond-Buying Plan," Financial Times, March 27, 2020. https://www.ft.com/content/d775a99e-13b2-444e-8de5-fd2ec6caf4bf. 60.
|
|
Kajimoto, Tetsushi, Izumi Nakagawa, "Japan Plans Huge Stimulus Package to Cushion Blow from Coronavirus," Reuters, March 27, 2020, https://www.reuters.com/article/us-health-coronavirus-japan-stimulus/japan-plans-huge-stimulus-package-to-cushion-blow-from-coronavirus-idUSKBN21E0UW. 61.
|
|
Georgiadis, Philip, Hudson Lockett, and Leo Lewis, "Global Stocks Falter After Two Days of Big Gains," Financial Times, March 27, 2020. https://www.ft.com/content/bc33c31c-f019-4ef8-85df-0014a5406ac1. 62.
|
|
Wheatley, Jonathan, "Emerging Market Central Banks Embark on Radical Stimulus Policies," Financial Times, March 30, 2020. https://www.ft.com/content/70398316-3fd5-4428-88ab-6f898ee42fd5. 63.
|
|
Politi, James, Brendan Greeley, and Colby Smith, "Fed Sets Up Scheme to Meet Booming Foreign Demand for Dollars," Financial Times, March 31, 2020. https://www.ft.com/content/6c976586-a6ea-42ec-a369-9353186c05bb. 64.
|
|
Takeo, Yuko and Yoshiaki Nohara, "Japan's Virus Stimulus Package to Come in Two Phases," Bloomberg, April 5, 2020. https://www.bloomberg.com/news/articles/2020-04-06/japan-s-virus-stimulus-package-to-come-in-two-phases-documents-k8nuj552. 65.
|
|
Sheppard, David, Anjli Raval, Derek Brower, and Henry Foy, "G20 Ministers Meet to Endorse OPEC-Russia Deal to Slash Oil Production," Financial Times, April 10, 2020. https://www.ft.com/content/c7a1e2e6-8c17-48d5-8c16-edce911b5cbb. 66.
|
|
Fleming, Sam and Mehreen Khan, "Eurozone Countries Strike Emergency Deal on Coronavirus Rescue," Financial Times, April 9, 2020. https://www.ft.com/content/b984101a-42b8-40db-9a92-6786aec2ba5c. 67.
|
|
Politi, James, "IMF Boosts Emergency Lending Capacity to $100bn," Financial Times, April 9, 2020. https://www.ft.com/content/e46faadc-456b-4cf8-a2fd-2017702747ab. 68.
|
|
Giles, Chris and Philip Georgiadis, "Bank of England to Directly Finance UK Government's Extra Spending," Financial Times, April 9, 2020. https://www.ft.com/content/664c575b-0f54-44e5-ab78-2fd30ef213cb. 69.
|
|
Rennison, Joe, Robin Wigglesworth, and Colby Smith, "Federal Reserve Enters New Territory with Support for Risky Debt," Financial Times, April 10, 2020. https://www.ft.com/content/c0b78bc9-0ea8-461c-a5a2-89067ca94ea4. Heather Long, "Fed Chair Powell Says U.S. Economy Deteriorating 'With Alarming Speed,'" Washington Post, April 9, 2020. https://www.washingtonpost.com/business/2020/04/09/federal-reserve-unveils-over-2-trillion-new-lending-small-businesses-city-governments-big-firms/. 70.
|
|
Unemployment Insurance Weekly Claims, Department of Labor, April 9, 2020. https://www.dol.gov/ui/data.pdf. 71.
|
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|
|
Giles, et |
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Federal Reserve Releases FOMC Statement, March 3, 2020, https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm. |
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Stage Three Proposal, U.S. Department of the Treasury, March 17, 2020. https://www.washingtonpost.com/context/department-of-treasury-proposal-for- |
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Federal Reserve Issues FOMC Statement, March 15, 2020. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm. |
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77.
Politi, James and Aime Williams, "Trump to Suspend Some Tariffs for 90 Days," Financial Times, March 31, 2020. https://www.ft.com/content/46add447-2048-4348-bd34-2088ad0e3bc8. |
This section was prepared by Marc Labonte, Specialist in Macroeconomic Policy, Government and Finance |
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79.
For additional information about swap lines, see CRS InFocus CRS In Focus IF11489, Federal Executive Agencies: Selected Pay Flexibilities for COVID-19 Response, by Barbara L. Schwemle. |
Armus, Theo, "Federal, State Officials Attempt to Fight Virus Through Social Distancing, Stimulus Package," |
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Sevastopulo, Demetri, "US Treasury Considers Tax Filing Extension to Ease Virus Impact," Financial Times, March 11, 2020. https://www.ft.com/content/c65a6e40-639f-11ea-b3f3-fe4680ea68b5. |
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McAuley, James, and Michael Birnbaum, "Europe Blindsided by Trump's Travel Restrictions, |
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Fritz, Angela and Meryl Kornfield, "President Trump Declares a National Emergency, Freeing $50 Billion in Funding, |
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Hellmann, Jessie, "Trump Invokes Defense Production Act as |
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85.
For additional information about unemployment and sick leave provisions, see CRS Insight IN11249, H.R. 6201: Paid Leave and Unemployment Insurance Responses to COVID-19, by Sarah A. Donovan, Katelin P. Isaacs, and Julie M. Whittaker, and CRS InFocus CRS In Focus IF11487, The Families First Coronavirus Response Act Leave Provisions, by Sarah A. Donovan and Jon O. Shimabukuro. |
CRS Insight IN11235, COVID-19: Potential Economic Effects, by Marc Labonte. |
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Arnold, Martin and Valentina Romei, "Business Activity Crashes to Record Low in Eurozone," Financial Times, March 24, 2020. https://www.ft.com/content/f5ebabd4-6dad-11ea-89df-41bea055720b. |
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Birnbaum, Michael, "Europe |
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89.
Evans, Judith Evans, Emiko Terazono, and Leila Abboud, "Farmers Warn over Food Supply with Harvest Workers Shut Out," Financial Times, March 27, 2020. https://www.ft.com/content/e27a9395-db47-4e7b-b054-3ec6ba4cbba3. |
Dombey, Daniel Dombey, Guy Chazan, and Jim Brunsden, "Nine Eurozone Countries Issue Call for 'Coronabonds,'" Financial Times, March 26, 2020. https://www.ft.com/content/258308f6-6e94-11ea-89df-41bea055720b. |
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"US Fed's |
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Arnold, Martin and Guy Chazan, "Christine Lagarde Calls on EU Leaders to Ramp up |
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Monetary Policy Decisions, The European Central Bank, March 12, 2020. https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.mp200312~8d3aec3ff2.en.htm. |
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Stafford, Philip and Adam Samson, "European Regulators Intervene in Bid to Stabilize Stock and Bond Prices," Financial Times, March 13, 2020. https://www.ft.com/content/77f57d4c-6509-11ea-a6cd-df28cc3c6a68. |
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Arnold, Martin, "ECB Enters Damage-Limitation Mode |
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Loveday, Morris and Louisa Beck, "Germany Announces |
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Arnold, Martin, Guy Chazan, Victor Mallet, Miles Johnson, and Daniel Dombey, "How European |
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ECB Announces €759 |
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Lagarde, Christine, "The ECB Will Do Everything Necessary to Counter the Virus," Financial Times, March 20, 2020. https://www.ft.com/content/281d600c-69f8-11ea-a6ac-9122541af204. |
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"Lagarde to Confront |
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Romei, Valentina, |
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Parker, George Parker, Chris Giles, and Sebastian Payne, "Sunak Turns on Financial Firepower to Help Workers," Financial Times, March 20, 2020. https://www.ft.com/content/826d465a-6ac3-11ea-a3c9-1fe6fedcca75. |
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Ibid. |
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Payne, Sebastian and Chris Giles, "Budget 2020: Sunak Unveils £30bn Stimulus to Counter UK |
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Johnson, Miles, Chris Giles, Martin Arnold, and James Politi, "Italy's PM Urges Brussels to Unleash €500bn Rescue Fund," Financial Times, March 18, 2020. https://www.ft.com/content/5b8205ac-6a06-11ea-800d-da70cff6e4d3. |
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Harding, Robin and Hudson Lockett, "BoJ Spurs Asia Markets Rebound |
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For additional information about China's response, see |
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Weinland, Don, "China's Central Bank Launches $79bn Stimulus for Virus- |
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Politi, James, "IMF Sets Aside $50bn for |
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International Monetary Fund, IMF Makes Available $50 Billion to Help Address Coronaviris, March 4, 2020. |
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International Monetary Fund, United Kingdom Boosts IMF's Catastrophe Relief Fund with £150 |
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Ibid. |
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World Bank, World Bank Group Announces Up to $12 Billion Immediate Support for COVID-19 Country Response |
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Anna Gross, "Critics |
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Ibid. |
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Asian Development Bank, ADB Approves Another $2 Million to Help Asia and the Pacific Tackle |
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White House, G-7 Leaders' Statement, March 16, 2020, https://www.whitehouse.gov/briefings-statements/g7-leaders-statement/. |
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Ibid |
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"Spain Says Saudi Arabia to Cal G-20 to Meet on |
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The G-20 includes the G-7 countries plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, and the European Union (EU). |
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For more information about the G-20, see CRS Report R40977, The G-20 and International Economic Cooperation: Background and Implications for Congress, by Rebecca M. Nelson. |
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See for example, Jennifer Rankin, "EU Leaders Divided on How to Protect Economies after |
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Jack Ewing and Jeanna Smialek, "Economic Powers Vow to Fight Crisis," New York Times, March 3, 2020. |
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Matthew Goodman and Mark Sobel, "Time to Pull the G-20 Fire Bell," Center for Strategic and International Studies, March 18, 2020. |
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"FSB Coordinates Financial Sector Work to Buttress the Economy in Response to Covid-19," Financial Stability Board, Press Release 6/2020, March 20, 2020. |
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OECD Interim Economic Assessment, p. 7. |
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Ibid, p. 5. |
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128.
Arnold, Martin Arnold and Valentina Romei, "European Factory Output Plummets as Covid-19 Shutdown Bites," Financial Times, April 1, 2020. https://www.ft.com/content/8646c0ee-8fba-4e4c-a047-cf445ff41cf6. |
Tentative Stabilization, Sluggish Recovery? World Economic Outlook Update, January 20, 2020, The International Monetary Fund. https://www.imf.org/en/Publications/WEO/Issues/2020/01/20/weo-update-january2020. |
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These include concerns in 2015 over China's renminbi devaluation and the so-called "Taper Tantrum" in 2013 when the Federal Reserve announced that it would slow down the pace of its post global financial crisis asset purchases. Sergei Lanau and Jonathan Fortun, "Economic Views |
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Paul Wallace, "Here's How the Oil Crash is Hitting Emerging Market Currencies," Bloomberg, March 17, 2020, https://www.bloomberg.com/news/articles/2020-03-17/here-s-how-the-oil-crash-is-hitting-emerging-market-currencies. |
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Nevzat Devranoglu, "Turkish |
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Johnson, Steve, "Currency Sell-Off Threatens Emerging Market Response to Covid-19," Financial Times, March 3, 2020. https://www.ft.com/content/94ad9d70-2ca2-4490-96fb-5b01b509ed37. 133.
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"COVID-19-Hit Iran Asks IMF for Aid amid US Sanctions," |
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Joshua Goodman, "IMF |
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John Plender, "The Seeds of the Next Debt Crisis," Financial Times, March 4, 2020. |
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Emre Tiftik, Khadija Mahmood, Jadranka Poljak, and Sonja Gibbs, "Global Debt Monitor: Sustainability Matters," Institute for International Finance, January 13, 2020.This includes debt held by governments, financial institutions, nonfinancial institutions, and households. |
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" |
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Rosenberg, Alyssa, |
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Taylor, Adam, Teo Armus, Rick Noak, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Hill, Andrew and Emma Jacobs, |
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Armus, Teo, "Live |
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Taylor, Adam, "Airlines Could Suffer up to $113 Billion in Lost Revenue Due to |
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"Airlines Slash Flights to Cut Costs as |
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Smyth, Jamie Smyth, Andrew Edgecliffe-Johnson, Peggy Hollinger, Myles McCormick, David Keohane, and Richard Milne, "Most Airlines Face Bankruptcy by End of May, Industry Body Warns," Financial Times, March 16, 2020. |
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Brower, Derek, "Cash-Strapped US Shale Producers Pray for OPEC Aid," Financial Times, March 3, 2020. https://www.ft.com/content/9161e62c-5cb1-11ea-b0ab-339c2307bcd4. |
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Strauss, Delphine, "Why There Are |
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Sheppard, David and Derek Brower, "U.S. Crude Oil Price Drops Below $20," Financial Times, March 29, 2020. https://www.ft.com/content/bc938195-82d3-43eb-b031-740028451382. 148.
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" |
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Ibid. |
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Hille, Kathrin, Alistair Gray, and Patrick McGee, |
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Newmyer, Tory, "The Finance 202: Stocks Stage Major Comeback, but Manufacturing Report Points to Continued |
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Lynch, David J., "Economic Fallout |
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Ibid. |
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Ibid. |