The World Health Organization (WHO) first declared COVID-19 a world health emergency in January 2020. Since the virus was first diagnosed in Wuhan, China, it has been detected in over 190 countries and all U.S. states.¹U.S. states.2 In early March 2020, the focal point of infections shifted from China to Europe, especiallyespecial y Italy, but by April 2020, the focus had shifted to the United States, where the number of infections was accelerating. The infection has sickened more than 4.5 million6.1 mil ion people, about one-third in the United States, with thousands ofnearly 370,000 fatalities. More than 80 countries have closed their borders to arrivals from countries with infections, ordered businesses to close, instructed their populations to self-quarantine, and closed schools to an estimated 1.5 billion children.²

Over the eightbil ion children.3 Over the ten-week period from mid-March to mid-late May 2020, more than 36.5 million40.8 mil ion Americans filed for unemployment insurance.³4 On May 8, 2020, the Bureau of Labor Statistics (BLS) 1 Powell, Jerome H. Coronavirus and CARES Act, T estimony before the Committee on Banking, Housing and Urban Affairs, U.S. Senate, May 19, 2020. 2 “Mapping the Spread of the COVID-19 in the U.S. and Worldwide,” Washington Post Staff, Washington Post, March 4, 2020. https://www.washingtonpost.com/world/2020/01/22/mapping-spread-new-COVID-19/?arc404=true. 3 “T he Day the World Stopped: How Governments Are Still Struggling to Get Ahead of the COVID-19,” The Econom ist, March 17, 2020. https://www.economist.com/international/2020/03/17/governments-are-still-struggling-to-get-ahead-of-the-COVID-19. 4 Unemployment Insurance Weekly Claims, Department of Labor, May 28, 2020. https://www.dol.gov/; Romm, T ony and Jeff Stein, 2,4 Million Americans Filed Jobless Claims Last Week, Bringing Nine Week T otal to 38.6 Million, The Washington Post, May 21, 2020. https://www.washingtonpost.com/business/2020/05/21/unemployment-claims- Congressional Research Service 1 Global Economic Effects of COVID-19 On May 8, 2020, the Bureau of Labor Statistics (BLS) reported that 20 millionmil ion Americans lost their jobs in April 2020, pushing the total number of unemployed Americans to 23 million,⁴ mil ion,5 out of a total civilian labor force of 156 millionmil ion. The increase pushed the national unemployment rate to 14.7%, the highest since the Great Depression of the 1930s.⁵6 Preliminary data also indicate that U.S. GDP fell by 4.8fel by 5.0% in the first quarter of 2020, the largest quarterly decline in GDP since the fourth quarter of 2008 during the global financial crisis.⁶

In Europe, over 30 million 7 In its May 27 Beige Book analysis, the Federal Reserve reported that economic activity had fal en sharply in each of the 12 Federal Reserve districts.8 In Europe, over 30 mil ion people in Germany, France, the UK, Spain, and Italy have applied for state support of their wages, while first quarter 2020 data indicate that the Eurozone economy contracted by 3.8% at an annual rate, the largest quarterly decline since the series started in 1995.⁷ 9 The European Commission released its economic forecast on’s May 6, 2020, which projects forecast projected that EU economic growth in 2020 willcould contract by 7.4% and only partiallypartial y recover in 2021.10 On May 27, 2020, however, European Central Bank (ECB) President Christine Lagarde characterized that forecast as outdated and warned that the Eurozone economy could contact by 8% to 12% in 2020, a level of damage to the Eurozone economy that Lagarde characterized as being unsurpassed in peace time.11 Foreign investors have pulled an estimated $26 bil ion out of developing Asian economies not including more than $16 bil ion out of India, increasing concerns about a major economic recession in Asia. Some estimates indicate that 29 mil ion people in Latin America could fal into poverty, reversing a decade of efforts to narrow income inequality. recover in 2021.⁸ Foreign investors have pulled an estimated $26 billion out of developing Asian economies and more than $16 billion out of India, increasing concerns of a major economic recession in Asia. Some estimates indicate that 29 million people in Latin America could fall into poverty, reversing a decade of efforts to narrow income inequality.

After a delayed response, central banks and monetary authorities are engaging in an ongoing series of interventions in financial markets and national governments are announcing fiscal policy initiatives initiatives to stimulate their economies. International organizations are also taking steps to provide loans and other financial assistance to countries in need. These and other actions have been labeled " “unprecedented,"” a term that has been used frequently to describe the pandemic and the policy responses.

As one measure of the global fiscal and monetary responses, the International Monetary Fund (IMF) estimated that government spending and revenue measures to sustain economic activity adopted through mid-April 2020 amounted to $3.3 trilliontril ion and that loans, equity injections and guarantees totaled an additional $4.5 trillion.⁹ $4.5 tril ion.12 The IMF also estimatesestimated that the increase in borrowing by governments globally willglobal y could rise from 3.7% of global gross domestic product coronavirus/ 5 T his total does not include 10.9 million workers who were working part time not by choice and 9.9 million individuals who were seeking employment. 6 The Employment Situation-April 2020, Bureau of Labor Statistics, May 8, 2020. https://www.bls.gov/. 7 Gross Domestic Product, First Quarter 2020 (Second Estimate), Bureau of Economic Analysis, May 28, 2020. https://www.bea.gov/data/gdp/gross-domestic-product . 8 The Beige Book, Federal Reserve System, May 27, 2020. https://www.federalreserve.gov/monetarypolicy/beige-book-default.htm. 9 Stott, Michael, Coronavirus Set to Push 29m Latin Americans Into Poverty, Financial Times, April 24, 2020. https://www.ft.com/content/3bf48b80-8fba-410c-9bb8-31e33fffc3b8; Hall, Benjamin, Coronavirus Pandemic T hreatens Livelihoods of 59m European Workers, Financial Tim es, April 19, 2020, https://www.ft.com/content/36239c82-84ae-4cc9-89bc-8e71e53d6649, Romei, Valentina and Martin Arnold, Eurozone Economy Shrinks by Fastest Rate on Record, Financial Tim es, April 30, 2020, https://www.ft.com/content/dd6cfafa-a56d-48f3-a9fd-aa71d17d49a8. 10 European Economic Forecast Spring 2020, European Commission, May 2020. 11 Arnold, Martin, Coronavirus Hit to Eurozone Economy Set to Dwarf Financial Crisis, Financial Times, May 27, 2020. https://www.ft.com/content/a01424e8-089d-4618-babe-72f88184ac57. 12 Global Financial Stability Report, International Monetary Fund, April 14, 2020. P. 2; Congressional Research Service 2 Global Economic Effects of COVID-19 rise from 3.7% of global gross domestic product (GDP) in 2019 to 9.9% in 2020, as indicated in Figure 1. Among developed economies, the fiscal balance to GDP ratio is projected to rise from 3.0% in 2019 to 10.7% in 2020; the ratio for the United States is projected to rise from 5.8% to 15.74%. According to the IMF, France, Germany, Italy, Japan, and the United Kingdom have each announced public sector support measures totalingthat total more than 10% of their annual GDP.¹⁰13 For developing economies, the fiscal balance to GDP ratio is projected to rise from 4.8% to 9.1%, significantly increasing their debt burden and raising prospects of defaults or debt rescheduling.¹¹14 According to some estimates, the most fiscally fiscal y vulnerable countries are: Argentina, Venezuela, Lebanon, Jordan, Iran, Zambia, Zimbabwe, and South Africa.¹²

15 Figure 1. IMF Projected Government Fiscal Balances Relative to GDP In percentage shares of Gross Domestic Product Source: Fiscal Monitor, International Monetary Fund, April 14, 2020. Created by CRS. Notes: Data for 2020 are estimates. Among central banks, the Federal Reserve has taken extraordinary steps not experienced since the 2008-2009 global financial crisis to address the growing economic effects of COVID-19. The U.S. Congress also has approved historic fiscal spending packages. In other countries, central banksgovernments have abandoned traditional borrowing caps to sustain growth. Simultaneously, central banks and monetary authorities have lowered interest rates and reserve requirements, announced new financing facilities, relaxed capital buffers and, in some cases, countercyclical capital buffers,¹³16 adopted after the 2008-2009 financial crisis, potentiallypotential y freeing up an estimated $5 tril ion $5 trillion in funds.¹⁴17 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.

Figure 1. IMF Projected Government Fiscal Balances Relative to GDP In percentage shares of Gross Domestic Product

Source: Fiscal Monitor, International Monetary Fund, April 14, 2020. Note: Data for 2020 are estimates.

On March 11, the WHO announced that the outbreak was officially 13 Fiscal Monitor, International Monetary Fund, April 14, 2020, p. 2. 14 Ibid., p. 6. 15 Wheatley, Jonathan, T ommy Stubbington, Michael Stott, Andrew England, and Joseph Cotterill, Debt Relief: Whic h Countries ae Most Vulnerable? Financial Tim es, May 6, 2020. https://www.ft.com/content/31ac88a1-9131-4531-99be-7bfd8394e8b9. 16 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/. 17 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. Congressional Research Service 3 Global Economic Effects of COVID-19 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 official y a pandemic, the highest level a pandemic, the highest level of health emergency.¹⁵18 A growing list of economic indicators makes it clear that the outbreak is negatively affecting global economic growth on a scale that has not been experienced since at least the global financial crisis of 2008-2009.¹⁶19 Global trade and GDP are forecast to decline sharplysharply, at least through the first half of 2020. The global pandemic is affecting a broad swath of international international economic and trade activities, from services generallygeneral y 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 a greater understanding of the impact on economies, forecasts must necessarily be considered preliminary. Similarly, estimates of when any recovery might begin and the speed of the recovery are speculative. 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. Increasing rates of unemployment are raising the prospects of wide-spreadwidespread social unrest and demonstrations in developed economies where lost incomes and health insurance are threatening living standards and in developing economies where populations reportedly are growing concerned over access to basic necessities and the prospects of rising levels of poverty.¹⁷20 U.N. Secretary General Antonio Guterres argued in a video conference before the U.N. Security Council on April 10, 2020, that the

: …[T]he pandemic also poses a significant threat to the maintenance of international peace and security—potentially leading to an increase in social unrest and violence that would greatly undermine our ability to fight the disease.¹⁸

21 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. In a growing number of cases, corporations are postponing investment decisions, laying off workers 18 Bill Chappell, “COVID-19: COVID-19 Is Now Officially a Pandemic, WHO Says,” National Public Radio, March 11, 2020, https://www.npr.org/sections/goatsandsoda/2020/03/11/814474930/COVID-19-COVID-19-is-now-officially-a-pandemic-who-says. 19 Mapping the Spread of the COVID-19. 20 Sly, Liz, Stirrings of Unrest Around the World Could Portend T urmoil as Economies Collapse, The Washington Post, April 19, 2020; Ingraham, Christopher, Coronavirus Recession Could Plunge T ens of Millions Into Poverty, New Report Warns, The Washington Post, April 20, 2020. https://www.washingtonpost.com/business/2020/04/20/coronavirus-recession-could-plunge-tens-millions-into-poverty-new-report-warns/. 21 Secretary-General’s Remarks to the Security Council on the COVID-19 Pandemic, United Nations, April 9, 2020. https://www.un.org/sg/en/content/sg/statement/2020-04-09/secretary-generals-remarks-the-security-council-the-covid-19-pandemic-delivered. Congressional Research Service 4 link to page 10 link to page 10 link to page 10 Global Economic Effects of COVID-19 growing number of cases, corporations are postponing investment decisions, laying off workers who previously had been furloughed, and in some cases filing for bankruptcy. Compounding the economic situation is a historic drop in the price of crude oil that reflects the global decline in economic activity and prospects for disinflation, while also contributing to the decline of the global economy through various channels. On April 29, 2020, Federal Reserve Chairman Jay Powell Jerome Powel stated that the Federal Reserve would use its "“full range of tools"” to support economic activity as the U.S. economic growth rate dropped 4.85.0% at an annual rate in the first quarter of 2020. In assessing the state of the U.S. economy, the Federal Open Market Committee released a statement indicating that, "“The ongoing public health crisis will wil weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term."¹⁹

”22 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%, based on the assumption that the economic effects of the virus would peak in the first quarter of 2020²⁰202023 (see Table 1). However, the OECD estimated that if the economic effects of the virus did not peak 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 it now looks like we we have already moved well beyond even the more severe scenario envisaged then…. [T]he pandemic has also set in motion a major economic crisis that will wil burden our societies for years to come.²¹

24 On March 26, 2020, the OECD revised its global economic forecast based on the mounting effects of the pandemic and measures governments have adopted to contain the spread of the virus. According to the updated estimate, the current containment measures could reduce global GDP by 2.0% per month, or an annualized rate of 24%, approaching the level of economic contraction not experienced since the Great Depression of the 1930s. The OECD estimates in Table 1 will wil be revised when the OECD releases updated country-specific data.

Labeling the projected decline in global economic activity as the "“Great Lockdown,"” the IMF released an updatedits forecast on April 14, 2020. The IMF concluded that the global economy would experience its "“worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago."²²”25 In addition, the IMF estimated that the global economy could decline by 3.0% in 2020, before growing by 5.8% in 2021; global trade is projected to fall fal in 2020 by 11.0% and oil prices are projected to fall fal by 42%, also shown inin Table 1.²³26 This forecast assumes that the pandemic fades in the second half of 2020 and that the containment measures can be reversed quickly. The IMF also stated that many countries are facing a multi-layered crisis that includes a health crisis, a domestic economic crisis, fallingfal ing external demand, capital outflows, and 22 Federal Reserve Issues FOMC Statement, Board of Governors of the Federal Reserve System, April 29, 2020. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200429a.htm. 23 OECD Interim Economic Assessment: COVID-19: The World Economy at Risk, Organization for Economic Cooperation and Development. March 2, 2020. http://www.oecd.org/economic-outlook/#resources. 24 COVID-19: Joint Actions to Win the War, Organization for Economic Cooperation and Development, March 23, 2020. https://www.oecd.org/COVID-19/#op-ed. 25 World Economic Outlook, International Monetary Fund, April 14, 2020, p. v. 26 T he IMF database indicates that global GDP fell by 0.075% in 2009 during the height of the global financial crisis. Congressional Research Service 5 Global Economic Effects of COVID-19 external demand, capital outflows, and a collapse in commodity prices. In combination, these various effects are interacting in ways that make forecasting difficult.

Advanced economies as a group are forecast to experience an economic contraction in 2020 of 7.8% of GDP, with the U.S. economy projected by the IMF to decline by 5.9%, about twice the rate of decline experienced in 2009 during the financial crisis, as indicated in Figure 2.. The rate of economic growth in the Euro area is projected to decline by 7.5% of GDP. Most developing Congressional Research Service 6 Global Economic Effects of COVID-19 and emerging economies are projected to experience a decline in the rate of economic growth of 2.0%, reflecting tightening global financial conditions and falling fal ing global trade and commodity prices. In contrast, China, India, and Indonesia are projected to experience smallsmal , but positive rates of economic growth in 2020. The IMF also argues that recovery of the global economy could be weaker than projected as a result of: lingering uncertainty about possible contagion, lack of confidence, and permanent closure of businesses and shifts in the behavior of firms and households.²⁴

households.27 Figure 2. Gross Domestic Product, Percentage Change

Source: World Economic Outlook, International Monetary Fund, April 14, 2020. Created by CRS. 14, 2020. Note: Data for 2020 and 2021 are estimates.

As a result of the various challengeschal enges, the IMF qualified its forecast by arguing that

: A partial recovery is projected for 2021, with above trend growth rates, but the level of GDP will remain below GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound. Much worse growth outcomes are possible and maybe even likely. This would follow if the pandemic and containment measures last longer, emerging and developing economies are even more severely hit, tight financial conditions persist, or if widespread scarring effects emerge due to firm closures and extended unemployment.²⁵

28 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, fallingfal ing commodity and energy prices, and economic uncertainties in Europe over the impact of the UK withdrawal from the European Union. IndividuallyIndividual y, each of these issues presented a solvable challengechal enge for the global economy. Collectively, however, the issues weakened the global economy and reduced the available policy flexibility of many national leaders, especiallyespecial y among the leading developed economies. In this environment, COVID-19 could have an outsized impact. While the level of economic effects will eventuallywil eventual y become clearer, the response to the pandemic could have a significant and enduring impact on the way 27 World Economic Outlook, p. 9. 28 Ibid., p. v. Congressional Research Service 7 Global Economic Effects of COVID-19 businesses organize their work forces, on global supply chains, and how governments respond to a global health crisis.²⁶

29 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."²⁷”30 Global trade, measured by trade volumes, slowed in the last quarter of 2019 and had been 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.²⁸

31 According to the OECD'’s updated forecast

• :  The greatest impact of the containment restrictions will wil be on retail and wholesale trade, and in professional and real estate services, although there are notable differences between countries.
•  Business closures could reduce economic output in advanced and major emerging economies by 15% or more; other emerging economies could experience a decline in output of 25%.
•  Countries dependent on tourism could be affected more severely, while countries with large agricultural and mining sectors could experience less severe effects.
•  Economic effects likely will wil vary across countries reflecting differences in the timing and degree of containment measures.²⁹

32 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 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.³⁰33 China'’s global economic role and globalization 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 being spread 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 overal 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.

Global Trade

According to an April 29 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. 30 World Economic Outlook, p. 2. 31 Ibid., p. 4. 32 Evaluating the Initial Impact of COVID Containment Measures on Activity, Organization for Economic Cooperation and Development, March 27, 2020. 33 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. Congressional Research Service 8 link to page 13 Global Economic Effects of COVID-19 Global Trade According to an April 8, 2020, forecast by the World Trade Organization (WTO), global trade 8, 2020, forecast by the World Trade Organization (WTO), global trade volumes are projected to decline between 13% and 32% in 2020 as a result of the economic impact of COVID-19, as indicated inin Table 2. The WTO argues that the wide range in the forecast represents the high degree of uncertainty concerning the length and economic impact of the pandemic and that the actual economic outcome could be outside this range, either higher or lower. The WTO'’s more optimistic scenario assumes that trade volumes recover quickly in the second half of 2020 to their pre-pandemic trend, or that the global economy experiences a V-shaped recovery. The more pessimistic scenario assumes a partial recovery that lasts into 2021, or that global economic activity experiences more of a U-shaped recovery. The WTO concludes, however, that the impact on global trade volumes could exceed the drop in global trade during the height of the 2008-2009 financial crisis.³¹

The estimates indicate that all al geographic regions will wil 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 pandemic is also raising questions concerning the costs and benefits of the global supply chains businesses erected over the past three decades. Evidence indicates that growth in supply chains had slowed prior to the pandemic, but there is little consensus on the long-term impact of the crisis. In some cases, businesses are reassessing their exposure to the risks posed by extensive supply chains that potential y are vulnerable to numerous points of disruption. Also, some governments are assessing the risks supply chains pose to national supplies of items considered to be of importance to national security as a result of firms shifting production offshore. For multinational businesses, changing suppliers and shifting production locations can be especial y costly for some firms and can introduce additional risks.35 In addition, businesses may be reluctant to relocate from production locations, such as China, that not only serve as production platforms, but are also important markets for their output. For instance, the Bureau of Economic Analysis reports that 10% of the global sales of the majority-owned foreign affiliates of U.S. parent companies is shipped back to the U.S. parent company. In contrast, 60% of such sales take place in the foreign country where the affiliate is located and another 30% is shipped to other foreign countries in close proximity. For China, about 6% of such sales are shipped to the U.S. parent, while 82% is sold in China and another 12% is shipped to other foreign countries.36 Economic Policy Challenges The chal engeEconomic Policy Challenges

The challenge for policymakers has been one of implementing targeted policies that address what had 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 effects on the global economy are escalating. As the economic effects of the pandemic grow, policymakers are giving more weight to policies that address the immediate economic effects at the expense of longer-term considerations such as debt accumulation. InitiallyDuring the early stages of the crisis, many policymakers had felt constrained in their ability 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, especiallyespecial y in manufacturing and trade that had developed prior to the viral outbreak. The pandemic is also affecting global politics as world leaders are cancellingcancel ing international meetings,³² 37 35 Beattie, Alan, Will Coronavirus Pandemic Finally Kill Off Global Supply Chains?, Financial Times, May 28, 2020. https://www.ft.com/content/4ee0817a-809f-11ea-b0fb-13524ae1056b. 36 Activities of U.S. Multinational Enterprises: U.S. Parent Companies and Their Foreign Affiliates, Preliminary 2017 Statistics, Bureau of Economic Analysis, August 23, 2019, T able II.E.2. https://www.bea.gov/news/2019/activities-us-multinational-enterprises-2017. 37 T aylor, Adam, T eo Armus, and Rick Noak, “ Live updates: COVID-19 T urmoil Widens as U.S. Death T oll Mounts; Congressional Research Service 10 Global Economic Effects of COVID-19 competing for medical supplies, and some nations reportedly are stoking conspiracy theories that shift blame to other countries.³³

Initially, 38 Initial y, the economic effects of the virus were expected to be short-term supply issues as factory output fell output fel because workers were quarantined to reduce the spread of the virus through social interaction. The drop in economic activity, initially initial y in China, has had international repercussions as firms experienced delays in supplies of intermediate and finished goods through supply chains. Concerns are growing, however, that virus-related supply shocks are creating more prolonged and wide-ranging demand shocks as reduced activity by consumers and businesses leads to a lower rate of economic growth. As demand shocks unfold, businesses experience reduced activity and profits and potentiallypotential y 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 serviceservices firms have tended to hoard 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 potentiallypotential y facing insolvency.

The longer the economic effects persist, the greater the economic impacts are likely to be as the effects are spread through trade and financial linkages to an ever-broadening group of countries, firms and households. These growing economic effects potentiallypotential y increase liquidity constraints and credit market tightening in global financial markets as firms hoard cash, with negative fallout fal out effects on economic growth. At the same time, financial markets are factoring in an increase in government bond issuance in the United States, Europe, and elsewhere 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.³⁴

Liquidity 39 Liquidity and credit market issues present policymakers with a different set of challengeschal enges 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. EssentiallyEssential y, 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 fallingfal ing 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 Xi Cancels Japan T rip, Washington Post, March 5, 2020, https://www.washingtonpost.com/world/2020/03/05/COVID-19-live-updates/. 38 Shih, Gerry, “ China Is Subtly Stoking COVID-19 Conspiracy T heories T hat Blame the U.S. for Outbreak,” Washington Post, March 5, 2020. https://www.washingtonpost.com/world/2020/03/05/COVID-19-live-updates/. 39 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. Congressional Research Service 11 Global Economic Effects of COVID-19 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 overal rate of economic growth. Losses in the value of most equity markets in the U.S., Asia, and Europe could also affect household wealth, especiallyespecial y that of 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.³⁵40 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.

Economic Developments

Between late February and earlylate May, 2020, financial markets from the United States to Asia and Europe have been whipsawed as investors have grown concernedalternated between optimism and pessimism amid concerns 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.³⁶41 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, 2020.³⁷42 In response to concerns that the global economy was in a freefallfreefal , 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 billionbil ion available through emergency financing facilities for low-income and emerging market countries and through funds available in its Catastrophe Containment and Relief Trust (CCRT).³⁸

43 Reflecting investors'’ uncertainties, the Dow Jones Industrial Average (DJIA) lost about one-third of its value between February 14, 2020, and March 23, 2020, as indicated in Figure 3. Expectations that the U.S. Congress would adopt a $2.0 trilliontril ion spending package moved the DJIA up by more than 11% on March 24, 2020. From March 23 to April 15, the DJIA moved higher by18%, paring its initial losses by half. Since then, the DJIA has moved erraticallyerratical y as investors have weighed news about the human cost and economic impact of the pandemic and the prospects of various medical treatments. For some policymakers, the drop in equity prices has raised concerns that foreign investors might attempt to exploit the situation by increasing their 40 Armstrong, Robert, “ Mortgage Investment Funds Become ‘Epicenter’ of Crisis,” Financial Times, March 24, 2020. https://www.ft.com/content/18909cda-6d40-11ea-89df-41bea055720b. 41 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. 42 T he price and yield of a bond are inversely related; increased demand for T reasury securities raises their price, which lowers their yield. Levisohn, Ben, “ T he 10-Year Treasury Yield Fell Below 1% for the First T ime Ever. What T hat 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. 43 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/. Congressional Research Service 12 Global Economic Effects of COVID-19 raised concerns that foreign investors might attempt to exploit the situation by increasing their purchases of firms in sectors considered important to national security. For instance, Ursula von der Leyen, president of the European Commission, urged EU members to better screen foreign investments, especiallyespecial y in areas such as health, medical research, and critical infrastructure.³⁹

44 Similar to the 2008-2009 global financial crisis, central banks have implemented a series of monetary operations to provide liquidity to their economies. These actions, however, initially initial y were not viewed entirely positively by all al financial market participants who questioned the use of policy tools by central banks that are similar to those employed during the 2008-2009 financial crisis, despite the fact that the current and previous crisis are fundamentallyfundamental y different in origin. During the previous financial crisis, central banks intervened to restart credit and spending by banks that had engaged in risky assets. In the current environment, central banks are attempting to address financial market volatility and prevent large-scale corporate insolvencies that reflect the underlying economic uncertainty caused by the pandemic.

Figure 3. Dow Jones Industrial Average Index February 14, 2020, to May 13, 2020

Source: Financial Times.

to June 1, 2020 Source: Financial Times. Created by CRS. Similar to conditions during the 2008-2009 financial crisis, the dollar has emerged as the preferred currency by investors, reinforcing its role as the dominant global reserve currency. As indicated in Figure 4, 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. Since the highs reached on March 23, the dollar has given up some of its value against other currencies, but has remained about 10% higher than it was at the beginning of the year. According to a recent survey by the Bank for International Settlements (BIS),⁴⁰45 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 to facilitate international trade. 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 44 Chazan, Guy and Jim Brunsden, “COVID-19 Crisis Pushes Europe into Nationalist Economic T urn,” Financial Tim es, March 26, 2020. https://www.ft.com/content/79c0ae80-6df1-11ea-89df-41bea055720b. 45 Foreign Exchange Turnover in April 2019, Bank for International Settlements, September 16, 2019. https://www.bis.org/statistics/rpfx19_fx.htm. Congressional Research Service 13 Global Economic Effects of COVID-19 from banks and the corporate bond market.46from banks and the corporate bond market.⁴¹ As a result, disruptions in the smooth functioning of the global dollar market can have wide-ranging repercussions on international trade and financial transactions.

transactions. The international role of the dollar also increases pressure on the Federal Reserve essentiallyessential y to assume the lead role as the global lender of last resort. Reminiscent 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.⁴² Typically47 Typical y, 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 illiquidil iquid in a panic, meaning it cannot borrow in private markets to meet short-term cash flow needs. Swap lines are designed to allowal ow foreign central banks the funds necessary to provide needed liquidity to their country'’s banks in dollars.

Figure 4. U.S. Dollar Trade-Weighted Broad Index, Goods and Services

January 2, 2020 through May 22, 2020 Source: St. Louis Federal Reserve Bank. Created by CRS. NotesBank. Note: January 2006 = 100.

March 2020

The 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.⁴³48 On March 5, the U.S. Congress passed a $8 billion spending bill to provide assistance for health care, sick leave, small 46 See CRS In Focus IF10112, Introduction to Financial Services: The International Foreign Exchange Market. 47 Politi, James, Brendan Greeley, and Colby Smith, “Fed Sets Up Scheme to Meet Booming Foreign Demand for Dollars,” Financial Tim es, March 31, 2020. https://www.ft.com/content/6c976586-a6ea-42ec-a369-9353186c05bb. 48 Smith, Colby, Richard Henderson, Philip Georgiadis, and Hudson Lockett, “ Stocks T umble and Government Bonds Hit Highs on Virus Fears,” Financial Tim es, March 6, 2020. https://www.ft.com/content/9f94d6f8-5f51-11ea-b0ab-339c2307bcd4. Congressional Research Service 14 Global Economic Effects of COVID-19 bil ion spending bil to provide assistance for health care, sick leave, smal 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 raised concerns about corporate profits and led some investors to sell sel 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 fal by more than 5% when markets are closed and 7% when markets are open.⁴⁴49 By early April, the global mining industry had reduced production by an estimated 20% in response to falling fal ing demand and labor quarantines and as a strategy for raising prices.⁴⁵

50 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.⁴⁶51 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 fel sharply, government bond yields fell fel to record lows (reflecting increased demand), and demand for corporate bonds fellfel . Together these developments raised concerns for some analysts that instability in stock markets could threaten global financial conditions.⁴⁷

52 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 cal to EU leaders warned that without coordinated action, Europe could face a recession similar to the 2008-2009 financial crisis.⁴⁸53 The Bank of England lowered its key interest rate, reduced capital buffers for UK banks, and provided a funding program for small smal and medium businesses. The UK ChancellorChancel or of the Exchequer also proposed a budget that would appropriate £30 billionbil ion (about $35 bil ion) $35 billion) for fiscal stimulus spending, including funds for sick pay for workers, guarantees for loans to small smal businesses, and cuts in business taxes. The European Commission announced a €25 billion bil ion (about $28 billion) bil ion) 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.⁴⁹ At its March 12 meeting, the ECB announced €27 billion (about $30 billion) 54 At its March 12 49 Georgiadis, Philip, Adam Samson, and Hudson Lockett, “Stocks Plummet as Oil Crash Shakes Financial Markets,” Financial Tim es, March 9, 2020. https://www.ft.com/content/8273a32a-61e4-11ea-a6cd-df28cc3c6a68. 50 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. 51 Chazan, Guy, David Keohane, and Martin Arnold, “Europe’s Policymakers Search for Answers to Virus Crisis,” Financial Tim es, March 9, 2020. https://www.ft.com/content/d46467da-61e1-11ea-b3f3-fe4680ea68b5. 52 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. 53 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. 54 McAuley, James and Michael Birnbaum, “Europe Blindsided by T rump’s T ravel Restrictions, with Many Seeing Political Motive,” Washington Post, March 12, 2020. https://www.washingtonpost.com/world/europe/europe- Congressional Research Service 15 Global Economic Effects of COVID-19 meeting, the ECB announced €27 bil ion (about $30 bil ion) in stimulus funding, combining measures to expand low-cost loans to Eurozone banks and small smal 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"“unlimited” loans to affected businesses. The ECB's ’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.⁵⁰55 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 fellfel , reflecting sales by investors who reportedly had grown concerned that banks would experience a rise in loan defaults.⁵¹56 Despite the various actions, the DJIA fell fel by nearly 10% on March 12, recording the worst one-day drop since 1987. Between February 14 and March 12, the DJIA fell fel 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.⁵²

57 On March 13, President Trump declared a national emergency, potentiallypotential y releasing $50 billion in bil ion in disaster relief funds to state and local governments. The announcement moved financial markets sharply higher, with the DJIA rising 10%.⁵³58 Financial markets also reportedly moved higher on expectations the Fed would lower interest rates. House Democrats and President Trump agreed to a $2 tril ion a $2 trillion spending package to provide paid sick leave, unemployment insurance, food stamps, support for small smal businesses, and other measures.⁵⁴59 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, potentiallypotential y easing borrowing costs for firms and adding $79 billion bil ion in funds to stimulate the Chinese economy; Norway'’s central bank reduced its key interest rate; the Bank of Japan acquired billionsbil ions of dollars of government securities (thereby increasing liquidity); and the Reserve Bank of Australia injected nearly $6 billion bil ion into its financial system.⁵⁵60 The Bank of Canada also lowered its overnight bank lending rate.

blindsided-by-trumps-travel-restrictions-with-many-seeing-political-motive/2020/03/12/42a279d0-6412-11ea-8a8e-5c5336b32760_story.html. 55 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. 56 Morris, Stephen, Laura Noonan, Henny Sender, and Olaf Storbeck, “Banks Scramble as Companies Rush to T ap Back-up Credit Lines,” Financial Tim es, March 12, 2020. https://www.ft.com/content/a3513a54-6486-11ea-b3f3-fe4680ea68b5. 57 Edgecliffe-Johnson, Andrew, Peggy Hollinger, Joe Rennison, and Robert Smith, “Will the COVID-19 T rigger a Corporate Debt Crisis?” Financial Tim es, 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. 58 Fritz, Angela and Meryl Kornfield, “President T rump 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. 59 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/. 60 Georgiadis, Philip, Hudson Lockett, and Leo Lewis, “European Stocks and US Futures Soar After Historic Rout,” Financial Tim es, March 13, 2020. https://www.ft.com/content/3bab76ac-64cd-11ea-a6cd-df28cc3c6a68. Congressional Research Service 16 Global Economic Effects of COVID-19 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."⁵⁶”61 It also announced an additional $700 billion bil ion 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.⁵⁷

62 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 sellingsel ing short-term debt, rose on March 16, 2020, to their highest levels since the 2008-2009 financial crisis, prompting investors to cal to call on the Federal Reserve to intervene.⁵⁸63 The DJIA dropped nearly 3,000 points, or about 13%. Most automobile manufacturers announced major declines in sales and production;⁵⁹ 64 similarly, most airlines reported they faced major cutbacks in flights and employee layoffs due to diminished economic activity.⁶⁰65 Economic data from China indicated the economy would slow markedly in the first quarter of 2020, potentiallypotential y greater than that experienced during the global financial crisis.⁶¹66 The Bank of Japan announced that it would double its purchases of exchange traded funds and the G-7 countries⁶²countries67 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 tril ion lending capacity to help its membership." ” The World Bank also promised an additional $14 billion $14 bil ion to assist governments and companies address the pandemic.⁶³

68 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 allowal ow 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.⁶⁴69 The UK government proposed government-backed loans to support business; a three- 61 Federal Reserve Releases FOMC Statement, Board of Governors of the Federal Reserve System, March 15, 2020. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm. 62 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 Tim es, March 15, 2020. https://www.ft.com/content/a9a28bc0-66fb-11ea-a3c9-1fe6fedcca75. 63 Rennison, Joe Rennison and Colby Smith, “Investors Call for Fed Help in ‘Frozen’ Commercial Paper Market,” Financial Tim es, March 16, 2020. https://www.ft.com/content/34213560-677b-11ea-a3c9-1fe6fedcca75. 64 Campbell, Peter, Joe Miller, and David Keohane, “European Car Plants Close as Industry Crisis Deepens,” Financial Tim es, March 16, 2020. https://www.ft.com/content/dd76d42a-678b-11ea-a3c9-1fe6fedcca75. 65 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 Tim es, March 16, 2020. https://www.ft.com/content/30a3a26e-674f-11ea-800d-da70cff6e4d3. 66 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. 67 T he G-7 is comprised of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. 68 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. 69 Politi, James, Brendan Greeley, Colby Smith, and Joe Rennison, “Fed to Lend Against Stocks and Bonds in Bid to Stabilize Markets,” Financial Tim es, March 17, 2020. https://www.ft.com/content/cf485398-689d-11ea-800d- Congressional Research Service 17 Global Economic Effects of COVID-19 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 temporary, non-standard asset purchase program, the Pandemic Emergency Purchase Program (PEPP), to acquire an additional €750 bil ion €750 billion (over $820 billion) bil ion) in public and private sector bonds to counter the risks posed by the pandemic crisis (as of May 5, the ECB had purchased about $180 billionbil ion in securities).⁶⁵70 The ECB also broadened the types of assets it would accept as collateral to include non-financial commercial paper, eased collateral standards for banks, and waived restrictions on acquiring Greek government debt.⁶⁶71 The program was expected to end no later than yearend 2020.

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, followingfol owing similar plant closures in Europe.⁶⁷72 Major U.S. banks announced a moratorium on share repurchases, or stock buy-backs, denying equity markets a major source of support and potentiallypotential y amplifying market volatility.⁶⁸ 73 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 were sellingsel ing 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 fel at the same time in March 2020 as investors reportedly adopted a "sell everything"“sel everything” mentality to build up cash reserves.⁶⁹74 Senate Republicans introduced the Coronavirus Aid, Relief, and Economic Security Act to provide $2 trilliontril ion in spending to support the U.S. economy.

By the close of trading on March 20, the DJIA index had fallenfal en by 17% from March 13. At the same time, the dollar continued to gain in value against other major currencies and the price of Brent crude oil dropped close to $20 per barrel on March 20, as indicated in Figure 5.. The Federal Reserve announced that it would expand a facility to support the municipal bond market. Britain' Britain’s Finance Minister announced an "unprecedented"“unprecedented” fiscal package to pay up to 80% of an employee'employee’s wages and deferring value added taxes by businesses.⁷⁰75 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 fel again on March 23 as the Senate debated the parameters of a new spending bill bil to support the economy. Oil prices also continued to fall fal as oil producers appeared to be in a standoff over cuts to production. da70cff6e4d3. 70 “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. 71 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. 72 Campbell, Peter and Claire Bushey, “Ford, General Motors and Fiat Chrysler Agree Widespread Shutdown,” Financial Tim es, March 18, 2020. https://www.ft.com/content/feae3808-6949-11ea-800d-da70cff6e4d3. 73 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. 74 Stubbington, T ommy and Colby Smith, “Investment Veterans T ry to Get to Grips With ‘Broken’ Markets,” Financial Tim es, March 20, 2020. https://www.ft.com/content/97186440-6aa0-11ea-800d-da70cff6e4d3. 75 Parker, George Parker, Chris Giles, and Sebastian Payne, “Sunak T urns on Financial Firepower to Help Workers,” Financial Tim es, March 20, 2020, https://www.ft.com/content/826d465a-6ac3-11ea-a3c9-1fe6fedcca75. Congressional Research Service 18 Global Economic Effects of COVID-19 Figure 5. Brent Crude Oil Price per Barrel in Dollars January 9, 2020 to May 29, 2020 Source: Markets Insider. Created by CRS. Financial markets continued to fal to production.

Figure 5. 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 included 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.⁷¹76 The OECD released a statement encouraging its members to support "“immediate, large-scale and coordinated actions."” These actions included (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; and (4) policies directed at restoring confidence.⁷²

confidence.77 Reacting to the Fed'’s announcement, 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 severe economic recession.⁷³78 U.S. financial markets were buoyed on March 25 and 26 over passage in Congress of a $2.2 trilliontril ion economic stimulus package.

76 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. 77 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. 78 Arnold, Martin Arnold and Valentina Romei, “Business Activity Crashes to Record Low in Eurozone,” Financial Tim es, March 24, 2020. https://www.ft.com/content/f5ebabd4-6dad-11ea-89df-41bea055720b. Congressional Research Service 19 Global Economic Effects of COVID-19 On March 27, leaders of the G-20 countries announced through a video conference they had agreed to inject $5 trillion tril ion 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 calledcal ed on the ECB to consider issuing "“coronabonds,"” a common European debt instrument to assist Eurozone countries in fighting COVID-19.⁷⁴79 The ECB announced that it was removing self-imposed limits that it had followed in previous asset purchase programs that restricted its purchases of any one country'’s bonds.⁷⁵ 80 Japan announced that it would adopt an emergency spending package worth $238 billionbil ion, or equivalent to 10% of the country'’s annual GDP.⁷⁶81 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.⁷⁷

82 By March 30, central banks in developing countries from Poland, Columbia, South Africa, the Philippines, Brazil, and the Czech Republic reportedly had begun adopting monetary policies similar to that of the Federal Reserve to stimulate their economies.⁷⁸83 In commodity markets, Brent crude oil prices continued to fallfal , 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 al ow central banks and international monetary authorities to enter into repurchase agreements with the Fed.⁷⁹ Fed.84 From mid-March to mid-April, U.S. workers'’ claims for unemployment benefits reached over 17 million mil ion as firms faced a collapse in demand and requirements for employees to self-quarantine caused them to begin 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.

April 2020

The Federal Reserve announced on April 8 that it was establishing a facility to fund small smal 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.⁸⁰

On April 9, OPEC and Russia reportedly agreed to cut oil production by 10 million bil ion funding package.85 79 Dombrey, Daniel, Guy Chazan, and Jim Brunsden, “Nine Eurozone Countries Issue Call for ‘Coronabonds,’” Financial Tim es, March 26, 2020. https://www.ft.com/content/258308f6-6e94-11ea-89df-41bea055720b. 80 Arnold, Martin and T ommy Stubbington, “ECB Shakes Off Limits on New €750bn Bond-Buying Plan,” Financial Tim es, March 27, 2020. https://www.ft.com/content/d775a99e-13b2-444e-8de5-fd2ec6caf4bf. 81 Kajimoto, T etsushi, 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. 82 Georgiadis, Philip, Hudson Lockett, and Leo Lewis, “Global Stocks Falter After T wo Days of Big Gains,” Financial Tim es, March 27, 2020. https://www.ft.com/content/bc33c31c-f019-4ef8-85df-0014a5406ac1. 83 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. 84 Politi, James, Brendan Greeley, and Colby Smith, “Fed Sets Up Scheme to Meet Booming Foreign Demand for Dollars,” Financial Tim es, March 31, 2020. https://www.ft.com/content/6c976586-a6ea-42ec-a369-9353186c05bb. 85 T akeo, Yuko and Yoshiaki Nohara, “Japan’s Virus Stimulus Package to Come in T wo 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. Congressional Research Service 20 Global Economic Effects of COVID-19 On April 9, OPEC and Russia agreed to cut oil production by 10 mil ion barrels per day.86barrels per day.⁸¹ On April 15, G-20 finance ministers and central bank governors announced their support for the proposed agreement by Saudi Arabia and Russia to reduce oil production.⁸²87 They also announced an agreement to freeze government loan payments until the end of the year to help low -income developing countries address the pandemic and asked international financial institutions to do likewise.⁸³88 G-7 finance ministers and central bank governors agreed to support the G-20 proposal to suspend debt payments by developing countries.⁸⁴89 Eurozone finance ministers announced a €500 bil ion €500 billion (about $550 billion) bil ion) emergency spending package to support governments, businesses, and workers. Reportedly, the measure will wil provide funds to the European Stability Mechanism, the European Investment Bank, and for unemployment insurance.⁸⁵

90 In other policy areas, the IMF announced that it was doubling its emergency lending capability to $100 bil ion, $100 billion, in response to requests from more than 90100 countries for assistance.⁸⁶91 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-19.⁸⁷92 Secretary-General of the United Nations Guterres declared on April 9, 2020, before the United Nations Security Council that the pandemic poses a significant threat to the maintenance of international peace and security and outlined eight specific risks, including the erosion of trust in public institutions, increased risks from terrorism and bioterrorism, and worsening existing human rights abuses.⁸⁸

93 Federal Reserve Chairman Jerome PowellPowel , stating that the U.S. economy was deteriorating "“with alarming speed,"” announced on April 10 that the Fed would provide an additional $2.3 trilliontril ion 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.⁸⁹94 On April 16, the U.S. Labor Department reported that 5.2 millionmil ion Americans filed for unemployment insurance 86 Sheppard, David, Anjli Raval, Derek Brower, and Henry Foy, “G20 Ministers Meet to Endorse OPEC-Russia Deal to Slash Oil Production,” Financial Tim es, April 10, 2020. https://www.ft.com/content/c7a1e2e6-8c17-48d5-8c16-edce911b5cbb. 87 Sheppard, David, Anjli Raval, Derek Brower. and Henry Foy, G20 Back s Largest Oil Supply Agreement in History, Financial Tim es, April 15, 2020. https://www.ft.com/content/16ac91d8-42bf-4190-88de-f3d89b2b36f4. 88 England, Andrew, Jonathan Wheat ley and James Politi, G20 Agrees Debt Relief for Low Income Nations, Financial Tim es, April 15, 2020. https://www.ft.com/content/5f296d54-d29e-4e87-ae7d-95ca6c0598d5. 89 Politi, James and Jonathan Wheatley, G7 Countries Back Debt Relief For Poorest Nations, Financial Times, April 14, 2020. https://www.ft.com/content/c384ed59-1ca3-476f-9b89-eaf5cf31e42c. 90 Fleming, Sam and Mehreen Khan, “Eurozone Countries Strike Emergency Deal on Coronavirus Rescue,” Financial Tim es, April 9, 2020. https://www.ft.com/content/b984101a-42b8-40db-9a92-6786aec2ba5c. 91 Politi, James, “IMF Boosts Emergency Lending Capacity to $100bn,” Financial Times, April 9, 2020. https://www.ft.com/content/e46faadc-456b-4cf8-a2fd-2017702747ab. 92 Giles, Chris and Philip Georgiadis, “Bank of England to Directly Finance UK Government’s Extra Spending,” Financial Tim es, April 9, 2020. https://www.ft.com/content/664c575b-0f54-44e5-ab78-2fd30ef213cb. 93 Secretary-General’s Remarks to the Security Council on the COVID-19 Pandemic [as delivered], United Nations, April 9, 2020. https://www.un.org/sg/en/content/sg/statement/2020-04-09/secretary-generals-remarks-the-security-council-the-covid-19-pandemic-delivered. 94 Rennison, Joe, Robin Wigglesworth, and Colby Smith, “Federal Reserve Enters New T erritory with Support for Risky Debt,” Financial Tim es, 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/. Congressional Research Service 21 Global Economic Effects of COVID-19 Americans filed for unemployment insurance during the previous week, raising the total claims since mid-March to over 22 million.⁹⁰ mil ion.95 According to Chinese official statistics, the Chinese economy shrank by 6.8% on an annual basis during the first quarter of 2020, reportedly the first such contraction in 40 years.⁹¹

96 Financial market indicators rose on April 17, reportedly on an upbeat sentiment that actions taken by the Federal Reserve and other central banks would stabilize conditions in the corporate credit market.⁹²97 The price of futures contracts for oil delivery in May 2020 for the U.S. West Texas Intermediate (WTI) fell fel to $18 per barrel, the lowest it had been since 2002, reportedly reflecting rising inventories and low global demand.⁹³98 Leaders of emerging economies in Latin America and Africa argued that the G-20 call cal for suspension of interest payments fell fel short of what is needed. National leaders from Columbia, Brazil, Mexico, and Chile encouraged the World Bank, the InterAmerican Development Bank and the IMF to double their net lending to Latin America, arguing that, "“The Covid-19 pandemic is a shock of unprecedented magnitude, uncertain duration and catastrophic consequences that, if not properly addressed, could lead to one of the most tragic episodes in the history of Latin America and the Caribbean."⁹⁴

On April 19, 2020, the”99 The price of oil fell fel to its lowest level in two decades on April 19, reportedly reflecting a significant drop in global demand for energy and rising inventories.⁹⁵100 Some Eurozone members reportedly argued for the ECB to create a Eurozone "“bad bank"” to remove billions bil ions of euros in non-performing debts from banks'’ balance sheets to provide more capacity for Eurozone banks at a potential ya potentially critical time when banks could see an increase in non-performing loans.⁹⁶101 The World Bank confirmed that its "“pandemic bonds"” would pay out $133 billion bil ion to the poorest countries affected by the pandemic.⁹⁷

102 On April 21, 2020, 21, Agricultural Ministers of the G-20 countries released a joint statement that supported measures to "“ensure the health, safety, welfare, and mobility of workers in agriculture and throughout the food supply chain."” The joint statement also indicated that the G-20 countries would adopt measures that are "“targeted, proportionate, transparent, and temporary, and that they do not create unnecessary barriers to trade or disruption to global food supply chains."” The statement also indicated that the G-20 would, "“guard against any unjustified restrictive measures that could lead to excessive food price volatility in international markets and threaten the food security and nutrition of large proportions of the world population, especiallyespecial y the most vulnerable living living in environments of low food security."⁹⁸

On April 23, 2020”103 95 Unemployment Insurance Weekly Claims, Department of Labor, April 16, 2020. https://www.dol.gov/ui/data.pdf. 96 Hale, T homas, Xinning Liu, and Yuan Yang, China’s Economy Shrinks for First T ime in Four Decades, Financial Tim es, April 17, 2020. https://www.ft.com/content/8f941520-67ad-471a-815a-d6ba649d22ed. 97 Smith, Colby, Myles McCormick, T ommy Stubbington, and Hudson Lockett, US Stocks Extend Rally With Central Bank Safety Net, Financial Tim es, April 17, 2020. https://www.ft.com/content/5ebbc2d8-ade3-4d5c-86f5-49b9478fe03d. 98 Sheppard, David, US Crude T umbles to 18-year Low as Supply Overwhelms Demand, Financial Times, April 17, 2020. https://www.ft.com/content/d0a0cfc3-765c-4b55-ada7-11e0d378d406. 99 Wheatley, Jonathan, Michael Stott, and David Pilling, Emerging Economies Call for More Financial Help After G20 Deal, Financial Tim es, April 17, 2020. https://www.ft.com/content/203ed8f5-6bb2-4016-80a9-dd99269bfa26. 100 Lockett, Hudson Lockett and David Sheppard, US Oil Price Plunges to 20 -year Low as Coronavirus Hits Demand, Financial Tim es, April 19, 2020. https://www.ft.com/content/a5292644-958d-4065-92e8-ace55d766654. 101 Arnold, Martin and Javier Espinoza, ECB Pushes for Eurozone Bad Bank to Clean up Soured Loans, Financial Tim es, April 19, 2020. https://www.ft.com/content/15d17d1d-8e1b-4f84-97b4-b62e6ae8f962. 102 Gross, Anna, World Bank Pandemic Bonds to Pay $133m to Poorest Virus-hit Nations, Financial Times, April 19, 2020. https://www.ft.com/content/c8556c9f-72f7-48b4-91bf-c9e32ddab6ff. 103 G20 Extraordinary Agriculture Ministers Meeting: Statement on COVID-19, G-20, April 21, 2020. https://g20.org/ Congressional Research Service 22 Global Economic Effects of COVID-19 On April 23, the House passed H.R. 266 ( (P.L. 116-139), the Paycheck Protection Program and Health Care Enhancement Act, following similar actions by the Senate the previous day. The measure will wil provide $484 billion for small bil ion for smal business loans, health care providers, and COVID-19 testing. The U.S. Labor Department reported that 4.4 millionmil ion Americans filed for unemployment insurance in the previous week, raising the total that have applied to over 26 million.⁹⁹mil ion.104 Indicators of manufacturing and services activity in Europe dropped to their lowest level since 1990, reflecting the impact of the pandemic on the European economy.¹⁰⁰105 The Bank of England indicated that it would quadruple its borrowing over the second quarter of 2020, reflecting a contraction in the UK economy, lower tax revenues, and increased financial demands to support fiscal policy measures to fight the pandemic.¹⁰¹106 The Saudi Presidency of the G-20 calledcal ed on international organizations on April 24, 2020, to fund an emergency response to the pandemic. The Bank of Japan announced on April 27, 2020, that it would purchase unlimited amounts of government bonds and quadruple its purchases of corporate debt to keep interest rates low and stimulate the Japanese economy.¹⁰²

107 At its April 29, 2020, scheduled meeting, the U.S. Federal Open Market Committee left its main interest rates unchanged, but reiterated its commitment to use "“its full range of tools to support the U.S. economy."” The policy statement concluded that, "“The ongoing public health crisis will wil weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term."¹⁰³”108 The Federal Reserve also announced a change in its eligibility requirements for a $500 billionbil ion lending program for municipalities. The statement followed the release of the preliminary estimate of U.S. first quarter GDP, which indicated that the economy had contracted by an annualized rate of 4.8%.¹⁰⁴

On April 30, 2020, (revised to 5.0%).109 On April 30, the Department of Labor released its weekly data on applications for unemployment insurance, which indicated that an additional 3.8 million mil ion people had filed for unemployment insurance during the week, raising the total number who have applied to 30 million.¹⁰⁵mil ion.110 The Federal Reserve also announced an expansion in its medium-size business loan program by allowingal owing firms with up to 15,000 employees or with revenues up to $5 billionbil ion to access a new $600 bil ion $600 billion program. In addition, the Fed lowered the minimum loan amount for small smal businesses and announced a loan program to assist riskier businesses.¹⁰⁶111 At the same time, the ECB expanded a record low-interest rate loan program for Eurozone banks to support economic activity, while warning that the Eurozone economy could contract between 5% and 12% in 2020 as it faces, "“an economic contraction of a magnitude and speed that are unprecedented in peacetime."¹⁰⁷ en/media/Pages/pressroom.aspx. 104 Unemployment Insurance Weekly Claims, Department of Labor, April 23, 2020. https://www.dol.gov/ui/data.pdf. 105 Arnold, Martin and Valentina Romei, European Business Activity Crashes Under Coronavirus Lockdowns, Financial Tim es, April 23, 2020. https://www.ft.com/content/8520895f-3249-4a8b-b0e5-881a64e77971. 106 Giles, Chris, and T ommy Stubbington, UK T reasury to Quadruple Borrowing to £180bn Over Next Quarter, Financial Tim es, April 23, 2020. https://www.ft.com/content/8886e002-c260-4daa-8b7b-509b3f7e6edb. 107 Harding, Robin, Bank of Japan Steps up Coronavirus Stimulus With Bond-buying Pledge, Financial Times, April 27, 2020. https://www.ft.com/content/7ba5c507-df9e-4107-87eb-73afa2c13e91. 108 Federal Reserve Issues FOMC Statement, Board of Governors of the Federal Reserve System, April 29, 2020. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200429a.htm. 109 Gross Domestic Product, First Quarter 2020 (Advance Estimate), Bureau of Economic Analysis, April 29, 2020. https://www.bea.gov/. 110 Unemployment Insurance Weekly Claims, Department of Labor, April 30, 2020. https://www.dol.gov/ui/data.pdf. 111 Politi, James, Colby Smith and Robert Armstrong, Federal Reserve Extends $600bn Main Street Lending Program. Financial Tim es, April 30, 2020. https://www.ft.com/content/46fdc853-1d7d-49af-93e8-f12e0d006fc2. Congressional Research Service 23 Global Economic Effects of COVID-19 peacetime.”112 The ECB also announced a new non-targeted low-interest rate pandemic emergency longer-term refinancing operation (PELTROs) to complement its Pandemic Emergency Refinance Operations announced in March.¹⁰⁸113 House Speaker Pelosi stated that House Democrats were considering a $1 trillion spending bill tril ion spending bil to support state and local governments.¹⁰⁹ 114 In a development that seemed incongruous with the broader economic situation, between April 1, 2020, and April 30, 2020, the DJIA rose more than 3,400 points, or 16%, marking the strongest monthly increase since 1987.¹¹⁰

115 May 2020

On May 5, 2020, Germany'’s Constitutional court issued a ruling that could prevent the German central bank, the Bundesbank, from making additional bond purchases under the Pandemic Emergency Purchase Program (PEPP). The ECB'’s program is intended to ease borrowing costs across the Eurozone to stimulate economic growth.

The U.S. Census Bureau reported on May 5 that U.S. exports and import fell imports fel in March; exports fell fel by a greater amount than imports, thereby increasing the monthly U.S. goods and services trade deficit. The trade balance for March was -$44.5 billionbil ion, an increase of about $4.6 billion bil ion over the trade deficit in February. The decline in export and import values reflected lower imports and exports of both goods and services.

On May 6, 2020, the European Commission released its economic forecast, which indicated that economic activity in the EU would decline by 7.4% in 2020 as a result of measures to contain the pandemic. The Commission forecast that economic growth would advance by 6.0% in 2021, assuming the containment measures can be lifted graduallygradual y, the viral effects remain contained, and that the fiscal and monetary measures implemented by the EU members are effective in blunting the negative effects on economies.¹¹¹116 On May 7, the Labor Department announced that 3.2 mil ion3.2 million Americans had filed for unemployment insurance during the week, raising the total that had filed over the previous seven weeks to 33 million.¹¹²

mil ion.117 On May 8, the U.S. Department of Labor announced that 20.5 millionmil ion Americans had lost their jobs in April, pushing the national unemployment rate to 14.5%. Despite the rise in the unemployment rate, the DJIA rose by 2.0%, reportedly based on optimism that the monetary policy actions the Federal Reserve, the ECB, and the Bank of Japan have taken to support financial markets would stabilize and stimulate the markets and optimism that the health crisis is ebbing.¹¹³

On May 12, House Democrats proposed a $3 trillion supplemental spending bill to provide ebbing.118 112 Introductory Statement, European Central Bank, April 29, 2020. https://www.ecb.europa.eu/press/pressconf/2020/html/ecb.is200430~ab3058e07f.en.html. 113 Arnold, Martin and T ommy Stubbington, ECB Launches Fresh Push to Lend to Banks at Ultra -low Rates, Financial Tim es, April 30, 2020. https://www.ft.com/content/cef090d0-97dc-4e75-a4b1-deebfd4afacf. 114 Werner, Erica, Pelosi Points to $1 T rillion Need for State and Local Governments in Next Coronavirus Bill, The Washington Post, April 30, 2020. https://www.washingtonpost.com/us-policy/2020/04/30/congress-coronavirus-economy/. 115 Henderson, Richard Henderson, Robin Wigglesworth, and Katie Martin, U.S. Stocks Close Out Best Month Since 1987 in Global Rebound, Financial Tim es, April 30, 2020. https://www.ft.com/content/88e57ec9-42d4-455d-a045-293a6a54837d. 116 European Economic Forecast Spring 2020, European Commission, May 2020. https://ec.europa.eu/commission/presscorner/detail/en/ip_20_799 . 117 Unemployment Insurance Weekly Claims, Department of Labor, May 5, 2020. https://www.dol.gov/ui/data.pdf. 118 Platt, Eric, Colby Smith, Adam Samson, and Hudson Lockett, Wall Street closes higher despite dire US jobs data, Congressional Research Service 24 Global Economic Effects of COVID-19 On May 12, House Democrats introduced H.R. 6800, the Heroes Act, to provide a $3 tril ion supplemental spending bil for additional financial resources to state and local governments and for other purposes. The measure passed the House on May 15 and was sent to the Senate for considerationfor other purposes. On May 13, the UK Office of National Statistics reported that UK GDP contracted by 2.0% in the first quarter, the largest decline in the UK'’s GDP since 2008 with all al major economic sector affected.¹¹⁴119 On May 14, the U.S. Department of Labor announced that an additional 3.0 millionmil ion Americans had filed for unemployment insurance during the previous week, increasing the total number filing for unemployment insurance over the previous eight weeks to 36 million.¹¹⁵

Policy Responses

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 wil “use al appropriate policy tools"” to sustain economic growth.¹¹⁶125 The Finance Ministers also pledged fiscal support to ensure health systems can sustain efforts to fight the outbreak.¹¹⁷126 In most cases, 125 Statement of G-7 Finance Ministers and Central Bank Governors, March 3, 2020. https://home.treasury.gov/news/press-releases/sm927. Long, Heather, “ G-7 Leaders Promise to Help Economy as COVID-19 Spreads, But T hey Don’t Announce Any New Action,” Washington Post, March 3, 2020. https://www.washingtonpost.com/business/2020/03/03/economy-COVID-19-rate-cuts/. 126 Giles, et al., “Finance Ministers Ready to T ake Action.” Congressional Research Service 26 link to page 61 Global Economic Effects of COVID-19 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."¹¹⁸”127 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 See the Appendix to this report for detailed information about the policy actions by individual governments.¹¹⁹

governments.128 The United States

Recognizing the growing impact the pandemic is having on 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 ’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.¹²⁰"129” 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.130 On April imports of apparel and light trucks from China, but not on other consumer goods and metals.¹²¹

The overall policy response to date has provided a measure of relief and stability, and will provide some support to the recovery when it comes. But the coronavirus crisis raises longer-term concerns as well. The record shows that deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy. Avoidable household and business insolvencies can weigh on growth for years to come. Long stretches of unemployment can damage or end workers' careers as their skills lose value and professional networks dry up, and leave families in greater debt. The loss of thousands of small- and medium-sized businesses across the country would destroy the life's work and family legacy of many business and community leaders and limit the strength of the recovery when it comes. These businesses are a principal source of job creation—something we will sorely need as people seek to return to work. A prolonged recession and weak recovery could also discourage business investment and expansion, further limiting the resurgence of jobs as well as the growth of capital stock and the pace of technological advancement. The result could be an extended period of low productivity growth and stagnant incomes.¹²³

On April 29, the Bureau of Economic Analysis released first quarter U.S. GDP data indicating that the U.S. economy had contracted by 4.8% at an annual rate, as indicated in Figure 6. A decline in economic activity of 30% or more was recorded in motor vehicles and parts, recreation, food services and accommodation and transportation sectors, reflecting the quarantine measures adopted across the country. In contrast to the other sectors of the economy, food and beverage consumption increased by 25% as a result of the switch by individuals from eating at restaurants and other commercial food service establishments to preparing and eating food at home.

Figure 6. U.S. GDP, Percent Change From Preceding Quarter, 1st Quarter 2020

127 Federal Reserve Releases FOMC Statement, March 3, 2020, https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm. 128 Stage Three Proposal, U.S. Department of the T reasury, March 17, 2020. https://www.washingtonpost.com/context/department -of-treasury-proposal-for-COVID-19-response/6c2d2ed5-a18b-43d2-8124-28d394fa51ff/?itid=lk_inline_manual_3. 129 Federal Reserve Issues FOMC Statement, March 15, 2020. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm. 130 Politi, James and Aime Williams, “T rump to Suspend Some T ariffs for 90 Days,” Financial Times, March 31, 2020. https://www.ft.com/content/46add447-2048-4348-bd34-2088ad0e3bc8. Congressional Research Service 27 Global Economic Effects of COVID-19 Figure 6. U.S. GDP, Percent Change From Preceding Quarter, 1st Quarter 2020 Source: Bureau of Economic Analysis. Created by CRS. On May 5, Source: Bureau of Economic Analysis.

On May 5, 2020, the U.S. Census Bureau reported an increase in the overall U.S. trade deficit on a month-to-month basis of $4.5 billion, reflecting lower amounts of exports and imports of both goods and services. Exports and imports of both goods and services fell from the previous month, although the deficit in goods trade imports increased from $61 billion in February to $65.6 billion in March; the surplus in services trade fell from $21.23 billion to $21.18 billion.

On May 8, the Department of Labor reported that the U.S. non-farm unemployment rate in April increased by 20 million, raising the total number of unemployed Americans to 23 23 million, or an unemployment rate of 14% of a total civilian labor force of 156 million. The unemployment rate does not include approximately 10 million workers who are involuntarily working part-time and another 9 million million individuals seeking employment. As indicated in Figure 7, 7, the number of unemployed individuals increased the most in the leisure and hospitality sector, reflecting national quarantining policies to reduce the spread of COVID-19 through social contact. The employment losses were widely spread across the economy, affecting every non-farm sector and all labor groups.

Figure 7. Change in U.S. Employment by Major Industrial Sector, April 2020 Change month over month, in thousands

Source: The Employment Situation, Bureau of Labor Statistics, April 2020.

Monetary Policy¹²⁴

Congressional Research Service 28 Global Economic Effects of COVID-19 Figure 7. Change in U.S. Employment by Major Industrial Sector Source: The Employment Situation, Bureau of Labor Statistics, April 2020. Created by CRS. In a speech on May 13, Federal Reserve Chairman Jerome Powel stated that the Federal Reserve’s analysis indicated that of individuals working in February, “almost 40 percent of those in households making less than $40,000 a year had lost a job in March.”131 Chairman Powel also indicated that given the extraordinary nature of the current economic downturn that the Fed would, “continue to use our tools to their fullest until the crisis has passed and the economic recovery is wel under way.” In characterizing the current situation, Chairman Powel said, The overall policy response to date has provided a measure of relief and stability, and wil provide some support to the recovery when it comes. But the coronavirus crisis raises longer-term concerns as well. The record shows that deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy . Avoidable household and business insolvencies can weigh on growth for years to come. Long stretches of unemployment can damage or end workers' careers as their skills lose value and professional networks dry up, and leave families in greater debt. The loss of thousands of small- and medium-sized businesses across the country would destroy the life's work and family legacy of many business and community leaders and limit the strength of the recovery when it comes. These businesses are a principal source of job creation—something we will sorely need as people seek to return to work. A prolonged recession and weak recovery could also discourage business investment and expansion, further limiting the resurgence of jobs as well as the growth of capital stock an d the pace of technological advancement. The result could be an extended period of low productivity growth and stagnant incomes.132 131 Current Economic Issues; Speech at the Peterson Institute for International Economics, Jerome H. Powell, May 13, 2020. 132 Ibid. Congressional Research Service 29 Global Economic Effects of COVID-19 Monetary Policy133 Forward Guidance Forward 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.

tril ion. On March 23, the Fed announced 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 billionbil ion 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 trilliontril ion. One notable difference from previous rounds of QE is that the Fed is purchasing securities of different maturities, so the effect likely will wil not be concentrated on long-term rates.

Actions to Provide Liquidity

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 ever. 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 (repos) 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 announced it would offer a three-month repo of $500 billionbil ion and a one-month repo of $500 billion bil ion 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. On March 31, the Fed announced the Foreign and International Monetary Authorities (FIMA) Repo Facility, which works like the foreign repo pool in reverse. This facility allows al ows 133 T his section was prepared by Marc Labonte, Specialist in Macroeconomic Policy, Government and Finance Division, CRS. CRS Insight IN11259, Federal Reserve: Recent Actions in Response to COVID-19, by Marc Labonte. Congressional Research Service 30 Global Economic Effects of COVID-19 foreign central banks to convert their U.S. Treasury holdings into U.S. dollars on an overnight basis. The Fed will wil charge a (typicallytypical y) above market interest rate of 0.25 percentage points above the interest rate paid on bank reserves. The facility is intended to work in tandem with currency swap lines to provide additional dollars to meet global demand and is available to a broader group of central banks than the swap lines.

Discount 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 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 reduced the cost of using those swap lines and on March 19 it extended swap lines to nine more central banks. On March 31, 2020, the Fed set up a new temporary facility to work in tandem with the swap lines to provide additional dollars to meet global demand. The new facility allowsal ows central banks and international monetary authorities to exchange their U.S. Treasury securities held with the Federal Reserve for U.S. dollars, which can then be made available to institutions in their jurisdictions.¹²⁵

134 Emergency Credit Facilities for the Nonbank Financial System

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 overal 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 revived 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 revived 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 created the Money Market Mutual Fund Liquidity Facility (MMLF), similar to a facility created during the 2008 financial crisis. The MMLF makes loans to financial institutions to purchase assets that money market funds are sellingsel ing to meet redemptions.
• 134 For additional information about swap lines, see CRS In Focus IF11489, Federal Executive Agencies: Selected Pay Flexibilities for COVID-19 Response, by Barbara L. Schwemle. Congressional Research Service 31 Global Economic Effects of COVID-19  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 revivedrevived the Term Asset-Backed Securities Loan Facility to make nonrecourse loans to private investors to purchase ABS backed by various nonmortgage consumer loans.
•  On April 6, the Fed announcedannounced the Payroll Protection Program Lending Facility (PPPLF) to provide credit to depository institutions (e.g., banks) making loans under the CARES Act (H.R. 748//P.L. 116-136) ) Payroll Protection Program. . Because banks are not required to hold capital against these loans, this facility increases lending capacity for banks facing high demand to originate these loans. The PPP provides low-cost loans to small smal businesses to pay employees. These loans do not pose credit risk to the Fed because they are guaranteed by the Small Smal Business Administration.
•  On April 9, the Fed announcedannounced the Main Street Lending Program (MSLP), which purchases loans from depository institutions to businesses with up to 10,000 employees or up to $2.5 billion bil ion in revenues. The loans to businesses would defer principal and interest repayment for one year, and the businesses would have to make a "“reasonable effort"” to retain employees.
•  On April 9, the Fed announcedannounced the Municipal Liquidity Facility (MLF) to purchase state and municipal debt in response to higher yields and reduced liquidity liquidity in that market. The facility will wil only purchase debt of larger counties and cities.

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 adopted H.R. 6074 on March 5, 2020 (P.L. 116-123), to appropriate $8.3 billion bil ion in emergency funding to support efforts to fight COVID-19; President Trump signed the measure on March 6, 2020. President Trump also signed on March 18, H.R. 6201 (6201 (P.L. 116-127), the Families First COVID-19 Response Act, that provides paid sick leave and free COVID-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 wil 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,¹²⁶135 and extended of the tax filing deadline.¹²⁷136 President Trump has taken additional actions, including

• Announcing on March 11, 2020, restrictions on all : 135 Armus, T heo, “Federal, State Officials Attempt to Fight Virus T hrough Social Distancing, Stimulus Package,” Washington Post, March 11, 2020. https://www.washingtonpost.com/world/2020/03/11/Covid-19-live-updates/. 136 Sevastopulo, Demetri, “US T reasury Considers T ax Filing Extension to Ease Virus Impact,” Financial Times, March 11, 2020. https://www.ft.com/content/c65a6e40-639f-11ea-b3f3-fe4680ea68b5. Congressional Research Service 32 Global Economic Effects of COVID-19  Announcing on March 11, 2020, restrictions on al travel from Europe to the travel from Europe to the United States for 30 days, directing the Small Smal Business Administration (SBA) to offer low-interest loans to small smal businesses, and directing the Treasury Department to defer tax payments penalty-free for affected businesses.¹²⁸
• 137  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 individuals identify symptoms, increased oil purchases for the Strategic Oil Reserve, and a waiver on interest payments on student loans.¹²⁹
• 138  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.¹³⁰

139 On March 25, 2020, the Senate adopted the COVID-19 Aid, Relief, and Economic Security Act ((S. 3548) to formally) to formal y implement President Trump'’s proposal by providing direct payments to taxpayers, loans and guarantees to airlines and other industries, and assistance for small smal businesses, actions similar to those of various foreign governments. The House 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).
• Assists small  Assists smal 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.
•  Creates a $367 billion bil ion loan program for small smal businesses, establishes a $500 billion bil ion lending fund for industries, cities and states, a $150 billionbil ion for state and local stimulus funds, and $130 billionbil ion for hospitals.
•  Increases unemployment insurance benefits, expands eligibility and offer workers an additional $600 a week for four month, in addition to state unemployment programs.¹³¹
• 140  Establishes special rules for certain tax-favored withdrawals from retirement plans; delays due dates for employer payroll taxes and estimated tax 137 McAuley, James, and Michael Birnbaum, “Europe Blindsided by T rump’s T ravel 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. 138 Fritz, Angela and Meryl Kornfield, “President T rump 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/. 139 Hellmann, Jessie, “T rump Invokes Defense Production Act as Covid-19 Response,” The Hill, March 18, 2020. https://thehill.com/policy/healthcare/488226-trump-invokes-defense-production-act-as-Covid-19-response. 140 For additional information about unemployment and sick leave provisions, see CRS Insight IN11249, H.R. 6201: Paid Leave and Unem ploym ent Insurance Responses to COVID-19, by Sarah A. Donovan, Katelin P. Isaacs, and Julie M. Whittaker, and CRS In Focus IF11487, The Fam ilies First Coronavirus Response Act Leave Provisions, by Sarah A. Donovan and Jon O. Shimabukuro. Congressional Research Service 33 Global Economic Effects of COVID-19 plans; delays due dates for employer payroll taxes and estimated tax payments for corporations; and revises other provisions, including those related to losses, charitable deductions, and business interest.
•  Provides additional funding for the prevention, diagnosis, and treatment of COVID-19; limits liability for volunteer health care professionals; prioritizes Food and Drug Administration (FDA) review of certain drugs; allowsal ows emergency use of certain diagnostic tests that  are not approved by the FDA; expands health-insurance coverage for diagnostic testing and requires coverage for preventative services and vaccines; and revises 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 suspends payments for federal student loans and revises provisions related to campus-based aid, supplemental educational-opportunity grants, federal work-study, subsidized loans, Pell Pel grants, and foreign institutions.
•  Authorizes the Department of the Treasury  temporarily to guarantee money- market funds.

On April 23, 2020, the House passed H.R. 266 ( (P.L. 116-139), the Paycheck Protection Program and Health Care Enhancement Act, following similar actions by the Senate the previous day. The measure provides $484 billion for small bil ion for smal business loans, health care providers, and COVID-19 testing. In particular, the law

• :  Provides additional lending authority for certain Small Smal Business Administration (SBA) programs in response to COVID-19 increases the authority for (1) the Paycheck Protection Program, under which the SBA may guarantee certain loans to small to smal businesses during the COVID-19 pandemic; and (2) advances on emergency economic injury disaster loans made in response to COVID-19. The division also expands eligibility for such disaster loans and advances to include agricultural enterprises.
•  Provides $100 billion bil ion in FY2020 supplemental appropriations to HHS for the Public Health and Social Services Emergency Fund, including $75 billion to bil ion to reimburse health care providers for health care related expenses or lost revenues that are attributable to the coronavirus outbreak; and $25 billionbil ion for expenses to research, develop, validate, manufacture, purchase, administer, and expand capacity for COVID-19 tests to effectively monitor and suppress COVID-19.
• Allocates  Al ocates specified portions of the $25 billion bil ion for COVID-19 testing to states, localities, territories, and tribes; the Centers for Diseases Control and Prevention; the National Institutes of Health; the Biomedical Advanced Research and Development Authority; the Food and Drug Administration; community health centers; rural health clinics; and testing for the uninsured.

• Appropriate $200 billion On May 12, House Democrats introduced H.R. 6800, the Heroes Act, to provide a $3 tril ion supplemental spending bil for additional financial resources to state and local governments. The measure passed the House on May 15 and was sent to the Senate for consideration. Among other provisions, the bil would:  Appropriate $200 bil ion in hazard pay to essential workers.  in hazard pay to essential workers.
• Extend additional payments to individuals, for nutrition and housing assistance, and provide funding for additional testing and contact tracing.
•  Restore the tax deduction for state and local taxes.

Congressional Research Service 34 Global Economic Effects of COVID-19  Provide FY2020 emergency supplemental appropriations to federal agencies.  Provide payments and other assistance to state, local, tribal, and territorial governments.  Provide additional direct payments of up to $1,200 per individual.  Expand paid sick days, family and medical leave, unemployment compensation, nutrition and food assistance programs, housing assistance, and payments to farmers.  Modify and expand the Paycheck Protection Program, which provides loans and grants to smal businesses and nonprofit organizations.  Expand several tax credits and deductions.  Provide funding and establish requirements for COVID-19 testing and contact tracing.  Eliminate cost-sharing for COVID-19 treatments;  Extend and expand the moratorium on certain evictions and foreclosures; and  Require employers to develop and implement infectious disease exposure control plans. On May 27, the Federal Reserve released its “Beige Book”- a mostly qualitative assessment of the U.S. economy produced eight times a year by the 12 regional Federal Reserve banks – that provides an assessment of economic activity across the various regions of the country. The assessment indicated that economic activity to mid-May had fal en sharply in each of the districts.141 The Bureau of Economic Analysis (BEA) reported on May 29 that U.S. personal income rose by 10.5% in April, primarily reflecting an 88% increase in government payments to individuals from federal economic recovery programs, as indicated in Figure 8. During the same period, personal consumption fel by more than 13% as consumers curtailed spending. The lower level of spending combined with income transfers, which households apparently deposited into saving accounts, raising the personal savings rate to 33% in April at an annual rate, compared to an annual rate of 8.2% in February. During May, the price of Brent crude oil increased by 33.5%, rising from $26.44 per barrel to $35.31 per barrel. 141 The Beige Book: Summary of Commentary on Current Economic Conditions by Federal Reserve District, May 17, 2020, the Federal Reserve System. Congressional Research Service 35 Global Economic Effects of COVID-19 Figure 8. U.S. Personal Income, Consumption, and Saving At annual rate Source: Personal Income and Outlays, April 2020, Bureau of Economic Analysis, May 29, 2020. For additional information about the impact of COVID-19 on the U.S. economy see CRS Insight For additional information about the impact of COVID-19 on the U.S. economy see CRS Insight IN11235, COVID-19: Potential Economic Effects.¹³²

142 Europe

To date, European countries have not displayed a synchronized policy response similar to the one they developed during the 2008-2009 global financial crisis. Instead, they have used a combination of national fiscal policies and bond buying by the ECB to address the economic impact of the pandemic. 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 European Commission has advocated for greater coordination among the EU members in developing and implementing monetary and fiscal policies to address the economic falloutfal out from the viral pandemic.

Various EU and ECB officials are attempting to negotiate a coordinated fiscal response by the Eurozone and broader EU. 142 CRS Insight IN11235, COVID-19: Potential Economic Effects, by Marc Labonte. Congressional Research Service 36 Global Economic Effects of COVID-19 In its May 2020 economic forecast, the European Commission forecasted that EU GDP in 2020 would fall fal by 7.4% and the unemployment rate would rise to 9.0%, as indicated in Table 3. The Commission stated that, "“Given the severity of this unprecedented worldwide shock, it is now quite clear that the EU has entered the deepest economic recession in its history."” In addition, the Commission forecasted that EU GDP would rise rapidly in 2021, although not fast enough to erase all al the 2020 decline, but would exhibit a distinct "V"“V” shaped recession and recovery. Greece, Spain, France, and Italy are forecasted to experience the largest declines in GDP in 2020 as a result of their dependence on tourism, which is expected to experience a slow economic recovery. Germany and other Northern European countries are projected to experience a more modest decline in economic activity. Some analysts argue that this disparity in economic effects may complicate efforts to coordinate economic policies.¹³³143 To address the crisis, the Commission argued that, "“[t]he risk….is that the crisis will wil lead to severe distortions within the Single Market and to entrenched economic, financial and social divergences between euro area Member States that could ultimately threaten the stability of the Economic and Monetary Union.”144 Table 3. European Commission Economic Forecast May 2020 (percent change) Real GDP Unemployment rate 2019 2020 2021 2019 2020 2021 EU 1.5 -7.4 6.1 6.7 9.0 7.9 Euro area 1.2 -7.7 6.3 7.5 9.6 8.6 Belgium 1.4 -7.2 6.7 5.4 7.0 6.6 Germany 0.6 -6.5 5.9 3.2 4.0 3.5 Ireland 5.5 -7.9 6.1 5.0 7.4 7.0 Greece 1.9 -9.7 7.9 17.3 19.9 16.8 Spain 2.0 -9.4 7.0 14.1 18.9 17.0 France 1.3 -8.2 7.4 8.5 10.1 9.7 Italy 0.3 -9.5 6.5 10.0 11.8 10.7 Luxembourg 2.3 -5.4 5.7 5.6 6.4 6.1 Malta 4.4 -5.8 6.0 3.4 5.9 4.4 Netherlands 1.8 -6.8 5.0 3.4 5.9 5.3 Austria 1.6 -5.5 5.0 4.5 5.8 4.9 Portugal 2.2 -6.8 5.8 6.5 9.7 7.4 Finland 1.0 -6.3 3.7 6.7 8.3 7.7 Denmark 2.4 -5.9 5.1 5.0 6.4 5.7 Sweden 1.2 -6.1 4.3 6.8 9.7 9.3 United Kingdom 1.4 -8.3 6.0 3.8 6.7 6.0 143 Birnbaum, Michael, European Union Says T hat Pandemic Recession Will be Worst in its History, The Washington Post, May 6, 2020. https://www.washingtonpost.com/world/european -union-says-pandemic-recession-will-be-worst -in-its-history/2020/05/06/e787a70e-8f96-11ea-9322-a29e75effc93_story.html. 144 European Economic Forecast spring 2020, European Commission, May 5, 2020. Congressional Research Service 37 Global Economic Effects of COVID-19 Source: European Economic Forecast Spring 2020, European Commission, May 6. 2020, Pandemic-related economic effects reportedly are having a significant impact on business activity in Europe, with some indexes fal ing farther then they had during the height of the financial crisis and others indicating that Europe may wel experience a deep economic recession in 2020.145 France, Germany, Italy, Spain, and the UK reported steep drops in industrial activity in March 2020. EU countries have issued travel warnings, banning al but essential travel across borders, raising concerns that even much-needed medical supplies could stal at borders affected by traffic backups.146 The travel bans and border closures reportedly are causing shortages of farm laborers in Germany, the UK, and Spain, which has caused growers to attempt to recruit students and workers laid off because of the pandemic.147 that could ultimately threaten the stability of the Economic and Monetary Union."¹³⁴

In previous actions, the European Commission had announced that it was relaxing rules on government debt to allowal ow countries more flexibility in using fiscal policies. Also, 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.¹³⁸148 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.¹³⁹149 ECB President-designate Christine Lagarde calledcal ed on EU leaders to take more urgent action to avoid the spread of COVID-19 from triggering a serious economic slowdown. The European Commission indicated that it was creating a $30 billion bil ion investment fund to address COVID-19 issues.¹⁴⁰150 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 especial y smal and medium-sized businesses, directly affected by COVID-19; (3) provide an additional €120 billion bil ion (about $130 billion) bil ion) for the Bank'’s asset purchase program to provide liquidity liquidity to firms that was in addition to €20 billion bil ion a month it previously had committed to purchasing.¹⁴¹
• 151 145 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. 146 Birnbaum, Michael, “ Europe Is Closing Borders amid Covid-19 Outbreak. T hey May be Hard to Reopen,” Washington Post, March 17, 2020. https://www.washingtonpost.com/world/europe/europe-closing-borders-Covid-19/2020/03/17/131a6f56-67c8-11ea-b199-3a9799c54512_story.html. 147 Evans, Judith Evans, Emiko T erazono, and Leila Abboud, “Farmers Warn over Food Supply with Harvest Workers Shut Out,” Financial Tim es, March 27, 2020. https://www.ft.com/content/e27a9395-db47-4e7b-b054-3ec6ba4cbba3. 148 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. 149 “US Fed’s Covid-19 Rate Cut Is First Move in a Dance with Markets,” Financial Times, March 4, 2020. https://www.ft.com/content/83c07594-5e3a-11ea-b0ab-339c2307bcd4. Giles, Chris, Martin Arnold, Sam Jones, and Jamie Smyth, “Finance Ministers ‘Ready to T ake Action’ on Covid-19,” Financial Tim es, March 3, 2020. https://www.ft.com/content/b86f7d92-5d38-11ea-b0ab-339c2307bcd4. 150 Arnold, Martin and Guy Chazan, “Christine Lagarde Calls on EU Leaders to Ramp up Covid-19 Response,” Financial Tim es, March 11, 2020. https://www.ft.com/content/44eac1f2-6386-11ea-a6cd-df28cc3c6a68. 151 Monetary Policy Decisions, T he European Central Bank, March 12, 2020. https://www.ecb.europa.eu/press/pr/date/ Congressional Research Service 38 Global Economic Effects of COVID-19  On March 13, 2020, financial market regulators in the UK, Italy, and Spain 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, 2020.¹⁴²152 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.¹⁴³
• Germany'153  Germany’s Economic Minister announced on March 13, 2020, that Germany would provide unlimited loans to businesses experiencing negative economic activity (initially initial y providing $555 billion), bil ion), tax breaks for businesses,¹⁴⁴154 and export credits and guarantees.¹⁴⁵
• 155  On March 18, the ECB indicated that it would: create a €750 billion bil ion (about $800 billion) bil ion) Pandemic Emergency Purchase Program to purchase public and private securities; expand the securities it will wil purchase to include nonfinancial commercial paper; and ease some collateral standards.¹⁴⁶156 In announcing the program, President-designate Lagarde indicated that the ECB would, "“do do everything necessary."” In creating the program, the ECB removed or significantly loosened almost all al constraints that applied to previous asset-purchase programs, including a self-imposed limit of buying no more than one-third of any one country'country’s eligible bonds, a move that was expected to benefit Italy.
•  The ECB also indicated that it would make available up to €3 trillion tril ion in liquidity through refinancing operations.¹⁴⁷157 Britain ($400 billionbil ion) and France ($50 billion) bil ion) also announced plans to increase spending to blunt the economic effects of the virus. Recent forecasts indicate that the economic effect of COVID-19 could push the Eurozone into an economic recession in 2020.¹⁴⁸
• 158  On March 23, 2020, Germany announced that it would adopt a €750 billionbil ion (over $800 bil ion) $800 billion) package in economic stimulus funding.
•  On April 15, Eurozone finance ministers announced a €500 billionbil ion (about $550 billion) bil ion) emergency spending package to support governments, businesses, and workers and will wil provide funds to the European Stability Mechanism, the European Investment Bank, and for unemployment insurance.¹⁴⁹

On May 5, 2020, Germany's Constitutional Court issued a ruling challenging the legality of a 159 2020/html/ecb.mp200312~8d3aec3ff2.en.htm. 152 Stafford, Philip and Adam Samson, “European Regulators Intervene in Bid to Stabilize Stock and Bond Prices,” Financial Tim es, March 13, 2020. https://www.ft.com/content/77f57d4c-6509-11ea-a6cd-df28cc3c6a68. 153 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. 154 Loveday, Morris and Louisa Beck, “Germany Announces ‘Bazooka’ Economic Plan to Mitigate Covid-19 Hit,” Washington Post, March 13, 2020. https://www.washingtonpost.com/world/2020/03/13/Covid-19-latest-news/. 155 Arnold, Martin, Guy Chazan, Victor Mallet, Miles Johnson, and Daniel Dombey, “How European Economies Are T rying to Mitigate the Covid-19 Shock,” Financial Tim es, March 17, 2020. https://www.ft.com/content/26af5520-6793-11ea-800d-da70cff6e4d3. 156 ECB Announces €759 Billion Pandemic Emergency Purchase Program , the European Central Bank, March 18, 2020. https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200318_1~3949d6f266.en.html. 157 Lagarde, Christine, “T he ECB Will Do Everything Necessary to Counter the Virus,” Financial Times, March 20, 2020. https://www.ft.com/content/281d600c-69f8-11ea-a6ac-9122541af204. 158 “Lagarde to Confront Covid-19 Crisis at ECB Policy Meeting,” Financial Times, March 8, 2020. https://www.ft.com/content/79a280c6-5fb5-11ea-b0ab-339c2307bcd4. 159 Fleming, Sam and Mehreen Khan, “Eurozone Countries Strike Emergency Deal on Coronavirus Rescue,” Financial Tim es, April 9, 2020. https://www.ft.com/content/b984101a-42b8-40db-9a92-6786aec2ba5c. Congressional Research Service 39 Global Economic Effects of COVID-19 On May 5, 2020, Germany’s Constitutional Court issued a ruling chal enging the legality of a bond-buying program conducted by the ECB since 2015, the Public Sector Purchase Program (PSPP). In its ruling, the court directed the German government to request clarification from the ECB about various aspects of the PSPP program that the court argued might exceed the ECB's ’s legal mandate. The German government has not yet indicated how it will formallywil formal y respond to the ruling, but many analysts contend that the ruling—and the challengechal enge to the authority of the ECB and the European Court of Justice—could have far-reaching implications for future ECB activities. This could potentially include challenges to the ECB'potential y include chal enges to the ECB’s Pandemic Emergency Purchase Program (PEPP) initiated in March. The PEPP is a temporary program that authorizes the ECB to acquire up to €750 billion bil ion (about $820 billion) bil ion) in private and public sector securities to address the economic effects of the pandemic crisis.

The German court'’s ruling has heightened tensions between the court and the European Court of Justice. Following the 2008-2009 financial crisis and the subsequent Eurozone financial crisis, the ECB launched four asset purchase programs in 2014 to provide assistance to financiallyfinancial y strapped Eurozone governments and to sustain financial liquidity in Eurozone banks. Those programs included the Corporate Sector Purchase Program (CSPP), the Public Sector Purchase Program (PSPP), the Asset-Backed Securities Purchase Program (ABSPP), and the Third Covered Bond Purchase Program (CBPP3). The programs operated from 2014 to 2018; the PSPP was restarted in November 2019. As of May 8, the PSPP program held €2.2 trillion (about $2.5 trilliontril ion) with another €600 billion bil ion (about $700 billionbil ion) held under other asset purchase programs.¹⁵⁰160 Various groups in Germany challengedchal enged the legality of the ECB bond-buying programs before the German Constitutional Court arguing that the programs exceeded the ECB'’s legal mandate. In turn, the German court referred the case to the European Court of Justice, which ruled in December 2019 that the ECB'’s actions were fully within the ECB'’s authority.

In the German Constitutional Court'’s May 5 ruling, the German judges characterized the ECJ's ’s ruling as "“incomprehensible,"” and directly challengedchal enged the ECB and the European Court of Justice and the primacy of the European Court of Justice ruling over national law. The German justices argued that the ECB had exceeded its authority by not fully evaluating the economic costs and benefits of previous bond-buying activities, including the impact on national budgets, property values, stock markets, life insurance and other economic effects. The German court also argued that the ECB'’s lack of a strategy for reducing its holdings of sovereign debt of Eurozone members increased risks for national governments that back up the ECB, and it challenged the ECB'chal enged the ECB’s strategy for reducing its holdings of sovereign debt.

On May 18, German Chancel or Angela Merkel and French President Emmanuel Macron proposed a €500 bil ion (about $620 bil ion) EU recovery fund in an effort to gain a coordinated EU fiscal response to the pandemic.161 Reportedly, the funds would be raised by the European Commission and used to fund EU spending through grants to individual members to ease the economic strain in some of the southern EU members that have been the most negatively affected. Austria, the Netherland, Denmark, and Sweden indicated they would only support proposals that provided funds to members through loans that would be required to be repaid. On May 27, ECB President Lagarde indicated that the Bank projected a drop in the EU economy of 8% to 12% in 2020, twice as severe as the recession following the 2008 financial crisis, and 160 European Central Bank. https://www.ecb.europa.eu/mopo/implement/pepp/html/pepp -qa.en.html. 161 Fleming, Sam, Victor Mallet, and Guy Chazan, Germany and France Unite in Call for €500 Billion Europe Recovery Fund, Financial Tim es, May 18, 2020. https://www.ft.com/content/c23ebc5e-cbf3-4ad8-85aa-032b574d0562. Congressional Research Service 40 Global Economic Effects of COVID-19 cal ed for a €500 bil ion (about $620 bil ion) stimulus package.162 In addition, European Commission President Ursula von der Leyen proposed a €750 bil ion (about $820 bil ion) EU recovery fund, termed the “Next Generation Fund,” that would provide €500 bil ion ($550 bil ion) in grants in a Recovery and Resilience Facility and €250 bil ion ($270 bil ion) in loans. The proposal would take the unprecedented step of al owing the EU to issues bonds independently from the other EU central banks.163 Questions remain over the source and distribution of the funds. The program may have limited appeal given various restrictions: reportedly, the funds must be used to achieve certain EU goals, including increasing competitiveness, shifting away from declining heavy industry, supporting a green economy, and building the digital economy.164 Proposals for raising funds include issuing 30-year bonds and raising taxes on large technology firms, such as Google and Facebook. In addition to the recovery fund, von der Leyen proposed a revised EC seven-year budget, the Multiannual Financial Framework (MFF), of €1.1tril ion for 2021 to 2027. On May 28, several key political groups within the EU Parliament voiced their support for new rules that would al ow the EU to retaliate in such trade areas as services and intel ectual property protection without waiting for a WTO ruling. Some Parliamentarians reportedly argued that such expanded authority, termed a “trade bazooka,” was necessary to respond to trade disputes, because the United States had blocked the appointment of judges to the WTO’s appel ate body.165 European leaders, reportedly interested in finalizing an investment agreement with China, announced they would not follow President Trump in applying trade restrictions on China for positioning itself to limit Hong Kong’s autonomy granted by the “one country two systems” principle after the end of British rule in 1997.166 The United Kingdom The United Kingdom

The United Kingdom has taken a number of steps to support economic activity. These steps are expected to limit the damage to the UK economy. The Bank of England (BOE) forecasted in May 2020 that the UK economy would contract by 30% in the first half of 2020, but then rebound sharply in the second half of the year, exhibiting a "V"“V” shaped recovery. The Bank of England has announced a number of policy initiatives including

• :  On March 11, the BOE adopted a package of four measures to deal with any economic disruptions associated with COVID-19. The measures included an unscheduled cut in the benchmark interest rate by 50 basis points (0.5%) to a historic low of 0.25%; the reintroduction of the Term Funding Scheme for Small Smal and Medium-sized Enterprises (TFSME) that provides banks with over $110 billion bil ion for loans at low interest rates; a lowering of banks'’ countercyclical capital 162 Arnold, Martin, Coronavirus Hit to Eurozone Economy Set to Dwarf Financial Crisis, Financial Times, May 27, 2020. https://www.ft.com/content/a01424e8-089d-4618-babe-72f88184ac57. 163 Birnbaum, Michael, and Loveday Morris, E.U. Proposes $825 Billion Coronavirus Rescue Plan Giving Brussels Power to Raise Money for First T ime, The Washington Post, May 27, 2020. https://www.washingtonpost.com/world/europe/angela-merkel-economic-rescue/2020/05/27/9d21b998-9f7c-11ea-be06-af5514ee0385_story.html. 164 Brunsden, Jim and Sam Fleming, How Would Ursula von der Leyen’s Coronavirus Recovery Fund Work?, Financial Tim es, May 27, 2020. https://www.ft.com/content/ebaa7dcd-b6f7-418f-802b-7a8dbc9668f1. 165 Vela, Jakob Hanke, T rade Bazooka Gets Backing From Main Political Groups in EU Parliament, Politico Pro, May 28, 2020; Draft Report, 2019/10273(COD), European Parliament, Committee on International T rade, May 6, 2020. 166 Lau, Stuart Lau, Jakob Hanke Vela, Jacopo Barigazzi, and Finbarr Bermingham, EU Won't Follow T rump Into a T rade War Over Hong Kong, Politico Pro, May 28, 2020. Congressional Research Service 41 Global Economic Effects of COVID-19 countercyclical capital buffer from 1% to zero, which is estimated to support over $200 billionbil ion of bank lending to businesses; and a freeze in banks'’ dividend payments.¹⁵¹
• 167  On March 15, the BOE reinstituted U.S. dollar swap lines with the Federal Reserve.
• Reserve.  On March 17, the BOE and the UK Treasury introduced the COVID Corporate Financing Facility (CCFF) to provide assistance to UK firms to bridge through Covid-19-related disruptions to their cash flow.
•  On March 19, during a Special Monetary Policy Meeting, the Bank of England reduced its main interest rate to 0.1%, increased the size of its TFSME fund, and increased the stock of asset purchases by £200 billionbil ion to a total of £645 billion bil ion financed by issuing UK government bonds and some additional non-financial investment-grade corporate bonds.¹⁵²
• 168  On March 20, the BOE participated in an internationally international y coordinated central bank expansion of liquidity through U.S. standing dollar liquidity swap line arrangements.
•  On March, the BOE activated the Contingent Term Repo Facility (CTRF).
•  On April 6, announced the activation of the TFSME ahead of schedule.
•  On April 23, the Bank of England indicated it would quadruple its borrowing over the second quarter of 2020, reflecting a contraction in the UK economy, lower tax revenues, and increased financial demands to support fiscal policy measures.¹⁵³

169 In terms of fiscal policy, UK ChancellorChancel or of the Exchequer Rishi Sunak proposed a national budget on March 11, 2020, that included nearly $3.5 billion bil ion in fiscal spending to counter adverse economic effects of the pandemic and increased in statutory sick leave by about $2.5 billionbil ion in funds to small smal and medium businesses to provide up to 14 days of sick leave for affected employees. The plan provides 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 bil ion in 2020.¹⁵⁴170 Identified as the Coronavirus Job Retention Scheme (CJRS), the program was backdated to start on March 1 and had been expected to run through May, but was extended to expire the end of June 2020. Prime Minister Johnson also announced that all al pubs, cafés, restaurants, theatres, cinemas, nightclubs, gyms and leisure centers would be closed.¹⁵⁵171 Part of the fiscal spending package includes open-ended funding for the National Health Service (NHS), $6 billion bil ion in emergency funds to the NHS, $600 millionmil ion hardship fund to assist vulnerable people, and tax cuts and tax holidays for small smal businesses in certain affected sectors.¹⁵⁶

Japan

The Bank of Japan, with already-low interest rates, injected $4.6 billion in liquidity 172 167 Romei, Valentina, “Covid-19 Fallout: Bank of England Launches 4 Key Measures,” Financial Times. https://www.ft.com/content/4e60c08e-6380-11ea-b3f3-fe4680ea68b5. 168 Johnson, Miles, Chris Giles, Martin Arnold, and James Politi, “Italy’s PM Urges Brussels to Unleash €500bn Rescue Fund,” Financial Tim es, March 18, 2020. https://www.ft.com/content/5b8205ac-6a06-11ea-800d-da70cff6e4d3. 169 Giles, Chris, and T ommy Stubbington, UK T reasury to Quadruple Borrowing to £180bn Over Next Quarter, Financial Tim es, April 23, 2020. https://www.ft.com/content/8886e002-c260-4daa-8b7b-509b3f7e6edb. 170 Parker, George Parker, Chris Giles, and Sebastian Payne, “Sunak T urns on Financial Firepower to Help Workers,” Financial Tim es, March 20, 2020. https://www.ft.com/content/826d465a-6ac3-11ea-a3c9-1fe6fedcca75. 171 Ibid. 172 Payne, Sebastian and Chris Giles, “Budget 2020: Sunak Unveils £30bn Stimulus to Counter UK Covid-19 Shock,” Congressional Research Service 42 Global Economic Effects of COVID-19 Japan The Bank of Japan, with already-low interest rates, injected $4.6 bil ion in liquidity into Japanese 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.¹⁵⁷173 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. Japan reportedly is considering an emergency fiscal package of about $515 billionbil ion, roughly equivalent to 10% of Japan'’s annual gross domestic product (GDP). On April 27, 2020, the Bank of Japan announced it would purchase unlimited amounts of government bonds and quadruple its purchases of corporate debt to keep interest rates low and stimulate the Japanese economy.¹⁵⁸

China

174 The Japanese Cabinet proposed a second supplemental appropriation measure that includes $296 bil ion in spending and a total value of about $1.1 tril ion in loans and guarantees, funded through new bonds. This and a previous set of spending measures reportedly are comparable to 40% of Japan’s GDP and include grants for businesses to pay rents through the Development Bank of Japan and funds to smal and medium-sized businesses through the Regional Economy Vitalization Corporation of Japan, payments to assist furloughed workers, and a reserve fund to provide capital injections to struggling firms through the Japan Investment Corporation.175 China According to a recent CRS In Focus,176 China’According to a recent CRS In Focus,¹⁵⁹ China's economic growth could go negative in the first quarter of 2020 and fall fal below 5% for the year, with more serious effects if the outbreak continues. In early February, China'’s central bank pumped $57 billionbil ion 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 billionbil ion in funding, primarily to small smal businesses, by reducing bank'’s reserve requirements.¹⁶⁰

177 The International Monetary Fund (IMF) is providing funding to poor and emerging market economies that are short on financial resources.¹⁶¹178 If the economic effects of the virus persist, Financial Tim es. https://www.ft.com/content/f7b27264-6384-11ea-a6cd-df28cc3c6a68. 173 Harding, Robin and Hudson Lockett, “ BoJ Spurs Asia Markets Rebound with Vow to Fight Covid-19,” Financial Tim es, March 2, 2020. https://www.ft.com/content/9fa91e06-5c3b-11ea-b0ab-339c2307bcd4. 174 Harding, Robin, Bank of Japan Steps up Coronavirus Stimulus With Bond-buying Pledge, Financial Times, April 27, 2020. https://www.ft.com/content/7ba5c507-df9e-4107-87eb-73afa2c13e91. 175 Harding, Robin, Japan’s Cabinet Approves Extra $1.1 T rillion Budget to Counter Recession, Financial Times, May 27, 2020. https://www.ft.com/content/ce7f3564-c997-339c-ad3d-c6d092fb7f1e. 176 For additional information about China’s response, see CRS In Focus IF11434, COVID-19: U.S.-China Economic Considerations, by Karen M. Sutter and Michael D. Sutherland. 177 Weinland, Don, “ China’s Central Bank Launches $79bn Stimulus for Virus-Hit Companies,” Financial Times, March 13, 2020. https://www.ft.com/content/deb56f86-6515-11ea-b3f3-fe4680ea68b5. 178 Politi, James, “ IMF Sets Aside $50bn for Covid-19-Hit Countries,” Financial Times, March 4, 2020, https://www.ft.com/content/83c07594-5e3a-11ea-b0ab-339c2307bcd4. Congressional Research Service 43 Global Economic Effects of COVID-19 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 Created in the aftermath of World War II, the IMF’s fundamental mission is to promote international monetary stability. To advance this goal, one of the key functions of the IMF is providing emergency loans to countries facing economic crises. The COVID-19 pandemic has resulted in an unprecedented demand for IMF financial assistance. More than 100 of the IMF’s 189 member countries have requested IMF programs,179 andInternational Monetary Fund

The IMF initially announced that it was making available about $50 billion for the global crisis response.¹⁶² Following a G20 ministerial call on March 23, IMF Managing Director Kristalina Georgieva announcedhas stated that the Fund isIMF stands ready to deploy all of its $1 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.

World Bank and Regional Development Banks

the entirety of its current lending capacity—approximately $1 tril ion—in response to the pandemic and resulting economic crises.180 The IMF has already approved several COVID-related programs, including for Bolivia, Chad, the Democratic Republic of Congo, Kyrgyz Republic, Nigeria, Niger, Rwanda, Madagascar, Mozambique, Pakistan, and Togo, among others, and additional programs are expected.181 In addition to loans, the IMF has taken a number of other policy steps to bolster its COVID-19 response. The IMF is tapping its Catastrophe Containment and Relief Trust (CCRT), a donor country trust fund at the IMF, to cover six months of debt payments owed by 29 low-income countries to the IMF. The IMF also created a new a new Short-term Liquidity Line.182 It is a revolving and renewable backstop for member countries with very strong economic policies in need of short-term and moderate financial support, and intends to support a country’s liquidity buffers. The IMF also adopted proposals to accelerate Board consideration of member financing requests for emergency financing and doubled (to about $100 bil ion) access to IMF emergency assistance. For FY2021, the Administration had requested authorization for about $38 bil ion for a supplemental fund at the IMF (the New Arrangements to Borrow [NAB]). In March 2020, Congress enacted this authorization in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act, P.L. 116-136) as a way to bolster IMF resources available to support countries during the pandemic. There is ongoing debate about whether member countries should contribute additional resources to the IMF, whether the IMF should raise funds by sel ing a portion of its gold holdings, and whether the IMF should enact policies to buffer member state reserves, through a process cal ed an SDR al ocation. 179 Remarks by IMF Managing Director Kristalina Georgieva During the G20 Finance Ministers and Central Bank Governors Meeting, International Monetary Fund, April 15, 2020. 180 IMF Managing Director Kristalina Georgieva’s Statement Following a G20 Ministerial Call on the Coronavirus Emergency, March 23, 2020. Some policy experts estimate the IMF’s current maximum lending capacity is about $787 billion. 181 IMF Lending T racker, https://www.imf.org/en/T opics/imf-and-covid19/COVID-Lending-T racker. 182 “IMF Adds Liquidity Line to Strengthen COVID-19 Response,” International Monetary Fund, April 15, 2020. Congressional Research Service 44 Global Economic Effects of COVID-19 World Bank and Regional Development Banks Multilateral Response183 International Monetary Fund Created in the aftermath of World War II, the IMF’s fundamental mission is to promote international monetary stability. To advance this goal, one of the key functions of the IMF is providing emergency loans to countries facing economic crises. The COVID-19 pandemic has resulted in an unprecedented demand for IMF financial assistance. More than 100 of the IMF’s 189 member countries have requested IMF programs,184 and IMF Managing Director Kristalina Georgieva has stated that the IMF stands ready to deploy the entirety of its current lending capacity—approximately $1 tril ion—in response to the pandemic and resulting economic crises.185 The IMF has already approved several COVID-related programs, including for Bolivia, Chad, the Democratic Republic of Congo, Kyrgyz Republic, Nigeria, Niger, Rwanda, Madagascar, Mozambique, Pakistan, and Togo, among others, and additional programs are expected.186 In addition to loans, the IMF has taken a number of other policy steps to bolster its COVID-19 response. The IMF is tapping its Catastrophe Containment and Relief Trust (CCRT), a donor country trust fund at the IMF, to cover six months of debt payments owed by 29 low-income countries to the IMF. The IMF also created a new a new Short-term Liquidity Line.187 It is a revolving and renewable backstop for member countries with very strong economic policies in need of short-term and moderate financial support, and intends to support a country’s liquidity buffers. The IMF also adopted proposals to accelerate Board consideration of member financing requests for emergency financing and doubled (to about $100 bil ion) access to IMF emergency assistance. For FY2021, the Administration had requested authorization for about $38 bil ion for a supplemental fund at the IMF (the New Arrangements to Borrow [NAB]). In March 2020, Congress enacted this authorization in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act, P.L. 116-136) as a way to bolster IMF resources available to support countries during the pandemic. There is ongoing debate about whether member countries should contribute additional resources to the IMF, whether the IMF should raise funds by sel ing a portion of its gold holdings, and whether the IMF should enact policies to buffer member state reserves, through a process cal ed an SDR al ocation. 183 For more information, see CRS Report R46342, COVID-19: Role of the International Financial Institutions, by Rebecca M. Nelson and Martin A. Weiss. 184 Remarks by IMF Managing Director Kristalina Georgieva During the G20 Finance Ministers and Central Bank Governors Meeting, International Monetary Fund, April 15, 2020. 185 IMF Managing Director Kristalina Georgieva’s Statement Following a G20 Minist erial Call on the Coronavirus Emergency, March 23, 2020. Some policy experts estimate the IMF’s current maximum lending capacity is about $787 billion. 186 IMF Lending T racker, https://www.imf.org/en/T opics/imf-and-covid19/COVID-Lending-T racker. 187 “IMF Adds Liquidity Line to Strengthen COVID-19 Response,” International Monetary Fund, April 15, 2020. Congressional Research Service 45 Global Economic Effects of COVID-19 World Bank and Regional Development Banks The World Bank, which finances economic development projects in middle- and low-income countries, among other activities, is mobilizing its resources to support developing countries during the COVID-19 pandemic.188 As of June 1, 2020, the World Bank had approved, or was in the process of approving, 150 COVID-19 projects, totaling $15 bil ion, in 99 countries.189 Examples of approved projects include $47 mil ion for the Democratic Republic of Congo to support containment strategies, train medical staff, and provide equipment for diagnostic testing to ensure rapid case detection; $11.3 mil ion for Tajikistan to expand intensive care capacity; $20 mil ion for Haiti to support diagnostic testing, rapid response teams, and outbreak containment; and $1 bil ion for India to support screening, contract tracing, and laboratory diagnostics, procure personal protective equipment, and set up new isolation wards, among other projects.190 Over the next 15 months, the World Bank Group estimates it could deploy as much as $160 bil ion to respond to the COVID-19 pandemic, more than double the amount it committed in FY2019. In April 2020, the World Bank also announced its plans to establish a new multi-donor trust fund to help countries prepare for disease outbreaks, the Health Emergency Preparedness and Response Multi-Donor Fund (HEPRF).191 The new fund is to complement, and augment, the $160 bil ion of financing provided by the World Bank. In addition to the World Bank, which has a near-global membership and operates in many sectors in developing countries worldwide, a number of smal er and more specialized multilateral development banks (MDBs) are also mobilizing resources in response to the COVID-19 pandemic. The United States is a member of a number of regional y-focused MDBs, including the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, and the Inter-American Development Bank, as wel as the functional y-focused International Fund for Agricultural Development. The United States does not belong to some MDBs, including the Chinese-led Asian Infrastructure Investment Bank and the New Development Bank created by the BRICS countries (Brazil, Russia, India, China, and South Africa), the European Investment Bank, or the Islamic Development Bank. In response to COVID-19, MDBs are reprogramming existing projects, establishing and funding with existing resources lending facilities dedicated to the COVID-19 response, and streamlining approval procedures. According to the President of the World Bank, other multilateral development banks have committed roughly $80 bil ion over the next 15 months to respond to COVID-19.192 Together with the World Bank’s commitment of $160 bil ion, $240 bil ion in financing is to be made available to developing countries from the MDBs during this time period.193 To support the MDB response to COVID-19, Congress accelerated authorizations requested by the Administration for FY2021 for two lending facilities at the World Bank and two lending facilities at the African Development Bank in the CARES Act (P.L. 116-136). Given the 188 Remarks by World Bank Group President David Malpass on G20 Finance Ministers Conference Call on COVID-19, March 23, 2020. 189 https://maps.worldbank.org/. Accessed on June 1, 2020. 190 World Bank, “World Bank Group Launches First Operations for COVID-19 (Coronavirus) Emergency Health Support , Strengthening Developing Country Response,” Press Release, April 2, 2020. 191 World Bank, “World Bank Group to Launch New Multi-donor T rust Fund to help Countries Prepare for Disease Outbreaks,” Press Release, April 17, 2020. 192 David Malpass, “ Remarks to G20 Finance Ministers,” World Bank, April 15, 2020. 193 World Bank Group President David Malpass: Remarks to G20 Finance Ministers, April 15, 2020. Congressional Research Service 46 Global Economic Effects of COVID-19 unprecedented demand for MDB resources, discussions are underway about whether the MDBs should pursue fiduciary reforms that would al ow them to expand their lending based on existing resources, particularly lending against donor country guarantees to the institutions (cal ed “cal able” capital). International Economic Cooperation 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 falloutfal out from the global spread of COVID-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."¹⁶⁹”194 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 wel as targeted actions, to support workers, companies, and sectors most affected by the spread of COVID-19; task the finance ministers to coordinate on a weekly basis, and direct the IMF and the World Bank Group, as well wel as other international organizations, to support countries worldwidew orldwide as part of a coordinated global response.¹⁷⁰

195 Saudi Arabia, the 2020 chair of the G-20, calledcal ed an emergency G-20 summit on March 25 to discuss a response to the pandemic.¹⁷¹196 The G-20 is a broader group of economies, including the G-7 countries and several major emerging markets.¹⁷²197 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 COVID-19, while other analysts have questioned whether the larger size and diversity of economies in the G-20 can make coordination more difficult.¹⁷³

198 Analysts are hopeful that the recent G-7 summit, and a G-20 summit, will wil mark a shift towards greater international cooperation at the highest (leader) levels in combatting the economic fallout fal out from the spread of COVID-19.¹⁷⁴199 An emergency meeting of G-7 finance ministers on March 3, 2020, fell fel short of the aggressive and concrete coordinated action that investors and economists had been hoping for, and U.S. and European stock markets fell fel after the meeting.¹⁷⁵ More generally200 More general y, governments have been divided over the appropriate response and in some cases have acted unilateral yacted 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 falloutfal out from COVID-19, but several concerns loom about the G-20'20’s ability to deliver.¹⁷⁶201 Their concerns focus on the Trump Administration'’s prioritization of an "America First" 194 White House, G-7 Leaders’ Statement, March 16, 2020, https://www.whitehouse.gov/briefings-statements/g7-leaders-statement/. 195 Ibid 196 “Spain Says Saudi Arabia to Cal G-20 to Meet on Covid-19 in Coming Days,” Reuters, March 16, 2020. 197 T he G-20 includes the G-7 countries plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea, T urkey, and the European Union (EU). 198 For more information about the G-20, see CRS Report R40977, The G-20 and International Economic Cooperation: Background and Im plications for Congress, by Rebecca M. Nelson. 199 See for example, Jennifer Rankin, “EU Leaders Divided on How to Protect Economies after Covid-19,” The Guardian, March 14, 2020. 200 Jack Ewing and Jeanna Smialek, “Economic Powers Vow to Fight Crisis,” New York Times, March 3, 2020. 201 Matthew Goodman and Mark Sobel, “T ime to Pull the G-20 Fire Bell,” Center for Strategic and International Congressional Research Service 47 Global Economic Effects of COVID-19 “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. AdditionallyAdditional y, 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 COVID-19.¹⁷⁷202 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 COVID-19, while noting that many FSB members have already taken action to release available capital and liquidity buffers.

liquidity buffers. Estimated Effects on Developed and Major Economies

Economies Among most developed and major developing economies, economic growth at the beginning of 2020 was tepid, but still stil 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.¹⁷⁸203 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 spil over 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.¹⁷⁹204 Across Asia, some forecasters argue that recent data indicate that Japan, South Korea, Thailand, the Philippines, Indonesia, Malaysia, and Vietnam could experience an economic recession in 2020.¹⁸⁰

2020.205 In early January 2020, before the COVID-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 2020.¹⁸¹ 206 These projections likely will wil be revised downward due to the slowdown in global trade associated with COVID-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 Studies, March 18, 2020. 202 “FSB Coordinates Financial Sector Work to Buttress the Economy in Response to Covid-19,” Financial Stability Board, Press Release 6/2020, March 20, 2020. 203 OECD Interim Economic Assessment, p. 7. 204 Ibid., p. 5. 205 Arnold, Martin Arnold and Valentina Romei, “European Factory Output Plummets as Covid-19 Shutdown Bites,” Financial Tim es, April 1, 2020. https://www.ft.com/content/8646c0ee-8fba-4e4c-a047-cf445ff41cf6. 206 Tentative Stabilization, Sluggish Recovery? World Economic Outlook Update, January 20, 2020, T he International Monetary Fund. https://www.imf.org/en/Publications/WEO/Issues/2020/01/20/weo-update-january2020. Congressional Research Service 48 link to page 53 link to page 54 Global Economic Effects of COVID-19 of the dollar, and other secondary effects that could curtail growth. Commodity exporting countries, in particular, likely will wil 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 COVID-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 al 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 substantiallysubstantial y higher than recent market events (Figure 89).207 Figure 9).¹⁸²

Figure 8. Capital Flows to Emerging Markets in Global Shocks

Source: Original graphic and data from International Institute for Finance using data from Haver. Edited by CRS for clarification.

The impact of the price war and lower energy demand associated with a COVID-19-related economic slowdown is especiallyespecial y hard on oil and gas exporters, some of whose currencies are at record lows (Figure 910). Oil importers, such as South Africa and Turkey, have also been hit hard; South Africa'’s rand has fallen 18%¹⁸³fal en 18%208 against the dollar since the beginning of 2020 and the Turkish lira has lost 8.5%.¹⁸⁴209 Some economists are concerned that the depreciation in currencies 207 T hese include concerns in 2015 over China’s renminbi devaluation and the so -called “T aper T antrum” 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—T he COVID-19 Shock to EM Flows,” Institute for International Finance, March 17, 2020. 208 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. 209 Nevzat Devranoglu, “T urkish Lira Hits Weakest Level Since 2018 Currency Crisis Due to Covid-19,” Nasdaq, March 17, 2020, https://www.nasdaq.com/articles/turkish-lira-hits-weakest -level-since-2018-currency-crisis-due-to-Covid-19-2020-03-17. Congressional Research Service 49 Global Economic Effects of COVID-19 Some economists are concerned that the depreciation in currencies could lead to rising rates of inflation by pushing up the prices of imports and negatively economic growth rates in 2020.¹⁸⁵

210 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 wil 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.¹⁸⁶211 (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.¹⁸⁷)

212) Figure 910. Depreciation Against the Dollar Since January 1, 2020

Source: Created by CRS. Data from Bloomberg.

International Economic Cooperation

Initial efforts at coordinating the economic response to the COVID-19 pandemic across countries have been uneven. Governments are divided over the appropriate response and in some cases have acted unilaterallyunilateral y, particularly when closing borders and imposing export restrictions on medical equipment and medicine. An emergency meeting of G-7 (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) finance ministers on March 3, 2020, fell fel short of the aggressive and concrete coordinated action that investors and economists had been hoping for, and U.S. and European stock markets fell fel sharply after the meeting.¹⁸⁸213 However, on March 16, 2020, the leaders of the G-7 countries held an emergency summit by teleconference to discuss and coordinate their policy responses to the economic falloutfal out from the global spread of 210 Johnson, Steve, “Currency Sell-Off T hreatens Emerging Market Response to Covid-19,” Financial Times, March 3, 2020. https://www.ft.com/content/94ad9d70-2ca2-4490-96fb-5b01b509ed37. 211 “COVID-19-Hit Iran Asks IMF for Aid amid US Sanctions,” Deutsche Walle, March 13, 2020, https://www.dw.com/en/covid-19-hit-iran-asks-imf-for-aid-amid-us-sanctions/a-52763114. Iran is currently under U.S. sanctions, which include, among other things, prohibitions on the ability of the United States to vote in favor of lending IMF or World Bank assistance to Iran. T he United States, however, cannot unilaterally block lending to a particular country. Approving an IMF or World Bank loan requires a majority of the total voting power and the U.S. voting power is 16.5% of the total voting power at the IMF and 15.4% at the World Bank. Iran has not borrowed from the IMF since 1962, but did borrow from the World Bank between 2003 and 2005 over U.S. opposition. 212 Joshua Goodman, “ IMF Rejects Maduro’s Bid for Emergency Loan to Fight Virus,” StarTribune, http://www.startribune.com/venezuela-seeks-emergency-5-billion-imf-loan-to-fight-virus/568868442/. 213 Jack Ewing and Jeanna Smialek, “Economic Powers Vow to Fight Crisis,” New York Times, March 3, 2020. Congressional Research Service 50 link to page 56 link to page 56 Global Economic Effects of COVID-19 from the global spread of COVID-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."¹⁸⁹”214 The countries pledged to coordinate research efforts, increase the availability of medical equipment; mobilize "mobilize “the full range"” of policy instruments, including monetary and fiscal measures, as well as as wel as targeted actions, to support workers, companies, and sectors most affected by the spread of COVID-19; task the finance ministers to coordinate on a weekly basis, and direct the IMF and the World Bank Group, as well wel as other international organizations, to support countries worldwide w orldwide as part of a coordinated global response.¹⁹⁰215 G-7 coordination has not been without problems, unproblematic however, including disagreement among G-7 foreign affairs ministers about how to refer to the virus (coronavirus or the "“Wuhan virus"”) and concerns about collaboration on vaccine research.¹⁹¹

216 The United States is chairing the G-7 in 2020, and while the June summit at Camp David had been canceled due to concerns about COVID-19, on May 20, President Trump indicated that the summit may be held after al . The G-20, which has a broader membership of major advanced and emerging-market economies representing 85% of world GDP, was slower to respond to the pandemic.¹⁹²217 Even though G-20 coordination is widely viewed as critical in the response to the global financial crisis of 2008-2009, several factors may have complicated G-20 coordination in the current context: the Trump Administration'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.¹⁹³ 218 The G-20 held a summit by teleconference on March 26, 2020, but the resulting communique was criticized for failing to include concrete action items beyond what national governments were already doing.¹⁹⁴219 However, G-20 coordination appears to be gaining momentum, most notably with the G-20 agreement on debt relief for low-income countries (see " “Looming Debt Crises and Debt Relief Efforts").

”). Meanwhile, international organizations including the IMF and multilateral development banks, have tried to forge ahead with economic support given their current resources. AdditionallyAdditional y, 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 COVID-19.¹⁹⁵220 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 COVID-19, 214 White House, G-7 Leaders’ Statement, March 16, 2020, https://www.whitehouse.gov/briefings-statements/g7-leaders-statement/. 215 Ibid 216 “Pompeo, G-7 Foreign Ministers Spar over ‘Wuhan Virus’,” Politico, March 25, 2020; Katrin Bennhold and David E. Sanger, “U.S. Offered ‘Large Sum’ to German Company for Access to Coronavirus Vaccine Research, German Officials Say,” New York T imes, March 15, 2020. 217 T he G-20 includes the G-7 countries plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea, T urkey, and the European Union (EU). 218 Matthew Goodman and Mark Sobel, “T ime to Pull the G-20 Fire Bell,” Center for Strategic and International Studies, March 18, 2020. 219 Matthew Goodman, Stephanie Segal, and Mark Sobel, “Assessing the G20 Virtual Summit,” Center for Strategic and International Studies, March 27, 2020. 220 “FSB Coordinates Financial Sector Work to Buttress the Economy in Response to Covid-19,” Financial Stability Board, Press Release 6/2020, March 20, 2020. Congressional Research Service 51 Global Economic Effects of COVID-19 participants and for businesses and households facing temporary difficulties from COVID-19, while noting that many FSB members have already taken action to release available capital and liquidity buffers.

liquidity buffers. Looming Debt Crises and Debt Relief Efforts

COVID-19 could trigger a wave of defaults around the world.¹⁹⁶221 In Q3 2019—before the outbreak of COVID-19—global debt levels reached an allal -time high of nearly $253 trilliontril ion, about 320% of global GDP.¹⁹⁷222 About 70% of global debt is held by advanced economies and about 30% is held by emerging markets. GloballyGlobal y, 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 COVID-19 is a wide-scale exogenous shock that will wil make it significantly more difficult for many private borrowers (corporations and households) and public borrowers (governments) around the world to repay their debts. COVID-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.¹⁹⁸

223 Some governments, including Argentina and Lebanon, were already experiencing debt pressures, which have been exacerbated by the pandemic. Other countries are facing new debt pressures created by the pandemic, while some countries, such as Abu Dhabi and Egypt, have completed successful sovereign bond sales since the outbreak of the pandemic.224 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 wil 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 dramaticallydramatical y 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 (usuallyusual y 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 currency. Governments wil 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 economicallyeconomical y 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 221 John Plender, “T he Seeds of the Next Debt Crisis,” Financial Times, March 4, 2020. 222 Emre T iftik, 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. 223 “Covid-19 Worsens Debt Crisis in Poor Countries,” Jubilee Debt Campaign, March 22, 2020. 224 T rieu Pham, “EM Sovereign Debt Issuance: Encouraging Signs but Not Yet Back to Business as Usual,” ING, May 26, 2020. Congressional Research Service 52 Global Economic Effects of COVID-19 al ocate rescue funds, and what conditions if any to attach to funds. Governments have undertaken extraordinary fiscal and monetary measures to combat the crisis. However, developing countries that are constrained by limited financial resources and where health systems could quickly become overloaded are particularly vulnerable.

In terms of defaults by governments (sovereign defaults), emergency assistance is generally general y 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 wil need to consider whether the IMF has adequate resources to respond to the crisis, how to allocateal ocate 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" sharing” with private investors).

International efforts are underway to help the most vulnerable developing countries grapple with debt pressures. In mid-April 2020, the IMF tapped its Catastrophe Containment and Relief Trust (CRRT), funded by donor countries, to provide grants to cover the debt payments of 25 poor and vulnerable countries to the IMF for six months. The IMF hopes that additional donor contributions will allowwil al ow this debt service relief to be extended for two years. AdditionallyAdditional y, the G- 20 finance ministers agreed to suspend debt service payments for the world'’s poorest countries through the end of 2020. The Institute for International EconomicsFinance (IIF), which represents 450 banks, hedge funds, and other global financial funds, also announced that private creditors will wil join the debt relief effort on a voluntary basis. This debt standstill will standstil wil free up more than $20 billion bil ion for these countries to spend on improving their health systems and fighting the pandemic.¹⁹⁹225 Private sector commitments were critical for official creditors, so that developing countries could redirect funds to improving health systems rather than repaying private creditors.

However, the debt standstil is complicated. There is debate among creditor governments about what debts should be included in the standstil , and how it can be enforced. On May 1, the IIF in a letter laid out some of the obstacles facing private sector participation in the debt stil , including reliance on “voluntary” participation, each participating creditor wil need to make its own assessments, the standstil could require a lengthy contract-by-contract approach, and the participating borrowing countries may face risks, such as rating downgrades and inability to borrow from financial markets (often referred to as “loss of market access”). Some economists have characterized the letter as a list of reasons private creditors may cite as justification for their refusal to participate in the debt standstil .226 Reportedly, some African countries are opting to negotiate debt relief individual y with China and other creditor nations because of concerns they wil be blocked from financial markets if they participate in the G-20 debt standstil .227 Other Affected Sectors 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").²⁰⁰ School closures are affecting 1.5 billion children worldwide, challenging parental leave policies.²⁰¹ 225 Davide Barbuscia, Marwa Rashad, and Andrea Shalal, “G20 Countries Agree Debt Freeze for World’s Poorest Countries,” Reuters, April 15, 2020 226 Patrick Bolton, Lee Buchheit, Pierre-Olivier Gourinchas, et. al, “Sovereign Debt Standstills: An Update” VoxEU, May 28, 2020. 227 Jevans Nyabiage, “All Eyes on China as Africa Spurns G20 Debt Relief Plan,” South China Morning Post, May 26, 2020. Congressional Research Service 53 Global Economic Effects of COVID-19 Die”).228 School closures are affecting 1.5 bil ion children worldwide, chal enging parental leave policies.229 Other countries are limiting the size of public gatherings. 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.²⁰² 230 Microsoft and Amazon have instructed all al of their Seattle-based employees to work from home until the end of March 2020.²⁰³

231 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 bil ion 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 are similarly restricting flights),²⁰⁴232 while airports in Europe estimate they could lose $4.3 billionbil ion in revenue due to fewer flights.²⁰⁵233 Industry experts estimate that many airlines will wil be in bankruptcy by May 2020 under currentc urrent conditions as a result of travel restrictions imposed by a growing number of countries.²⁰⁶234 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 generallygeneral y 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 millionmil ion barrels a day to raise market prices. U.S. shale oil producers, who are not represented by OPEC, support the move to raise prices.²⁰⁷ An unwillingness prices.235 An unwil ingness 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 $25 per barrel at times, half the estimated $50 per barrel break-even point 228 Rosenberg, Alyssa, “Covid-19 Shut Down Mona Lisa and James Bond. We Can’t Let it Isolate Us,” Washington Post, March 4, 2020. https://www.washingtonpost.com/opinions/2020/03/04/Covid-19-shut-down-mona-lisa-james-bond-we-cant -let-it-isolate-us/. 229 T aylor, Adam, T eo Armus, Rick Noak, “Covid-19 T urmoil Widens as U.S. Death T oll Mounts; Xi Cancels Japan T rip,” Washington Post, March 5, 2020; Strauss, Valerie, “ 1.5 Billion Children Around Globe Affected by School Closure. What Countries Are Doing to Keep Kids Learning During Pandemic,” Washington Post, March 27, 2020. https://www.washingtonpost.com/education/2020/03/26/nearly-14-billion-children-around-globe-are-out-school-heres-what -countries-are-doing-keep-kids-learning-during-pandemic/. 230 Hill, Andrew and Emma Jacobs, “Covid-19 May Create Lasting Workplace Change,” Financial Times, February 27, 2020. https://www.ft.com/content/5801a710-597c-11ea-abe5-8e03987b7b20. 231 Armus, T eo, “ Live Updates: Covid-19 T urmoil Widens as U.S. Death T oll Mounts; Xi Cancels Japan T rip,” Washington Post, March 5, 2020, https://www.washingtonpost.com/world/2020/03/05/Covid-19-live-updates/. 232 T aylor, Adam, “Airlines Could Suffer up to $113 Billion in Lost Revenue Due to Covid-19 Crisis, IAT A Says,” Washington Post, March 5, 2020. https://www.washingtonpost.com/world/2020/03/05/Covid-19-live-updates/. 233 “Airlines Slash Flights to Cut Costs as Covid-19 Hits T ravel Demand,” Financial Times. https://www.ft.com/content/c28b5790-62c6-11ea-a6cd-df28cc3c6a68. 234 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 Tim es, March 16, 2020. 235 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. Congressional Research Service 54 Global Economic Effects of COVID-19 driven oil prices below $25 per barrel at times, half the estimated $50 per barrel break-even point for most oil producing countries.²⁰⁸236 Rising oil supplies and fallingfal ing demand are combining to create an estimated surplus of 25 millionmil ion barrels a day and could soon overwhelm storage capacity and challengechal enge the viability of U.S. shale oil production.²⁰⁹237 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.²¹⁰238 Reportedly, in late 2019 and early 2020, bond and equity investors, as well wel as banks, reduced their lending to shale oil producers and other energy producers that typicallytypical y use oil and gas reserves as collateral.²¹¹

collateral.239 Disruptions to industrial activity in China reportedly are causing delays in shipments of computers, cell cel phones, toys, and medical equipment.²¹²240 Factory output in China, the United States, Japan, and South Korea all al declined in the first months of 2020.²¹³241 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.²¹⁴ 242 Disruptions in the movements of goods and people reportedly are causing some companies to reassess how international they want their supply chains to be.²¹⁵243 According to some estimates, nearly every member of the Fortune 1000 is being affected by disruptions in production in China.²¹⁶

Conclusions

China.244 Conclusions The quickly evolving nature of the COVID-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 wil the crisis last?
•  How many workers will wil be affected both temporarily and permanently?
• How many countries will be infected and how much economic activity will be reduced?
• When will 236 Strauss, Delphine, “Why T here Are No Winners from the Oil Price Plunge T his T ime,” Financial Times, March 10, 2020. https://www.ft.com/content/da2b0700-622c-11ea-b3f3-fe4680ea68b5; Mufson, Steve and Will Englund, “ Oil Price War T hreatens Widespread Collateral Damage,” Washington Post, March 10, 2020. https://www.washingtonpost.com/climate-environment/oil-price-war-threatens-widespread-collateral-damage/2020/03/09/3e42c9e2-6207-11ea-acca-80c22bbee96f_story.html. 237 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. 238 “T exas Oil Groups: Panhandling Ahead,” The Financial Times, January 20, 2020. 239 Ibid. 240 Hille, Kathrin, Alistair Gray, and Patrick McGee, “Covid-19 Delays PC and Smartphone Shipments for Weeks,” Financial Tim es, March3, 2020. https://www.ft.com/content/72742872-5c31-11ea-b0ab-339c2307bcd4. 241 Newmyer, T ory, “ The Finance 202: Stocks Stage Major Comeback, but Manufacturing Report Points to Continued Covid-19 Pain,” Washington Post, March 3, 2020. https://www.washingtonpost.com/news/powerpost/paloma/the-finance-202/2020/03/03/the-finance-202-stocks-stage-major-comeback-but-manufacturing-report -points-to-continued-Covid-19-pain/5e5d84a6602ff10d49ac081f/?itid=hp_hp-cards_hp-card-politics%3Ahomepage%2Fcard-ans. 242 Lynch, David J., “ Economic Fallout from China’s Covid-19 Mounts Around the World,” Washington Post, February 13, 2020. https://www.washingtonpost.com/business/economy/economic-fallout -from-chinas-Covid-19-mounts-across-the-globe/2020/02/13/7bb69a12-4e8c-11ea-9b5c-eac5b16dafaa_story.html?itid=lk_inline_manual_12 243 Ibid. 244 Ibid. Congressional Research Service 55 Global Economic Effects of COVID-19  How many countries wil be infected and how much economic activity wil be reduced?  When wil the economic effects peak?  the economic effects peak?
• How much economic activity will wil 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 wil 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?

Congressional Research Service 56 Global Economic Effects of COVID-19 Appendix. Table A-1. Select Measures Implemented and Announced by Major Economies in Response to COVID-19 United States COVID-19