Global Economic Effects of COVID-19

Global Economic Effects of COVID-19
July 9, 2021
The COVID-19 viral pandemic continues to be a highly personal, individual experience that is
also an unprecedented globally-shared phenomenon with wide-ranging repercussions. The
James K. Jackson,
pandemic has disrupted lives across all countries and communities and negatively affected global
Coordinator
economic growth in 2020 beyond anything experienced in nearly a century. Estimates indicate
Specialist in International
the virus reduced global economic growth in 2020 to an annualized rate of -3.4% to -7.6%, with a
Trade and Finance
recovery of 4.2% to 5.6% projected for 2021. Global trade is estimated to have fallen by 5.3% in

2020, but is projected to grow by 8.0% in 2021. According to a consensus of forecasts, the
Martin A. Weiss
economic downturn in 2020 was not as negative as initially estimated, due in part to the fiscal
Specialist in International
and monetary policies governments adopted in 2020. Generally, economic growth forecasts
Trade and Finance
captured the decline and subsequent rebound in economic growth over the second and third

quarters of 2020, but have been challenged since by the prolonged nature of the health crisis and
its continuing impact on the global economy.
Andres B. Schwarzenberg
Analyst in International
As some developed economies start recovering, central banks and national governments are
Trade and Finance
considering the impact of tapering off monetary and fiscal support as a result of concerns over

potential inflationary pressures, weighed against the prospect of slowing the pace of the recovery.
Rebecca M. Nelson
These concerns are compounded by the emergence of new disease variants and rolling pandemic
Specialist in International
hotspots. Major advanced economies, which comprise 60% of global economic activity, are
Trade and Finance
projected to operate below their potential output level through at least 2024, which indicates

lower national and individual economic welfare relative to pre-pandemic levels. Compared with
Karen M. Sutter
the synchronized nature of the global economic slowdown in the first half of 2020, the global
Specialist in Asian Trade
economy has shown signs of a two-track recovery that began in the third quarter of 2020 and has
and Finance
been marked by a nascent recovery in developed economies, but a slower pace of growth in

developing economies.
Michael D. Sutherland
As a whole, developed economies have made strides in vaccinating growing shares of their
Analyst in International
populations, raising prospects of an economic recovery in 2021 and, in turn, the broader global
Trade and Finance
economy. However, new variants of the COVID-19 virus and a surge in diagnosed cases in large

developing economies and resistance to vaccinations among some populations in developed

economies raise questions about the speed and strength of an economic recovery over the near
term. A resurgence of infectious cases in Europe, Russia, the United States, Japan, Brazil, India,
and across much of Africa has renewed calls for lockdowns and curfews and threatens to weaken or delay a potential
sustained economic recovery into mid to late 2021. The economic fallout from the pandemic has affected certain industrial
sectors of the economy and certain population groups disparately and could risk continued labor dislocations as a result of
lingering high levels of unemployment not experienced since the Great Depression of the 1930s. In some cases, workers are
reconsidering their career choices and work patterns, which may imply a post-pandemic economy marked by more varied
labor arrangements and an altered urban environment.
The human costs in terms of lives lost will permanently affect global economic growth in addition to the cost of elevated
levels of poverty, lives upended, careers derailed, and increased social unrest. Some estimates indicate that 95 million people
may have entered into extreme poverty in 2020 with 80 million more undernourished compared to pre-pandemic levels. In
addition, some estimates indicate that global trade could fall by an annual amount of 9.0% or slightly less in 2020 as a result
of the global economic downturn, exacting an especially heavy economic toll on trade-dependent developing and emerging
economies. The economic impact of the pandemic is expected to lessen in developed economies where vaccinations are
facilitating a return to pre-pandemic levels of activity. In developing countries, however, outbreaks of new viral variants
could prolong the pandemic and dampen prospects of a recovery. This report provides an overview of the global economic
costs to date and the response by governments and international institutions to address these effects.
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Contents
Overview ......................................................................................................................................... 1
Recovery and Relapse ............................................................................................................... 3
New Variants ............................................................................................................................. 6
Impact on Workers........................................................................................................................... 7
U.S. Labor Market ..................................................................................................................... 8
Impact on Output ........................................................................................................................... 13
Financial Markets .................................................................................................................... 15
Country Responses .................................................................................................................. 18
Economic Policy Responses .......................................................................................................... 20
Industry Measures ................................................................................................................... 21
Fiscal Measures ....................................................................................................................... 22
Fiscal Deficits ................................................................................................................... 23
Worker Assistance Programs ............................................................................................ 25
Monetary and Prudential Measures ......................................................................................... 27
Economic Forecasts ....................................................................................................................... 29
Global Growth ......................................................................................................................... 29
The OECD Forecast .......................................................................................................... 31
The IMF Forecast .............................................................................................................. 38
The World Bank Forecast ................................................................................................. 40
Global Trade ............................................................................................................................ 41
Global Foreign Investment ...................................................................................................... 46
Economic Policy Challenges ......................................................................................................... 51
Major Economic Developments .................................................................................................... 52
Financial Markets .................................................................................................................... 53
International Role of the Dollar .............................................................................................. 60
Global Energy Markets ........................................................................................................... 65
Policy Responses ........................................................................................................................... 67
The United States .................................................................................................................... 68
Monetary Policy ................................................................................................................ 73
Fiscal Policy ...................................................................................................................... 75
Personal Income and Outlays ............................................................................................ 79
GDP Output “Gap” ........................................................................................................... 80
Federal Reserve Forecast .................................................................................................. 83
Other Developments ......................................................................................................... 85
Europe ..................................................................................................................................... 86
The United Kingdom ............................................................................................................... 94
Japan ........................................................................................................................................ 98
China ..................................................................................................................................... 100
Multilateral Response .................................................................................................................. 100
International Monetary Fund ................................................................................................. 100
World Bank and Regional Development Banks .......................................................................... 101
International Economic Cooperation .................................................................................... 102
Estimated Effects on Developed and Major Economies ............................................................. 104
Asian Development Bank 2020 Forecast ........................................................................ 104
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Emerging Markets ....................................................................................................................... 105
International Economic Cooperation ........................................................................................... 107
Looming Debt Crises and Debt Relief Efforts ............................................................................ 108
Other Affected Sectors ................................................................................................................. 110
Conclusions .................................................................................................................................. 112

Figures
Figure 1. Composition of Working-Hours Lost by Region, 2020 ................................................... 7
Figure 2. Initial U.S. Weekly Claims for Unemployment Insurance, 2020 and 2021 ................... 10
Figure 3. IMF Projected Government Fiscal Deficits Relative to GDP ........................................ 24
Figure 4. Major Economic Forecasts by Region ........................................................................... 31
Figure 5. Unemployment Rates Among Major OECD Countries ................................................. 33
Figure 6. IMF Forecast, Gross Domestic Product ......................................................................... 40
Figure 7. WTO Estimates of Quarterly Global Exports and Imports, Volumes and Values .......... 43
Figure 8. Foreign Direct Investment Inflows by Major Country Groups ...................................... 49
Figure 9. Global Foreign Direct Investment Inflows .................................................................... 50
Figure 10. U.S. Direct Investment; Inflows and Outflows ............................................................ 50
Figure 11. Dow Jones Industrial Average Index ............................................................................ 55
Figure 12. U.S. Dollar Trade-Weighted Broad Index, Goods and Services .................................. 61
Figure 13. International Role of the Dollar ................................................................................... 62
Figure 14. Quarterly Price and Quantity Indexes, U.S. Goods Exports and Imports .................... 63
Figure 15. Brent Crude Oil Price Per Barrel in Dollars ................................................................. 66
Figure 16. U.S. GDP, Percentage Change From Preceding Quarter.............................................. 69
Figure 17. Monthly U.S. Exports and Imports of Goods and Services 2020-2021 ....................... 70
Figure 18. Change in Total Monthly U.S. Nonfarm Employment ................................................ 71
Figure 19. Change in U.S. Employment by Major Industrial Sector ............................................ 72
Figure 20. U.S. Personal Income, Consumption, and Saving ....................................................... 80
Figure 21. Real and Potential U.S. GDP and the Output Gap ....................................................... 82
Figure 22. UK Month Over Month Quarterly Percentage Change in GDP ................................... 96
Figure 23. Asian Development Bank 2020 and 2021 GDP Forecasts ......................................... 105
Figure 24. Capital Flows to Emerging Markets in Global Shocks .............................................. 106
Figure 25.Depreciation Against the Dollar Since January 1, 2020.............................................. 107

Tables
Table 1. Seasonally Adjusted Weekly Unemployment Insurance Claims ...................................... 11
Table 2. Investment Policy Instruments Adopted at the National and International level to
Address the COVID-19 Pandemic ............................................................................................. 21
Table 3. Elements of Announced Fiscal Measures to Address COVID-19 ................................... 22
Table 4. Developed Economy Worker Support Programs During COVID-19 .............................. 26
Table 5. Selected Central Bank and Prudential Measures to Address COVID-19 ........................ 28
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Table 6. Major Economic Forecasts .............................................................................................. 30
Table 7. OECD, IMF and World Bank Economic Forecasts ......................................................... 35
Table 8. WTO Forecast: Merchandise Trade Volume and Real GDP 2020-2021.......................... 43
Table 9. Foreign Investment Screening Legislation Adopted During COVID-19 ........................ 47
Table 10. Investment Policy Instruments Adopted at the National and International Levels
to Address the COVID-19 Pandemic ......................................................................................... 48
Table 11. Dow Jones Industrial Average Market Changes by Month ............................................ 54
Table 12. U.S. Exports and Imports, Change in Quarterly Price and Quantity Indexes ................ 64
Table 13. IMF Forecast of Major Advanced Economy GDP Output Gap ..................................... 81
Table 14. Congressional Budget Office Projection of Major U.S. Economic Indicators,
2021 to 2031 ............................................................................................................................... 82
Table 15. Federal Reserve Economic Projections, June 2021 ....................................................... 84
Table 16. European Commission Economic Forecast ................................................................... 87
Table 17. EU Real GDP Growth Rates 2020 ................................................................................. 88
Table 18. UK Major GDP Aggregates 2019-2020 ......................................................................... 97
Table 19. UK Forecast of Major Aggregate National Accounts, 2020-2023 ................................. 98

Appendixes
Appendix A. Fiscal and Monetary Policy Actions by National Governments: Monthly
Chronology ................................................................................................................................ 113
Appendix B. Table B-1. Select Measures Implemented and Announced by Major
Economies in Response to COVID-19 ..................................................................................... 126

Contacts
Author Information ...................................................................................................................... 154


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Global Economic Effects of COVID-19

Overview
The World Health Organization (WHO) first declared COVID-19 a world health emergency in
January 2020; on March 11 it announced the viral outbreak was officially a pandemic, the highest
level of health emergency.1 Since then, the emergency evolved into a global public health and
economic crisis that affected the $90 trillion global economy beyond anything experienced in
nearly a century. In a variance of John Donne’s poem, “No Man is an Island,” the viral infection
spread between and across countries and affected nearly every community, demonstrating the
highly interconnected nature of the global economy: the virus has been detected in over 200
countries and all U.S. states.2 By early March 2020, the focal point of infections had shifted from
China to Europe, especially Italy, but by April, the focus had shifted to the United States, where
the number of infections had been accelerating. By April 2021, India and Brazil emerged as viral
hot spots with the number of infections and deaths reaching daily record levels in those countries.
Through various phases of the health crisis, governments adopted policies to lock down social
activities to contain the spread of the pandemic, inadvertently creating a global economic
recession. In response to the unprecedented drop in economic activity, governments adopted a
series of actions initially comprised of monetary policies aimed at stabilizing financial markets
and ensuring the flow of credit. In the second phase, policy actions shifted to fiscal measures
aimed at sustaining economic growth as governments adopted quarantines and social distancing
measures. In the third phase, government policies shifted to developing, purchasing and
distributing vaccines. As the health and economic effects have evolved and persisted, the phases
of government actions have become less distinct: efforts to vaccinate populations have coincided
with additional fiscal measures to sustain household income, for instance.
The infection has sickened over 184 million people globally with over 4.0 million fatalities. The
United States reported that by early July 2021, over 33.6 million Americans had been diagnosed
and over 603,000 had died from the virus. At one point, more than 80 countries had 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.3
On May 5, 2021, the Biden administration announced it would support international discussions
to waive intellectual property restrictions on COVID-19 vaccine production for developing
economies.4 Prior to this announcement, developed economies, including Britain, Switzerland,
the EU, and the United States, had blocked a proposal by over 80 developing countries at the
World Trade Organization to suspend intellectual property rights restrictions on production of
COVID-19 vaccines.5 The EU announced on June 4, 2021, that it would reject the U.S. proposal
to drop IP protections and offered a three-point plan of its own that included (1) maintaining

1 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.
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 “The Day the World Stopped: How Governments Are Still Struggling to Get Ahead of the COVID-19,” The
Economist
, March 17, 2020. https://www.economist.com/international/2020/03/17/governments-are-still-struggling-to-
get-ahead-of-the-COVID-19.
4 Diamond, Dan, Tyler Pager, and Jeff Stein, Biden Commits to Waiving Vaccine Patents, Driving Wedge With
Pharmaceutical Companies, The Washington Post, May 5, 2021.
5 Rich, Developing Economies Wrangle Over COVID Patents, Reuters, March 10, 2021.
https://www.reuters.com/article/us-health-coronavirus-wto/rich-developing-nations-wrangle-over-covid-vaccine-
patents-idUSKBN2B21V9.
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export restrictions; (2) encouraging vaccine manufacturers to negotiate agreements with
producers in developing economies and increasing vaccine supplies to vulnerable countries; and
(3) using existing WTO rules to grant licenses to producers without the consent of the patent-
holder.6 During the G-7 summit in England on June 11, 2021, the United States and the other G-7
leaders announced they would provide a combined total of 1 billion doses of the COVID-19
vaccine in addition to lifesaving medical supplies, oxygen, diagnostics, therapeutics, and personal
protective equipment (PPE) to low and middle income developing countries.7
Through the various stages of the pandemic-related health and economic crises, governments
responded with a number of policy initiatives that often attempted to balance competing policy
objectives. As the health crisis subsides and economic activity resumes, policymakers may
consider evaluating the various policy approaches for lessons learned and for best practices to
employ in addressing similar crises, should they arise. Such an evaluation could include
 Assessing the short and long-term costs and benefits of fiscal policies that were
adopted during the crisis to address employment dislocations and support social
safety nets, compared with the potential long-term impact of deficit spending on
the rate of inflation and the long-term financial stability of the economy.
 Evaluating the costs and benefits of economy-wide business and social
lockdowns compared with the impact and effectiveness of targeted closures or
other types of restrictions.
 Reviewing the effectiveness of monetary and fiscal policies that were adopted to
support credit markets and sustain economic activity broadly during the initial
stages of the crisis, compared with policies targeted to assist specific sectors and
businesses as they experienced financial distress.
 Assessing the effectiveness of transfer payments that were directed at supporting
the most heavily affected households, the impact of such payments on household
saving rates, consumption, and decisions to return to full-time employment, the
necessary conditions and timing for tapering off the support, and the impact on
the long-term rate of growth between public versus private debt.
 Assessing the impact that central banks and monetary authorities had on financial
markets and market liquidity by intervening in sovereign debt and corporate bond
markets during the early stages of the health and economic crisis and the impact,
if any, on the ability of the markets to perform their traditional functions of
pricing risk and allocating capital.
 Assessing the optimal combination and impact of fiscal policies during a national
or global economic crisis between assisting households, firms, or state and local
governments.
 Evaluating the effectiveness of unemployment insurance systems that provide
short-term unemployment insurance to sustain workers incomes, compared with
European-style job retention programs that maintain pre-crisis employment, even
as those jobs could disappear once the support ends.8

6 Blenkinsop, Phillip, Resisting Patent Waiver, EU Submits Vaccine Plan to WTO, Reuters, June 4, 2021.
https://www.reuters.com/world/europe/eu-executive-submits-vaccine-access-proposal-wto-2021-06-04/.
7 Scott, Eugene, G-7 Leaders Commit to Making 1 Billion Coronavirus Vaccines Available Starting This Summer, The
Washington Post
, June 11, 2021.
8 Job Retention Schemes During the COVID-19 Lockdown and Beyond, Organization for Economic Cooperation and
Development, August 3, 2020.
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Through early July 2021, various key economic and financial indicators had rebounded from the
depths of the pandemic-related economic recession, although not all parts of the global economy
had recovered to the levels that preceded the COVID-19 pandemic.9 Although vaccination rates
had increased in various countries, particularly the United States, a long list of countries struggled
to get their populations vaccinated and their economies operating at or above pre-pandemic
levels. By mid-2021, financial market indices had largely recovered from the losses experienced
in March and April 2020, international oil prices had surpassed their pre-pandemic levels,
pressure appreciating the dollar had eased, and labor markets appeared to be stabilizing.
Over the long run, however, damage to labor markets could be more problematic with a large
share of the labor force unable to return to pre-pandemic jobs. In some cases, workers who were
unemployed during the crisis reportedly are reconsidered returning to their previous jobs and
exploring other options, which potentially could affect the pace of the economic recovery.10
Similarly, economies could face long-term costs as a result of children who were held out of in-
person education for over a year that could result in lower academic performance and graduation
rates and delayed entry into the labor market. On March 31, 2021, Kristalina Georgieva,
Managing Director of the International Monetary Fund (IMF), warned that an emerging market
debt crisis could unfold as the global economy begins recovering and interest rates rise, which
could cause a capital outflow from developing economies.11
Recovery and Relapse
The U.S. and European economies experienced the beginnings of a recovery in the third quarter
of 2020 with the U.S. economy growing by 33.4%, or at an annual rate of 5.0%, largely matching
an equally sharp decline in growth in the second quarter. The Eurozone economy grew by 12.5%
during the quarter and -7.4% at an annual rate. During the third quarter of 2020, however, the
recovery was weakened by renewed quarantines and business lockdowns in response to a
resurgence of infectious cases and the emergence of more contagious variants of the virus that
began in September. The annual U.S. economic growth rate slipped to -3.5% in 2020, but was
estimated to have grown at an annualized rate of growth of 6.4% during the first quarter of
2021.12 The U.S. Congress passed a $1.9 trillion economic stimulus bill, designated the American
Rescue Plan Act (P.L. 117-2), that was signed by President Biden on March 11, 2021.
On March 3, 2021, UK Chancellor of the Exchequer Sunak announced a £65 billion stimulus
package over two years to revive the UK economy that is comprised of various business
incentives and worker income support measures to be followed by tax increases starting in
2023.13 On June 14, 2021, UK Prime Minister Boris Johnson announced a four-week extension in
social restrictions and business lockdowns in response to a rise in viral infections, further
delaying the return of the UK economy to pre-pandemic activity.14 By early July, Prime Minister
Johnson announced that England (exclusive of Scotland, Wales, and Northern Ireland) would

9 Mapping the Spread of the COVID-19.
10 Dodd, Darren, Businesses Suffer Labor Pains as Economies Reopen, Financial Times, June 21, 2021.
https://www.ft.com/content/e47575aa-b6ec-4635-a0be-f4e623dacbdb.
11 Giles, Chris, Prepare for Emerging Markets Debt Crisis, Warns IMF Head, Financial Times, March 31, 2021.
https://www.ft.com/content/487c30f4-7f21-4787-b519-dde52264d141.
12 Gross Domestic Product, First Quarter 2021 (Advance Estimate), Bureau of Economic Analysis, April 29, 2021.
13 Pickard, Jim, Chris Giles, and George Parker, Rishi Sunak Delivers Spend Now, Tax Later Budget to Kickstart UK
Economy, Financial Times, March 3, 2021. https://www.ft.com/content/da66ce9a-6dfc-4a3a-bde7-d4f4faed6c4a.
14 Payne, Sebastian, Jim Pickard and Daniel Thomas, Four-week Extension to England’s Lockdown Dashes Business
Hopes, Financial Times, June 14, 2021. https://www.ft.com/content/2d00de1a-92d7-4b63-a151-53a6ae064368.
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remove all social restrictions by July 19, despite warnings from UK health officials that the
rapidly-spreading Delta viral variant could result in 100,000 deaths per day by the end of summer,
surpassing the previous record of 60,000 deaths per day.15
The WHO indicated in early January 2021, that 230 million Europeans were living under
lockdown restrictions at that time and that 26 million Europeans had contracted COVID-19 in
2020.16 On April 13, 2021, the WHO estimated that 1 million Europeans had died from the
disease, nearly twice as many as in the United States. In an attempt to stop the spread of new
variant strains of the virus, the UK, Ireland, Germany, Denmark, and some northern Italian
regions closed schools in January 2021 for several weeks.17 Reportedly, disputes over vaccine
distribution within and among European countries and with Britain and the spread of more
virulent strains of the COVID-19 virus increased public criticism of government leaders in some
EU countries and prompted renewed business lockdowns and school closures.18
On March 31, 2021, French President Macron announced a four-week country-wide business
lockdown to curb a resurgence in viral cases that were overwhelming French hospitals and
extending by one week a planned two week closure of schools.19 The EU also blocked shipments
to Britain of the AstraZeneca vaccine produced in Belgium and the Netherlands until
commitments made to supply the EU had been met, or until other countries showed reciprocity in
their distribution of vaccines.20At the same time, 16 European countries, including Germany,
France, Italy, and Spain, temporarily suspended use of the AstraZeneca vaccine over concerns of
possible negative side-effects, despite assurances by EU drug regulators that the benefits of the
vaccine outweighed any risks.21
India announced on March 25, 2021, that it was temporarily halting exports of COVID-19
vaccines and prioritizing local vaccinations in response to a resurgence in viral cases.22 In early
April 2021, India and Brazil were designated global viral infection hot spots due to a resurgence
in cases. On May 6, India reported a single-day total of 412,000 new cases.23 By July 2, India’s
death toll from the pandemic surpassed 400,000.24 Brazil reportedly has had over 350,000 viral-

15 Cunningham, Erin, Britain’s Daily Infections Could Reach 100,000 This Summer, Health Secretary Says, The
Washington Post
, July 6, 2021.
16 Clarfelt, Harriet, Pandemic at ‘tipping point’, Says WHO Europe Official, Financial Times, January 7, 2021.
https://www.ft.com/content/9b42e8fa-dde1-3663-a4ad-7d6605121866.
17 Hall, Ben, Bethan Staton, Joshua Chaffin, Guy Chazan, European Capitals Follow UK With School Closures as
Virus Surges, Financial Times, January 7, 2021. https://www.ft.com/content/8121ca0a-4d96-4cf5-b5df-a73adc16a606.
18 Chazan, Guy, We Are a Laughing Stock’: Covid-19 and Germany’s Political Malaise, Financial Times, April 1,
2021. https://www.ft.com/content/bc5a3b02-a90d-4206-a441-1bada29feba2.
19 Mallet, Victor, Macron Extends Lockdown Across France to Combat Covid Surge, Financial Times, April 1, 2021.
https://www.ft.com/content/731ec423-03dc-405c-9ff4-f8670b953f2d.
20 Fleming, Sam, Michael Peel, and George Parker, EU Warns ‘zero’ Jabs Shipped to UK Until AstraZeneca Meets
Bloc’s Targets, Financial Times, April 1, 2021. https://www.ft.com/content/28158bed-5f07-4504-9a00-2f3d8f7519df.
21 Paolo Mancini, Donato, Miles Johnson, Michael Peel, David Keohane, Richard Milne, and Sarah Neville, European
Capitals Coordinated Suspension of Oxford/AstraZeneca Covid Jab, Financial Times, April 1, 2021.
https://www.ft.com/content/a046e340-892b-4e68-bfae-4f5c40a5506a.
22 Findlay, Stephanie, Michael Peel, Donato Paolo Mancini, Andres Schipani and Jasmine Cameron-Chileshe, India
Blocks Vaccine Exports in Blow to Dozens of Nations Financial Times, March 25, 2021.
https://www.ft.com/content/5349389c-8313-41e0-9a67-58274e24a019.
23 Slater, Joanna, India Announces Record Number of Deaths and New Cases as Outbreak Rages on, The Washington
Post
, May 6, 2021; Parker, Claire, Paul Schemm, Sean Sullivan, India Sets Another Daily Coronavirus Case Record:
U.S. Pledges Help, The Washington Post, April 26, 2021. https://www.washingtonpost.com/world/asia_pacific/india-
coronavirus-deaths-pandemic/2021/04/25/ec0f208a-a51c-11eb-b314-2e993bd83e31_story.html.
24 Cunningham, Erin, Covid-19 Global Updates: India’s Death Toll Tops 400,000 as Delta Variant Gains Ground
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related deaths: in some cities in Brazil, COVID-related daily deaths have outnumbered daily
births.25
On April 15, 2021, the Director-General of the WTO called on WTO members and vaccine
manufacturers to increase production, reduce export restrictions, and suspend intellectual property
rights on COVID-19 vaccines to increase immunizations.26 The WHO also reported that new
COVID-19 cases had nearly doubled around the world over the preceding two months,
approaching the highest rates of infection since the start of the pandemic. Reportedly, new case
numbers had spiked in every region of the world, with the largest outbreaks occurring in India,
Brazil, Poland, Turkey and some other countries.27 Also on April 15, 2021, a group of 175 former
world leaders and Nobel laureates called on the United States to suspend intellectual property
rights for COVID-19 vaccines to facilitate the international production and distribution of
vaccines by allowing developing countries the ability to manufacture their own vaccines. The
group warned that, “… inequitable vaccine access would impact the global economy and prevent
it from recovering.”28
On April 16, the WHO announced that it would develop one or more COVID-19 technology hubs
to transfer a “comprehensive technology package and provide appropriate technology to
interested manufacturers” in developing economies.29 Reportedly, the initiative’s goal is to make
the technology either free of intellectual property constraints in developing economies, or that
such rights are made available through nonexclusive licenses.
Japan’s Prime Minister Suga announced on January 5, 2021, that Tokyo and three surrounding
prefectures would initiate a voluntary “soft” state of emergency on January 8 that stressed
teleworking, restricting unnecessary travel, and reducing sporting and cultural events.30 On April
23, 2021, Japan announced new two-week lockdown protocols for Tokyo, Osaka, and two other
large cities as Japan faced a rise in viral infections. The lockdowns were intended to encourage
workers to work from home, to close all venues that serve alcohol and supermarkets, but not close
schools.31 In April, May, and June, 2021, Japan again experienced a resurgence of cases,
reportedly raising the total number of diagnosed case to 811,000. On July 8, Japanese officials
announced that no spectators would be allowed to attend the summer Olympics, scheduled to
begin July 23, after Japan declared a state of emergency amid a rise in diagnosed COVID-19
cases.32 Previously, Japan had indicated it would limit attendees to a maximum of 10,000

Worldwide, The Washington Post, July 2, 2021.
25 Caverni, Alexandre, Brazil Sees 1,803 COVID-19 Deaths; Chinese Vaccine Found 50.7% Effective Against Variant,
Reuters, April 11, 2021; Hassan, Jennifer, In Many Brazilian Cities, Deaths Have Overtaken Births, The Washington
Post,
April 15, 2021.
26 Cunnigham, Erin, New African WTO Head Urges Members to Take Action on Vaccine Inequity, The Washington
Post
, April 15, 2021.
27 Cunningham, Erin and Siobhan O’Grady, New Global Coronavirus Cases Nearly Double in Two Months, The
Washington Post
, April 16, 2021. https://www.washingtonpost.com/world/2021/04/16/global-coronavirus-cases-surge-
who/.
28 Williams, Aime, Former World Leaders Call on Biden to Suspend Covid-19 Vaccine Patents, Financial Times, April
15, 2021. https://www.ft.com/content/43fd53f5-2b82-4e41-981c-8544a6ce996b.
29 World Health Organization, Establishment of a COVID-19 mRNA Vaccine Technology Transfer Hub to Scale Up
Global Manufacturing, April 16, 2021.
30 Harding, Robin and Kana Inagaki, Japan Declares State of Emergency in Tokyo as Coronavirus Cases Surge,
Financial Times, January 5, 2021. https://www.ft.com/content/72ceb064-2231-4d17-bd8f-92bd7f99f33c.
31 Harding, Robin, Japan to Impose New State of Emergency as COVID-19 Cases Rise, Financial Times, April 23,
2021. https://www.ft.com/content/a3d3a8bc-6d0e-4b2b-9e09-3310db13222e.
32 Dooley, Ben, Spectators Will Be Barred at Tokyo Olympics Amid New Covid Emergency, The New York Times,
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Japanese residents per event. It is unclear if the new ban includes sponsors and sporting
federation officials.33 On March 9, 2021, the government announced that Japan’s GDP grew by
2.8% in the fourth quarter of 2020, down from a third quarter rate of 5.3%. On an annualized rate,
the economy is projected to have declined by 4.8% year over year in 2020. A decline in business
investment and personal consumption in the fourth quarter led forecasters to downgrade their
estimates for fourth quarter 2020 and forecasts for first quarter 2021 GDP.34
China, which experienced positive quarterly rates of economic growth throughout the pandemic-
related recession, reportedly is considering a series of actions to support economic growth due to
concerns over a slowing economy. On July 7, 2021, the Chinese Cabinet stated it would scale
back pandemic-related spending to address concerns over accumulated government debt and
potentially to maintain low borrowing costs for small businesses. The statement also indicated the
cabinet supported cuts by the People’s Bank of China (PBOC) in its required reserve ratio (RRR)
– generally considered to be among the strongest actions central banks can take – to support the
economy.35
According to the WHO, 16 African countries were experiencing their worst period during the
pandemic in early July 2021, as a result of rising rates of infections and deaths, with even larger
numbers expected.36 Some of the most severely affected countries were Namibia, Uganda,
Zambia, and South Africa, The WHO indicated the continent was experiencing a third wave of
infections as a result of the rapidly spreading Delta variant. Reportedly, less than one percent of
the continent’s population has been vaccinated.
New Variants
By early June 2021, the more virulent Delta COVID-19 variant reportedly was present in
Germany, France, and Spain, Portugal and Belgium and had prompted calls for additional
measures by European health officials, including reintroducing travel restrictions.37 Projections
by the European Center for Prevention and Disease Control (ECDC) indicated the variant was
projected to account for 90% of coronavirus infections across much of Europe by the end of
August and “could lead to a fast and significant increase in daily cases in all age groups.”38 The
variant was also growing as a share of total cases in many U.S. states, with some organizations
estimating that it could become the dominant strain, especially in areas with low overall rates of
inoculations.39 After escaping the initial rounds of infections, cases were growing rapidly in
Australia and New Zealand, which had begun reinstituting restrictions on social gatherings and

July 8, 2021. https://www.nytimes.com/2021/07/08/world/asia/tokyo-state-of-emergency-olympics.html.
33 Wade, Stephen, Tokyo Olympics to Allow Local Fans-But With Strict Limits, AP, June 21, 2021.
34 Obe, Mitsuru, Japan Revises Q4 GDP Growth Down to Annualized 11.7%, Nikkei Asia, March 9, 2021.
35 Qian, Colin, Judy Hua, Kevin Yao, Giles Elgood and Mark Heinrich, China's Cabinet Says It Will Use RRR Cuts to
Support Real Economy, Reuters, July 7, 2021.
36 Cunningham, Erin, Africa Suffers ‘Worst Pandemic Week Ever’ as Cases Surge, Vaccinations Lag, The Washington
Post,
July 9, 2021.
37 Gross, Anna, Leila Abboud, and John Burn-Murdoch, Delta Variant Begins to Spread, Threatening EU’s Covid
Progress, Financial Times, June 21, 2021. https://www.ft.com/content/d4abbe5e-8650-4a76-9fea-2d3efa2ed52b.
38 Miller, Michael E., Covid-19 Updates: Merkel Warns Europe is ‘On Thin Ice’ as Concerns About Delta Variant
Grow, The Washington Post, June 25, 2021.
39 Cha, Ariana Eunjung, Karla Adam, Ben Guarino, and Lenny Bernstein, Spread of Delta Coronavirus Variant
Exposes Poorly Vaccinated Regions to Renewed Danger, The Washington Post, June 23, 2021.
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movement.40 COVID-19 infections were rising in Russia in June 2021, reportedly due to the
unwillingness of the populace to receive the Russian-developed Sputnik V vaccine.
Impact on Workers
In a report prepared for the January 25-29, 2021, World Economic Forum, the International Labor
Organization (ILO) estimated that 93% of the world’s workers at that time were living under
some form of workplace restrictions as a result of the global pandemic and that 8.8% of global
working hours were lost in 2020 relative to the fourth quarter of 2019, an amount equivalent to
255 million full-time jobs. The ILO estimated that the loss in working hours was comprised of (1)
workers who were unemployed, but actively seeking employment, (2) workers who were
employed, but had their working hours reduced, and (3) workers who were unemployed and not
actively seeking employment. Based on this approach, the ILO estimated that unemployment
globally was equivalent to 0.9% of total working hours lost in 2020, while inactivity and reduced
hours accounted for 7.9% of total working hours lost, as indicated in Figure 1.
Total working hours lost in 2020 compared with 2019 were highest in Europe (14.6%) and the
Americas (13.7%), where quarantines and lockdowns had been extensive, followed by lower-
middle income economies. The ILO also estimated that global job losses totaled 114 million jobs
in 2020 relative to 2019. The share of lost worker hours due to higher rates of unemployment
were highest in Europe (6.0%), the Americas (2.7%), including the United States, and Arab States
(1.7%).41 The ILO also estimated that an increase in global economic activity through part of the
fourth quarter was equal to an increase of 130 million full-time jobs.
Figure 1. Composition of Working-Hours Lost by Region, 2020

Source: ILO Monitor: COVID-19 and the World of Work, International Labor Organization, 2021.
In July 2021, the OECD estimated the pandemic-related recession cost 22 million jobs in OECD
countries in 2020 and 114 million jobs globally, compared with 2019.42 The estimate also
indicated that unprecedented government support policies supported worker’s incomes, thereby

40 Pannett, Rachael, Sydney Enters ‘Scariest’ Phase of Pandemic as Delta Variant Spreads, Leader Says, The
Washington Post
, June 24, 2021.
41 ILO Monitor: COVID-19 and the World of Work, Seventh Edition, International Labor Organization, January 15,
2021, p. 2.
42 OECD Employment Outlook 2021: Navigating the COVID-19 Crisis and Recovery, Organization for Economic
Cooperation and Development, July 2021, p. 4.
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likely limiting the impact of shutdowns and social restrictions on labor markets. Nevertheless, the
OECD concluded the unique nature of the crisis accentuated and deepened economic and social
divides along skill levels, education, income, and gender bases in OECD countries and amplified
longstanding trends toward increasing economic inequalities in many OECD countries.43
A number of economists and others estimated that pandemic-related disruptions to labor markets
in developed and developing economies could have long-lasting effects. One group of economists
estimated that even after the pandemic recedes and economic activity ramps up, firms may not
abandon the labor-saving lessons they learned, with fewer jobs created in retail stores, restaurants,
auto dealerships, and meat-packing facilities, among other places.44 Other analysts estimated the
pandemic could affect the structure of work in three main areas by
1. Creating a permanent presence of telework, which could account for 20% to 25%
of workers in developed economies and 20% in developing economies working
from home three to five times per week, which could reduce demand for public
transportation, restaurants, and retail stores;
2. Increasing the level of e-commerce that could disrupt jobs in travel and leisure,
low-wage jobs in brick-and-mortar stores and restaurants, and increase jobs in
distribution centers.
3. Accelerating the adoption of artificial intelligence (AI) and robotics.45
Analysts with the Pew Research Center surveyed American workers in January 2021 who were
unemployed and looking for work. The results indicated that half of those surveyed were
pessimistic about finding another job in the near future and two-thirds had considered changing
their occupations, a sentiment shared across income levels. The other third indicated they had
already engaged in re-skilling through job retraining programs or educational activities.46
U.S. Labor Market
In the United States, labor markets are recovering, but the overall rate of unemployment has
remained above pre-pandemic rates. In testimony before the Senate Banking Committee on
February 23, 2021, Federal Reserve Chairman Jerome Powell indicated that although new
COVID-19 cases and hospitalizations had fallen and offered hope for an economic recovery later
in 2021, the recovery so far remained, “uneven and far from complete, and the path ahead is
highly uncertain.”47 In addition, Powell argued that a resurgence in viral cases, hospitalizations,
and deaths was “causing great hardship for millions of Americans and is weighing on economic
activity and job creation.”
The Federal Reserve also indicated in an accompanying monetary policy report the pandemic-
related economic recession was disproportionately affecting certain groups in the economy:

43 Ibid, p. 5.
44 Autor, David, and Elizabeth Reynolds, The Nature of Work After the COVID Crisis: Too Few Low-Wage Jobs, The
Hamilton Project, Brookings Institution, July 2020, p. 2
45 McKinsey Global Institute, The Future of Work After COVID-19, February 18, 2021.
46 Parker, Kim, Ruth Igielnik, and Rakesh Kochhar Unemployed Americans are Feeling the Emotional Strain of Job
Loss; Most Have Considered Changing Occupations
, Pew Research Center. February 10, 2021.
47 Powell, Jerome, H., Testimony before the Senate Committee on Banking, Housing, and Urban Affairs, February 23,
2021, and Powell, Jerome H., Getting Back to a Strong Labor Market, Speech before The Economic Club of New
York, February 10, 2021.
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lower-wage and less-educated workers, racial and ethnic minorities, and women.48 Powell also
indicated that published unemployment rates “dramatically understated” the deterioration in the
U.S. labor market. Instead of the announced unemployment rate of 6.5% in January, 2021, Powell
argued that the actual rate likely was closer to 10%, reflecting discouraged workers who have
stopped looking for work and, therefore, are not counted as part of the labor force.49 He stated,
however, that, “even those grim statistics understate the decline in labor market conditions for the
most economically vulnerable Americans.”50
According to the Census Bureau, between March 2020 and February 2021, 115 million
Americans experienced a loss in employment income and 37 million qualified for and received
unemployment insurance. In addition, an estimated 26 million households reported receiving
Supplemental Nutritional Assistance Program (SNAP) in February 2021, while nearly 12 million
households with children were estimated not to have had enough to eat.51
Additional Census Bureau data indicate the stimulus checks appropriated under the COVID-19
Aid, Relief, and Economic Security Act (P.L. 116-136) were used by households to cover usual
expenses such as food, housing, and gas. The Census Bureau also reported that
 By late summer 2020, 76.5 million American adults reported that it was
somewhat or very difficult for them to pay usual expenses: that number rose to
89.7 million by December 2020.
 Households accumulated debt to meet their usual expenses with roughly 30% of
adults using credit cards, taking out loans or borrowing from family and friends
between June and December 2020 to pay for usual expenses.
 In June 2020, 33.7 million adults were using debt rather than income to pay their
expenses. By late December, that number had increased to 43.7 million adults.
 Households used the second stimulus check under the Consolidated
Appropriations Act of 2021 (P.L. 116-260) to cover usual expenses and reduced
the number of all adults in households struggling to cover usual costs to 80.5
million. Households also used the second stimulus check to pay down debt.52
During the 69-week period from mid-March 2020 to early July, 2021, nearly 90 million
Americans (more than half the 160 million civilian work force) had filed for unemployment
insurance at some point during the preceding year, as indicated in Table 1.53 On a seasonally
adjusted basis, the number of insured unemployed individuals was 3.3 million on June 26, 2021,
down from a peak of 25 million in mid-May, 2020. As indicated in Figure 2, weekly claims have
fallen from the sharp increases recorded in April and May, 2020. On a week-over-week basis,

48 Board of Governors of the Federal Reserve System, Monetary Policy Report February 19, 2021, February 19, 2021.
49 Powell, Jerome H., Getting Back to a Strong Labor Market, p. 4.
50 Ibid., p. 4.
51 Monte M., Lindsay, Historical Look at Unemployment, Sectors Shows Magnitude of COVID-19 Impact on
Economy, Census Bureau, March 15, 2021, https://www.census.gov/library/stories/2021/03/putting-economic-impact-
of-pandemic-in-context.html.
52 Perez-Lopez, Daniel J. and Lindsay M. Monte, Household Pulse Survey Shows Stimulus Payments Have Eased
Financial Hardship, Census Bureau, March 24, 2021. https://www.census.gov/library/stories/2021/03/many-american-
households-use-stimulus-payments-to-pay-down-debt.html.
53 Unemployment Insurance Weekly Claims, Department of Labor, July 8, 2021. https://www.dol.gov/; Romm, Tony
and Jeff Stein, 2.4 Million Americans Filed Jobless Claims Last Week, Bringing Nine Week Total to 38.6 Million,
Washington Post, May 21, 2020. https://www.washingtonpost.com/business/2020/05/21/unemployment-claims-
coronavirus/
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new claims totaled 373,000 in the week ending July 3 2021, rising by 2,000 from the previous
week’s total of 371,000. This number is nearly twice the average number of weekly claims
recorded prior to the pandemic of about 200,000. In the week ending June 19, 2021, 14.2 million
people claimed benefits in all programs, down 449,000 from the previous week’s total.
The insured unemployment rate for the week ending June 26, 2021, was 2.4, down 0.1% from the
previous week. As workers have approached the traditional 26-week maximum for receiving
standard unemployment benefits they have applied for benefits under the extended Pandemic
Emergency Unemployment Compensation (PEUC) program or the Pandemic Unemployment
Assistance (PUA) program.54 Between June 19, 2021, and June 12, 2021, claims under the PEUC
program fell by 353,000 to 4.9 million, while claims under the PUA program decreased by
110,000 to 5.8 million. Benefits were extended by P.L. 116-260, signed by President Trump on
December 27, 2020. Benefits were further extended through September 6, 2021, by the American
Rescue Plan Act of 2021, P.L. 117-2, signed by President Biden on March 11, 2021.
Figure 2. Initial U.S. Weekly Claims for Unemployment Insurance, 2020 and 2021
In millions of individual claims

Source: Department of Labor. Created by CRS.
At the beginning of the pandemic-related economic recession, the Bureau of Labor Statistics
(BLS) reported on May 8, 2020, that 20 million Americans lost their jobs in April 2020 as a
consequence of business lockdowns, pushing the total number of unemployed Americans to 23
million,55 out of a total civilian labor force of 158 million. The increase pushed the national
unemployment rate to 14.7% (with some caveats), the highest since the Great Depression of the

54 Both programs were authorized under P.L. 116-136, March 27, 2020, the Coronavirus Aid, Relief, and Economic
Security (CARES) Act, with benefits ending by December 31, 2020. The PUA program provided 39 weeks of
unemployment assistance, including $600 weekly benefits (expired in August 2020), under certain conditions, for
workers who had exhausted regular unemployment benefits, were not eligible for regular benefits, or were not eligible
for benefits under the PEUC program. On December 27, 2020, President Trump signed the Consolidated
Appropriations Act of 2021 (P.L. 116-260), extending PUA benefits for 11 weeks. The PEUC program provided 13
weeks of additional benefits to individuals who had exhausted standard unemployment assistance and met other
eligibility requirements. Benefits were further extended through September 6, 2021, by the American Rescue Plan Act
of 2021, P.L. 117-2, signed by President Biden on March 11, 2021. DOL, Unemployment Insurance Program Letter
No. 14-21
, March 15, 2021; DOL, Unemployment Insurance Program Letter No. 16-20, February 25, 2021.
55 This total did not include 10.9 million workers who were working part time not by choice and 9.9 million individuals
who were seeking employment.
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1930s.56 In contrast, on July 2, 2021, BLS reported that nonfarm employment rose by 850,000 in
June to reach 151.6 million, up from the previous month’s increase of 583,000; the total number
of unemployed Americans was 9.5 million, up from the previous month’s total of 9.3 million;57
and the unemployment rate rose by 0.1% to 5.9%, again with some caveats.58
Table 1. Seasonally Adjusted Weekly Unemployment Insurance Claims
In thousands
Insured
Change from
Insured
Unemployment
Week Ending
Initial Claims
Prior Week
Unemployment
Rate
Total Claims
21-Mar-20
3,307
3,025
3,059
2.1%
3,307
28-Mar-20
6,867
3,560
7,446
5.1
10,174
4-Apr-20
6,615
-252
11,914
8.2
16,789
11-Apr-20
5,237
-1,378
15,819
10.9
22,026
18-Apr-20
4,442
-795
18,011
12.4
26,468
25-Apr-20
3,867
-575
22,377
15.4
30,335
2-May-20
3,176
-691
22,548
15.5
33,511
9-May-20
2,687
-489
24,912
17.1
36,198
16-May-20
2,446
-241
20,841
14.3
38,644
23-May-20
2,123
-323
21,268
14.6
40,767
30-May-20
1,897
-226
20,606
14.1
42,664
6-Jun-20
1,566
-331
20,544
14.1
44,230
13-Jun-20
1,540
-26
19,231
13.2
45,770
20-Jun-20
1,482
-58
19,290
13.2
47,252
27-Jun-20
1,408
-74
17,760
12.2
48,660
4-Jul-20
1,310
-98
17,304
11.8
49,970
11-Jul-20
1,308
-2
16,151
11.1
51,278
18-Jul-20
1,422
114
16,951
11.6
52,700
25-Jul-20
1,435
13
16,090
11.0
54,135
1-Aug-20
1,191
-244
15,480
10.6
55,326
8-Aug-20
971
-220
14,759
10.1
56,297
15-Aug-20
1,104
133
14,492
9.9
57,401
22-Aug-20
1,011
-98
13,254
9.1
58,412
29-Aug-20
884
-127
13,544
9.3
59,296
5-Sep-20
893
9
12,747
8.7
60,189

56 The Employment Situation-May 2020, Bureau of Labor Statistics, June 10, 2020. https://www.bls.gov/.
57 This total does not include 4.6 million workers who were working part time not by choice and 6.4 million individuals
who were seeking employment.
58 The Employment Situation-June 2021, Bureau of Labor Statistics, July 2, 2021, https://www.bls.gov/. BLS indicated
that some individuals had been misclassified in previous months. Instead of being classified as unemployed, they were
misclassified as employed, but absent from work due to coronavirus-related business closures. If such individuals had
been classified as unemployed, the unemployment rate would have been 5 percentage points higher in April 2020.
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Insured
Change from
Insured
Unemployment
Week Ending
Initial Claims
Prior Week
Unemployment
Rate
Total Claims
12-Sep-20
866
-27
12,747
8.7
61,055
19-Sep-20
873
7
11,979
8.2
61,928
26-Sep-20
849
-24
10,594
7.2
62,777
3-Oct-20
767
-82
9,398
6.4
63,544
10-Oct-20
842
75
8,472
5.8
64,386
17-Oct-20
791
-45
7,823
5.3
65,183
24-Oct-20
758
-39
7,222
4.9
65,941
31-Oct-20
757
-1
6,801
4.6
66,698
7-Nov-20
711
-46
6,370
4.3
67,409
14-Nov-20
748
37
6,089
4.2
68,157
21-Nov-20
787
39
5,527
3.8
68,944
28-Nov-20
716
-71
5,781
3.9
69,660
5-Dec-20
853
134
5,614
3.8
70,513
12-Dec-20
873
20
5,433
3.7
71,386
19-Dec-20
803
-70
5,311
3.6
72,189
26-Dec-20
763
-40
5,180
3.5
72,952
2-Jan-21
781
18
5,240
3.7
73,733
9-Jan-21
904
123
5,061
3.6
74,637
16-Jan-21
886
-18
4,878
3.4
75,523
23-Jan 21
836
-50
4,791
3.4
76,359
30-Jan-21
837
1
4,655
3.3
77,196
6-Feb-21
863
26
4,592
3.2
78,059
13-Feb-21
847
-16
4,469
3.1
78,906
20-Feb-21
747
-100
4,383
3.1
79,653
27-Feb-21
761
14
4,157
2.9
80,414
6-March-21
734
-27
4,123
2.9
81,148
13-March-21
765
31
3,841
2.7
81,913
20-March-21
658
-107
3,750
2.6
82,571
27-March-21
729
71
3,717
2.6
83,300
3-April-21
742
13
3,708
2.7
84,042
10-April-21
586
-156
3,652
2.6
84,628
17-April-21
566
-20
3,653
2.6
85,194
24-April-21
590
24
3,680
2.6
85,784
1-May-21
507
-83
3,640
2.6
86,291
8-May-21
478
-29
3,738
2.7
86,769
15-May-21
444
-34
3,611
2.6
87,213
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Insured
Change from
Insured
Unemployment
Week Ending
Initial Claims
Prior Week
Unemployment
Rate
Total Claims
22-May-21
405
-39
3,769
2.7
87,618
29-May-21
388
-17
3,517
2.5
88,006
5-June-21
374
-14
3,534
2.5
88,380
12-June-21
418
44
3,412
2.5
88,798
19-June-21
416
-2
3,484
2.5
89,214
26-June-21
371
-45
3,359
2.4
89,585
5-July-21
373
2


89,958
Source: Department of Labor, CRS calculations.
Impact on Output
According to the April 2021 World Economic Outlook prepared by the International Monetary
Fund (IMF), the global economy is projected to experience a stronger recovery in 2021 and 2022
than indicated in previous forecasts, with global growth projected to increase at a rate of 6% in
2021 and 4.4% in 2022.59 The IMF also concluded the global economic recovery would occur at
different speeds across and within individual countries, reflecting differences in the pace of
vaccinations, the extent of policy support, and various structural conditions, such as the role of
tourism in the economy. Within countries, the employment and earnings of youth, women, and
the relatively lower-skilled workers has been affected the most.
In addition to the asynchronous recovery, the IMF concluded that support provided by central
banks may have unintended consequences of supporting equity valuations that at times are
misaligned with their model-estimated fundamentals and by increasing financial risks overall that
could become problematic should interest rates start rising.60 These risks could increase for non-
financial firms and households that had high levels of debt relative to income prior to the
pandemic crisis should interest rates rise. Accommodative monetary and fiscal policies intended
to limit the economic impact of the crisis may have aided non-financial firms and households, but
such support may also have come at the expense of higher debt levels for most countries and the
prospect of a lower rate of economic growth in the future.61
The staggered economic recovery is projected to widen gaps in living standards between
developed economies and others. Such differences in living standards are estimated to reflect
differences in cumulative per capital income with losses in 2020 to 2022 projected to be
equivalent to 20% of 2019 global GDP, or about $18 trillion. The heaviest losses are estimated to
fall disproportionately on low-income and emerging market economies. In addition, the IMF
estimated that 95 million people may have entered into extreme poverty in 2020 with 80 million
more people being undernourished compared to pre-pandemic levels, as (1) per capita incomes
would remain below the pre-pandemic levels for several years, adversely affecting productivity;
(2) the demands placed on national health systems to address the pandemic could hinder the

59 World Economic Outlook, International Monetary Fund, April, 2021, p. xiii.
60 Global Financial Stability Report, International Monetary Fund, April, 2021, p. x.
61 Ibid., p. 36.
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treatment of other diseases; (3) business bankruptcies could reduce productivity; and (4) rising
debt levels could crowd out potential borrowing and investment.62
The IMF urged G-20 leaders to maintain monetary and fiscal policies to lessen the economic
impact of the global recession, In particular, the IMF recommended a combination of
accommodative monetary policies characterized by low interest rates and central bank programs
to facilitate credit availability, a continuation of fiscal support for individuals and firms, and
engagement in a synchronized infrastructure investment program to promote growth. According
to an IMF analysis, all other things being equal, an increase in infrastructure spending by G-20
countries of one-half percent of their GDP in 2021 and 1% in 2022 through 2025 would increase
global GDP by 2% in 2025, compared with under 1.2% growth for an unsynchronized approach.63
In contrast to remarks by Federal Reserve Chairman Jerome Powell in early December 2020 that
the outlook was “extraordinarily uncertain,” and that “significant challenges and uncertainties
remain,”64 his assessment on March 23, 2021, before the House Financial Services Committee
was more upbeat.65 He stated that “The recovery has progressed more quickly than generally
expected and looks to be strengthening.” He cautioned, however, that “the sectors of the economy
most adversely affected by the resurgence of the virus, and by greater social distancing, remain
weak, and the unemployment rate—still elevated at 6.2 percent—underestimates the shortfall,
particularly as labor market participation remains notably below pre-pandemic levels.” At the
same hearing, Treasury Secretary Janet Yellen stated
We are meeting at a hopeful moment for the economy – but still a daunting one. While
we’re seeing signs of recovery, we should be clear-eyed about the hole we’re digging out
of: The country is still down nearly 10 million jobs from its pre-pandemic peak.
One-in-ten homeowners with a mortgage are behind on their payments, and almost one-in-
five renters are behind on their rent. There are 22 million people who say they don’t have
enough food to eat. One-in-ten adults is hungry in America.
We know that when the foundations of someone’s life fall apart–when they lose the roof
over their head or the ability to eat dinner every night–the pain can weigh on them for
years. Their earning potential is permanently lowered. I worried about this happening on a
mass scale.66
On December 2, 2020, IMF Managing Director Kristalina Georgieva indicated the global
financial system had been resilient enough to withstand the impact of the global pandemic, but
she urged policymakers to “act quickly” to return economic growth to its re-pandemic levels and
avoid widespread financial distress.67 The Director reportedly also urged policymakers to take
“urgent, coordinated steps” to deliver investment in digital technology, infrastructure and the
environment. She also indicated the IMF had projected that the loss of global economic output
between 2020 and 2025 as a consequence of the pandemic would total $28 trillion and that 120
million jobs would be lost permanently in the tourism industry alone. The pandemic-related
economic recession has raised concerns over the growing debt problems in developing

62 G-20 Surveillance Note, International Monetary Fund, November, 2020, p. 6.
63 Ibid., p. 10.
64 Powell, Jerome H., Coronavirus Aid, Relief, and Economic Security Act, December 1 and 2, 2020.
https://www.federalreserve.gov/newsevents/testimony/powell20201201a.htm.
65 Powell, Jerome H., Statement before the Financial Services Committee, House of Representatives, March 23, 2021,
66 Yellen, Janet, L., Testimony before the Financial Services Committee, House of Representatives March 23, 2021,
p. 1.
67 Wheatley, Jonathan, IMF Chief Warns Against Complacency on Global Economy, Financial Times, December 2,
2020. https://www.ft.com/content/fda34b47-33d2-457e-a0b6-45be6001920d.
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economies, where the IMF projected that as much as 40% of banks assets were in danger of
becoming distressed.
Since early 2021, the global pandemic has affected a broad swath of international economic and
trade activities, from services generally to tourism and hospitality, medical supplies and other
global value chains, consumer electronics, and financial markets to energy, transportation, food,
and a range of social activities, to name a few. In addition, the health crisis disproportionately
negatively affected developing economies that are constrained by limited financial resources and
where health systems have been overloaded. The IMF estimated in April 2021 the economic
fallout from the pandemic could push 95 million people in Sub-Saharan Africa and South Asia
into extreme poverty, reversing a decades-long trend.68 However, the IMF also concluded that
spending on social programs to limit the impact of the pandemic could reduce the number of
people falling into extreme poverty to 80 to 90 million.
The two-track nature of the economic recovery between developed and developing economies
combined with new variants of the virus and viral outbreaks in some major developing economies
increase the impact of the crisis on the global economy and complicate economic forecasts.
Similarly, estimates of when a sustained recovery might begin and the speed of the recovery
continue to be speculative. Forecasts have been updated several times since the global recession
began in April 2020 to incorporate additional data, initially reflecting worsening global and
national economic growth estimates, but also reflecting more positive data in third quarter 2020
and first quarter 2021.
Financial Markets
Policymakers and financial and commodity market participants had generally estimated that a
global economic recovery would take hold in the third quarter of 2020. A resurgence in infectious
cases in developed and developing countries starting in September, however, shifted more of the
projected recovery to 2021. Various indicators in the third quarter suggested the worst of the
economic crisis had passed, although the extent and strength of any global economic recovery
remained difficult to predict. Estimates indicated that China’s economy grew by 4.9% in the third
quarter, driven by an increase in industrial production and consumer demand, marking it as one of
the few economies likely to post an overall positive rate of growth for 2020.69 At the same time,
an economic recovery stalled in Europe and the United States. The emergence of more infectious
strains of the COVID-19 virus pushed governments to re-impose lockdowns and curtail social
and economic activity during the fourth quarter. Updated forecasts indicate the pandemic could
negatively affect global economic growth in 2020 less negatively than had been forecasted in the
spring, but that the effects could last longer with a slower rate of growth in 2021 and 2022.
As one indicator of the economic impact of the pandemic, the Dow Jones Industrial Average
Index (DJIA), along with other market indices, rose nearly three percentage points on Monday,
November 9, 2020, reportedly on news that a COVID-19 vaccine had been developed.70 During
the period November 3 through 24, the DJIA rose over 9%. On November 24, 2020, the DJIA,
along with global equities markets, increased by 1.5%, and reached an index milestone of 30,000

68 Fiscal Monitor, International Monetary Fund, April 2021, p. 31.
69 Hale, Thomas, Tom Mitchell, Christian Shepherd, and Emma Zhou, “Chinese Economy Expands 4.9% in Third
Quarter,” Financial Times, October 19, 2020. https://www.ft.com/content/22108ddd-3280-4013-bcd8-1adc9e6ae13d.
70 Telford, Taylor, and Hamza Shaban, “Dow Climbs More Than 800 Points as Vaccine News, Biden Victory Rev Up
Markets,” Washington Post, November 9, 2020. https://www.washingtonpost.com/business/2020/11/09/stocks-
markets-biden-trump-coronavirus/.
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for the first time and surpassed the previous high value recorded on February 14, 2020, prior to
the pandemic-related economic shutdown. Reportedly, the rise in market indices reflected a
positive assessment by investors of announcements of effective vaccines against COVID-19,
political developments in the United States, potential additional fiscal measures by governments
to stimulate economic activity, and prospects of stronger economic growth in 2021.71
Prospects of a vaccine initially signaled an eventual end to the business lockdowns and social
restrictions and reduced demands on policymakers to implement additional fiscal and monetary
policies. Until a vaccine can be broadly distributed, however, policymakers may have to weigh
continuing efforts that balance the competing requirements of households, firms, and state and
local governments. Also, the impact of the currently available vaccines on new strains of the
COVID-19 virus are being evaluated.72 Various U.S. states reversed course in late June to impose
or re-impose social distancing guidelines and close businesses that had begun opening as a result
of a rise in new confirmed cases of COVID-19, raising the prospect of a delayed recovery. A
prolonged recovery could also increase the financial strains on small and medium-sized firms that
face liquidity constraints and the prospects of insolvency.73
Differences in policy approaches between countries initially slowed a coordinated response. This
lack of response may have inflicted longer-term damage to the global economy by impairing
international political, trade, and economic relations, particularly between countries that
promoted nationalism and those that argued for a coordinated international response to the
pandemic. Policy differences also strained relations between developed and developing
economies and between northern and southern members of the Eurozone, challenging alliances
and conventional concepts of national security, and raising questions about the future of global
leadership.
In some countries, the pandemic elevated the importance of public health as a national security
issue and as a national economic priority on a par with traditional national security concerns such
as terrorism, cyberattacks, and proliferation of weapons of mass destruction.74 The pandemic-
related economic and human costs could have long-term repercussions for economies through the
tragic loss of life and job losses that derail careers and permanently shutter businesses. Fiscal and
monetary measures implemented to prevent a financial crisis and sustain economic activity may
have inadvertently worsened income and wealth disparities that were being affected by the
disproportionate impact of quarantines and lockdowns on services sector workers. Within some
countries, the economic fallout may have widened racial and socio-economic cleavages and
increased social unrest. In speaking about these costs for Americans, Federal Reserve Chairman
Powell said on May 19, 2020,
Since the pandemic arrived in force just two months ago, more than 20 million people have
lost their jobs, reversing nearly 10 years of job gains. This precipitous drop in economic

71 Smith, Colby, Camilla Hodgson, and Hudson Lockett, US Stocks Set Record High as Investors Look to New
Administration, Financial Times, November 24, 2020. https://www.ft.com/content/433048a5-c489-4ddd-aebd-
d56fb8f3edfc.
72 Didion, Timothy, COVID-19 Vaccine Likely to be Effective Against New Virus Strain, Experts Say, ABC News,
December 26, 2020. https://abc7news.com/covid-uk-new-strain-of-vaccine-effectiveness-stain/8988644/.
73 Global Financial Stability Report, International Monetary Fund, October 2020, p. 1.
74 Harris, Shane and Missy Ryan, To Prepare for the Next Pandemic, the U.S. Needs to Change its National Security
Priorities, Experts Say, Washington Post, June 16, 2020. https://www.washingtonpost.com/national-security/to-
prepare-for-the-next-pandemic-the-us-needs-to-change-its-national-security-priorities-experts-say/2020/06/16/
b99807c0-aa9a-11ea-9063-e69bd6520940_story.html.
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activity has caused a level of pain that is hard to capture in words, as lives are upended
amid great uncertainty about the future.75
BEA reported that U.S. GDP fell by 9.0% in the second quarter of 2020 compared with the
previous quarter, or at an annualized rate of -31%, the largest quarterly decline in U.S. GDP
recorded over the past 70 years.76 Additional data, however, indicated that U.S. GDP grew by
7.5% in the third quarter, or at an annualized rate of 33%, based primarily on gains in personal
consumption, reflecting an increase in income and continued government income support.77
Fourth quarter 2020 data indicate the U.S. economy grew by 1.0% over the third quarter, or at an
annualized rate of 4.0%. On a year-over-year basis, U.S. real GDP is estimated to have declined
by 3.5% in 2020 compared with 2019.78
In its December 2, 2020, Beige Book analysis, the Federal Reserve (Fed) reported that economic
activity had increased modestly in each of the 12 Federal Reserve districts during the third
quarter, although economic activity remained below average levels. Four of the Districts reported
little or no growth, while five indicated that economic activity remained below pre-pandemic
levels for at least some sectors. The manufacturing, distribution and logistics, residential housing,
and homebuilding sectors reported positive increases in economic activity. Businesses, however,
raised concerns over renewed infections, actual and prospective restrictions, and expiring
unemployment benefits and evictions or foreclosures.79
Similarly, in its February 2021 Beige Book, the Federal Reserve determined that economic
activity overall had increased modestly from January to mid-February and that most businesses
expected an economic recovery by summer. Of the 12 districts, 10 experienced modest increases
in economic growth, while the New York District recorded mixed performance and the St. Louis
District recorded little change in economic activity during the period.80
The June 2, 2021, Beige Book analysis reported that economic activity had improved at least
moderately in all 12 Districts during the April to late May period. The rise in economic activity
reflected additional stimulus payments, an increase in the number of vaccinations that prompted
policymakers to relax social distancing rules, which, in turn, stimulated consumer activity and
spending for leisure travel and at restaurants. Shortages of workers in some industries and
disruptions to supply chains reportedly curtailed production in several sectors and created low
inventories of supplies and goods.81

75 Powell, Jerome H. Coronavirus and CARES Act, Testimony before the Committee on Banking, Housing and Urban
Affairs, U.S. Senate, May 19, 2020.
76 Gross Domestic Product, 2nd Quarter 2020 (Advance Estimate) and Annual Update, Bureau of Economic Analysis,
July 30, 2020. https://www.bea.gov/news/2020/gross-domestic-product-2nd-quarter-2020-advance-estimate-and-
annual-update.
77 Gross Domestic Product, Third Quarter 2020 (Advance Estimate), Bureau of Economic Analysis, October 29, 2020.
78 Gross Domestic Product, Fourth Quarter and Year 2020 (Advance Estimate), Bureau of Economic Analysis, January
28, 2021.
79 The Beige Book: Summary of Commentary on Current Economic Conditions by Federal Reserve District, the Federal
Reserve System, December 2, 2020. https://www.federalreserve.gov/monetarypolicy/beige-book-default.htm.
80 The Beige Book: Summary of Commentary on Current Economic Conditions by Federal Reserve District, the Federal
Reserve System, March 3, 2021. https://www.federalreserve.gov/monetarypolicy/beige-book-default.htm.
81 The Beige Book: Summary of Commentary on Current Economic Conditions by Federal Reserve District, the Federal
Reserve System, June 2, 2021. https://www.federalreserve.gov/monetarypolicy/beige-book-default.htm.
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Country Responses
In Europe, governments attempted a phased reopening of businesses over the summer of 2020.82
As a result of these efforts, the Eurozone experienced a 12.5% increase in GDP in the third
quarter of 2020. Initial estimates indicate the EU economic rate of growth nearly stalled in the
fourth quarter, falling by 0.5% due to a resumption of lockdown measures. After several months
of data indicating an economic rebound had begun in the Eurozone, surveys of business activity
in August indicated the recovery had slowed amid an increase in new COVID-19 cases after
countries had begun re-imposing new quarantines and lockdowns in various parts of the Euro
area, although most lockdowns did not include schools or some manufacturing firms.83 Such
lockdowns became more widespread in September and October as infections cases began rising
in Germany, France, the United Kingdom, the Czech Republic, the Netherlands, Spain, and
Poland.84 By mid-October, Greece and Belgium also had begun implementing business
lockdowns and social distancing measures. Germany reportedly closed bars, restaurants, and most
public entertainment, France closed bars and restaurants and imposed travel restrictions, and on
October 31, UK Prime Minister Boris Johnson announced a month-long lockdown across the
UK.85
The European Commission’s (EC) February 2021 forecast projected that EU economic growth in
2020 could have contracted by 7.4% and may partially recover in 2021 with a projected rate of
growth of 4.1%.86 The EC forecast indicated a smaller drop in gross domestic product (GDP) in
2020 among European economies than it had forecasted in its summer report, as a result of a third
quarter rebound in growth before an anticipated slow-down in the fourth quarter as a result of the
resumption of business lockdowns. The autumn forecast was published prior to the announcement
of potential COVID-19 vaccines and incorporated assumptions of lockdowns extending into
2021. The forecast also concluded that the speed of an economic recovery in 2021 likely would
vary across the EU members, reflecting differences in the severity of the pandemic and the extent
of containment measures, but also differences in economic structures and policy responses.87
Fourth quarter data indicate that economic growth in the EU decreased by 0.7% from the third
quarter of 2020, but was down by 4.8% compared with the same quarter in 2019.88 The decline in
economic activity primarily reflected a drop in consumer spending of 3.0% from the previous

82 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
Threatens Livelihoods of 59m European Workers, Financial Times, 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 Times, April 30, 2020, https://www.ft.com/content/dd6cfafa-a56d-48f3-a9fd-
aa71d17d49a8.
83 Arnold, Martin, Eurozone Economic Rebound is Losing Steam, Surveys Suggest, Financial Times, August 21, 2020.
https://www.ft.com/content/cc4fa3df-40e7-4e19-be9f-9d01efb74f69. Chazan, Guy and Anna Gross, Europe Battles to
Contain Surge in Coronavirus Cases. Financial Times, July 29, 2020. https://www.ft.com/content/bcddc297-b7f2-444d-
908f-54e8ce6f4f98.
84 Lockdown 2.0: Europe Imposes Painful Curbs as Infections Surge, Financial Times, October 16, 2020.
https://www.ft.com/content/b1a7d1e8-4bb9-41cf-be5b-2f7f04bdb9bb.
85 Peel, Michael, European Countries Impose Shutdowns as Covid-19 Cases Rise, Financial Times, October 30, 2020.
https://www.ft.com/content/a89f89ba-08be-44e2-8d21-3e9ada605e17; Packard, Jim, Boris Johnson Announces Second
Lockdown for England, Financial Times, October 31, 2020, https://www.ft.com/content/8c2ede22-9dcf-4d31-81ef-
82ae4ee76e10.
86 European Economic Forecast Winter 2020, European Commission, February 2021.
87 Ibid., p. 2.
88 Newsrelease, Eurostat, February 2, 2020.
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quarter. Fourth quarter data also indicated the UK economy grew by 1.3%, compared with a rate
of growth of 16.9% in the third quarter and a decline of 19.5% in the second quarter, the largest
quarterly decline on record. Eurostat, the statistical office of the European Commission, released
data indicating the Eurozone experienced price inflation in the fourth quarter of about 0.2%.
After protracted talks, European leaders agreed on July 21, 2020, to a €750 billion (about $859
billion) pandemic economic assistance package to support European economies. Draft budget
estimates submitted by Eurozone governments in the fall of 2020 indicated the countries could
experience a combined budget deficit of nearly €1 trillion, or equivalent to about 9% of their
annual GDP.89 The rise in budget deficits reflects the growing cost to governments of supporting
their economies to sustain economic activity and a marked change in attitudes toward budget
deficits also reflected in statements by the IMF and World Bank. Second quarter data also
indicated that employment among EU countries fell by 2.6%, or 5.5 million jobs in 2020. The
jobs data, however, do not include roughly 45 million people, or a third of the workforce in
Germany, France, Britain, Italy, and Spain, that were covered by employment protection
programs.90
Similarly, Japan reported that its economy contracted by 8.2% in the second quarter of 2020,
compared with the previous quarter, or at an annual rate of 32%.91 In the third quarter, however,
the economy grew at a positive rate of 5.3%, while the economy grew by a rate of 2.8% in the
fourth quarter on a quarter over quarter basis. On an annual basis, however, Japan’s economic
growth rate fell to 4.8%, the first negative annual rate of growth experienced since 2009.
On September 10, 2020, European Central Bank (ECB) President Christine Lagarde indicated the
Eurozone economy could contract by 8% in 2020, but the rate of growth was projected to
partially recover in 2021 by growing at an annual rate of 5.0%.92 In the early stages of the
pandemic, foreign investors pulled an estimated $26 billion out of developing Asian economies
not including more than $16 billion out of India, increasing concerns about 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. Some analysts also expressed
concern that Africa, after escaping the initial spread of infections, could face a sharp increase in
rates of infection outside South Africa, Egypt, Nigeria, Algeria, and Ghana, where most of the
initial infections had occurred.93
In October 2020, the Bank of Canada indicated that Canada’s quarterly rate of growth declined by
13.0% in the second quarter of 2020, but by 4.4% in the third quarter as business and other
restrictions were relaxed and by a rebound in home sales. The Bank also estimated that growth
for 2020 would decline at an annual rate of 4.3% in 2020, but could increase by about 3.8% in
2021. On December 1, the Canadian government adopted a C$1 trillion spending package to
support economic growth, reportedly the largest such fiscal stimulus package adopted in the post-
World War II period.94 The package provided relief to provinces and territories to improve

89 Arnold, Martin and Sam Fleming, Eurozone Budget Deficits Rise Nearly Tenfold to Counter Pandemic, Financial
Times
, October 19, 2020. https://www.ft.com/content/5579361f-5aac-4cd3-9e93-190fffdc0baf.
90 Ben Hall, Ben, Delphine Strauss, and Daniel Dombey, Millions of European Jobs at Risk When Furlough Support
Ends, Financial Times, August 14, 2020. https://www.ft.com/content/0f01a9ed-5b15-4e2d-921c-6eed7a80d0bd.
91 Quarterly Estimates of GDP for April - June 2020 (First Preliminary Estimates), Cabinet Office, August 17, 2020.
92 Remarks by ECB President Christine Lagarde, press conference, September 10, 2020.
93 Pilling, David, The Pandemic is Getting Worse: Africa Prepares for Surge in Infections, Financial Times, July 20,
2020. https://www.ft.com/content/1b3274ce-de3b-411d-8544-a024e64c3542.
94 Canada Unveils Largest Economic Relief Package Since WW2, BBC News, December 1, 2020.
https://www.bbc.com/news/world-us-canada-55139229.
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infection in long-term care facilities, industries hard hit by the pandemic, such as tourism, travel
and arts, and provide loans to eligible businesses and to lower and middle income families.
In April 2021, India reported that in the second quarter its GDP growth rate fell by 25.8%
compared with the first quarter, raising concerns that the country could experience its most severe
economic contraction on record.95 Subsequent forecasts indicate that India’s economy grew by
23.7% in the third quarter of 2020, reportedly reflecting higher levels of consumer activity, and
by 7.9% in the fourth quarter.96 On an annual basis, India’s economy reportedly grew at a rate
of -3.5%. On November 12, India’s finance minister announced a new package of fiscal measures
totaling $35 billion to increase consumer spending and to assist manufacturing, agriculture, and
exports. The move followed an announcement by India’s cabinet that it had approved a spending
package of $27 billion to provide incentives over five years to manufacturing firms, including
automobiles, auto parts, pharmaceuticals, textiles, and food products.97
As a consequence of the resurgence in cases and renewed lockdowns in economies, the IMF
argued that advanced economies needed to sustain fiscal support for consumers and businesses as
the most effective means of stimulating their economies. The IMF argued this support was
necessary because the global economy was experiencing what economists term a Keynesian
liquidity trap, named after economist John Maynard Keynes. In theoretical terms, a liquidity trap
exists when central banks’ key interest rates are so low they have little impact through traditional
means to affect business and consumer activity. According to the IMF, in 60% of the global
economy, central banks have pushed key interest rates below 1% and in one-fifth of the global
economy, interest rates are below zero. In these circumstances, adjusting fiscal policy, or
government taxing and spending, is more effective in raising the rate of economic growth.98 The
IMF concluded that, “Fiscal policy must play a leading role in the recovery.”
Economic Policy Responses
After a delayed response, central banks and monetary authorities in developed and emerging
market economies have engaged in an ongoing series of interventions in financial markets and
national governments have adopted an array of fiscal policy initiatives to stimulate their
economies. The Bank for International Settlements (BIS) characterized the pandemic as fully
global in nature, eliciting a fiscal, monetary, and prudential response that has surpassed that of the
global financial crisis of 2008-2009. In addition, the BIS argues the evolving nature of the health
crisis is causing the financial crisis to evolve as well, changing from a liquidity crisis in the initial
stages to a solvency crisis that could worsen if the economic recovery is delayed. As a result of
the potential damage to the global economy arising from the pandemic, the BIS stated that future
economic historians may describe the pandemic as, “the defining moment of the 21st century.”99

95 Slater, Joanna, India’s Economy Contracts by Nearly 24%, It’s Sharpest Drop On Record, Washington Post, August
31, 2020. https://www.washingtonpost.com/world/asia_pacific/indias-economy-contracts-by-nearly-24-percent-amid-
pandemic/2020/08/31/92318fbe-eb70-11ea-bd08-1b10132b458f_story.html?hpid=hp_world-right-4-0_world-latest-
feed%3Ahomepage%2Fstory-ans.
96 RBI Bulletin – November 2020, Reserve Bank of India, November 2020.
97 Sharma, Ashok, India Announces $35 Billion Economic Stimulus Package, ABCNews, November 12, 2020.
https://abcnews.go.com/International/wireStory/india-announces-35-billion-economic-stimulus-package-74165709.
98 Gopinath, Gita, Global Liquidity Trap Requires a Big Fiscal Response, Financial Times, November 3, 2020,
https://www.ft.com/content/2e1c0555-d65b-48d1-9af3-825d187eec58.
99 Annual Economic Report 2020, Bank for International Settlements, June 2020, p. ix.
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Industry Measures
During 2020, governments adopted a range of measures at both the national and international
level to address the health and economic consequences of the COVID-19 pandemic, as indicated
in Table 2.100 These measure include incentives to increase domestic production of vaccines and
personal protective equipment (PPE) and direct state intervention through nationalization or
through directives to increase output at facilities that currently produced PPE materials or to
initiate production at other facilities. In some cases, policy changes include enhanced foreign
investment screening of foreign investment for “public interest” reasons that may remain after the
pandemic crisis.101
The shift in approach toward the national security dimensions of foreign investment, especially
by developed economies, has tended to blur the distinction between foreign investment, trade, and
national security and reflects the evolving nature of the concept of national security relative to
foreign investment. Conceivably, changes in technology and the global economy have made it
more difficult to assess the economic costs and benefits of changes in foreign investment policies
taken on national security grounds.
Table 2. Investment Policy Instruments Adopted at the National and International
level to Address the COVID-19 Pandemic
Investment policy areas
Policy measures
Policy actions at the national level
Investment facilitation
Alleviate administrative burdens and bureaucratic
obstacles for firms.

Use of online tools and e-platforms.
Investment retention and aftercare by investment
COVID-19-related information services.
promotion agencies (IPAs)

Administrative and operational support during the
crisis.

Move to online services.
Investment incentives
Financial or fiscal incentives to produce COVID-19-
related medical equipment.

Incentives for conversion of production lines.

Incentives for enhancement of contracted economic
activities.
State participation in crisis-affected industries
Acquisition of equity in companies, including
nationalization.
Local small and medium enterprises (SMEs) and supply
Financial or fiscal support for domestic suppliers (such
chains
as SMEs).
National security and public health
Application and potential reinforcement of FDI
screening in pandemic-relevant industries.
Other State intervention in the health industry
Mandatory production.

100 Countries include Australia, Canada, the European Union, France, Germany, Hungary, Italy, India, Japan, Poland,
and Spain, among others. World Investment Report 2020, United Nations Conference on Trade and Development 2020,
p. 93.
101 World Investment Report 2020, United Nations Conference on Trade and Development, June 16, 2020, p. 96.
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Investment policy areas
Policy measures

Export bans.

Import facilitation.
Intellectual property (IP)
General authorization of non-voluntary licensing, to
speed up research and development (R&D).

IP holder-specific non-voluntary licensing, to enable
imports of medication.
Policy actions at the international level
International support measures for investment
International pledges in support of cross-border
investment.
IIAs
Reform International Investment Agreements (IIAs) to
support public health policies and to minimize investor–
State dispute risks.
Intellectual property (IP)
General authorization of non-voluntary licensing, to
speed up research and development (R&D).
Source: World Investment Report 2020, United Nations Conference on Trade and Development, June 16, 2020,
p. 89.
Fiscal Measures
As indicated in Table 3, central governments adopted various fiscal measures to provide financial
support to the health sector, households, and firms, although the size and scope of the programs
vary by country.102 These measures broadly include tax cuts and tax deferrals for individuals and
businesses, wage and income supplements to individuals, including expanding unemployment
insurance, and other payments to businesses. The U.S. Congress also approved historic fiscal
spending packages. In other countries, governments abandoned traditional borrowing caps to
increase fiscal spending in order to sustain economic growth. In some emerging economies,
governments reportedly adopted special programs to provide financial assistance to “informal”
workers, or workers outside traditional labor markets such as family businesses.103
In developed economies, however, as governments adopted fiscal packages to assist households,
consumers sharply increased their savings as they faced limited spending opportunities, or a form
of involuntary saving, and concerns over lost jobs, incomes, and the course of their economies, or
precautionary saving. (For additional countries and measures, see Appendix A of this report.)
International organizations also took 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.
Table 3. Elements of Announced Fiscal Measures to Address COVID-19

Advanced Economies
Emerging Market Economies
Measures
US
JP
DE
FR
IT
ES
GB
BR
CN
ID
IN
KR
MX
RU
ZA
Measures supporting the health sector

x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Measures supporting households

102 Ibid.
103 Ibid., p. 25.
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Advanced Economies
Emerging Market Economies
Measures
US
JP
DE
FR
IT
ES
GB
BR
CN
ID
IN
KR
MX
RU
ZA
Targeted
x
x
x
x
x
x
x
x
x
x
x
x

x
x
transfersa
Other
x
x
x
x
x
x
x
x
x
x
x
x

x
x
labor
income
supportb
Wage
x
x
x
x
x
x
x
x
x

x
x

x
x
subsidies
Tax cuts
x
x
x
x

x


x
x
x
x

x
x
Tax deferral x
x
x

x
x
x



x
x
x

x
Measures supporting firms
Tax deferral x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Liquidity
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
supportc
Tax cuts
x
x
x

x
x
x
x
x
x
x
x

x

Targeted

x
x
x
x

x

x
x



x
x
transfers
Source: Annual Economic Report 2020, Bank for International Settlements, June 2020, p. 24, based on data
col ected by the International Monetary Fund and the Organization for Economic Cooperation and
Development.
Notes:
a. Includes cash and in-kind transfers to affected households.
b. Extended unemployment and sick leave benefits.
c. Non-budgetary measures such as equity injections, asset purchases, loans and debt assumptions or
government guarantees and contingent liabilities, US: United States; JP: Japan; DE: Germany; FR: France; IT:
Italy; ES: Spain; GB: Great Britain; BR: Brazil; CN: China; ID: Indonesia; IN: India; KR: South Korea; MX:
Mexico; RU: Russia; ZA: South Africa.
Fiscal Deficits
As one measure of the global fiscal and monetary responses, the IMF estimated that government
spending and revenue measures to sustain economic activity adopted through mid-March 2021
amounted to $16 trillion.104 The IMF also updated its estimate of the increase in borrowing by
governments globally to rise from 3.9% of global gross domestic product (GDP) in 2019 to
10.8% in 2020, as indicated in Figure 3. Other estimates indicate that central banks have
committed $17 trillion to support their economies to counter pandemic-related economic
effects.105

104 Fiscal Monitor, International Monetary Fund, April 2021. p. 1.
105 Wigglesworth, Robin, Long Live Jay Powell, the New Monarch of the Bond Market, Financial Times, June 23,
2020. https://www.ft.com/content/5db9d0f1-3742-49f0-a6cd-16c471875b5e.
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Figure 3. IMF Projected Government Fiscal Deficits Relative to GDP
In percentage shares of Gross Domestic Product

Source: Fiscal Monitor, International Monetary Fund, April 2021. Created by CRS.
Note: Data for 2021 and 2022 are estimates.
Among developed economies, the fiscal deficit to GDP ratio is projected to rise from 2.9% in
2019 to 11.7% in 2020; the ratio for the United States is projected to rise from 5.7% to 15.8%,
respectively, the highest ratio for any country or region.106 For most areas and countries, the IMF
forecasts that debt to GDP rations will fall some in 2021, but fall more substantially as percentage
shares of GDP in 2022 as the economic recovery is projected to take hold. Some economists and
others have raised concerns that fiscal deficits financed through borrowing in a low-interest rate
environment could substantially increase the debt servicing costs on government budgets under
certain conditions, particularly if national economic growth rates rise, which tend to push up
central banks’ interest rates, and if the accumulated debt is refinanced at those higher rates,
thereby increasing debt servicing costs.107
According to the IMF, France, Germany, Italy, Japan, and the United Kingdom have each
announced public sector support measures that total more than 10% of their annual GDP.108 For
developing economies, the fiscal deficit to GDP ratio is projected to rise from 4.9% in 2019 to
9.8% in 2021, significantly increasing their debt burden and raising prospects of defaults or debt
rescheduling.109 According to some estimates, the most fiscally vulnerable countries are
Argentina, Venezuela, Lebanon, Jordan, Iran, Zambia, Zimbabwe, and South Africa.110 The IMF
concluded that among low-income developing countries high debt levels could near-term debt
vulnerabilities remain high.111

106 Fiscal Monitor, Table 1.1.
107 Hagaman, Chase, Fiscal, Monetary, and Economic Challenges of the Post-Pandemic Economy, The Concord
Coalition, February 18, 2021, Edelberg, Wendy, and Louise Sheiner, The Macroeconomic Implications of Biden’s $1.9
Trillion Fiscal Package,
The Hamilton Project, Brookings Institution, January 28, 2021.
108 Global Financial Stability Report Update. International Monetary Fund, April 2021, p. 3.
109 Ibid., p. 3
110 Wheatley, Jonathan, Tommy Stubbington, Michael Stott, Andrew England, and Joseph Cotterill, Debt Relief: Which
Countries Are Most Vulnerable? Financial Times, May 6, 2020. https://www.ft.com/content/31ac88a1-9131-4531-
99be-7bfd8394e8b9.
111 Global Financial Stability Report, April 2021, p. 8
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The IMF has argued there is a growing disconnect between the pricing of risk in financial markets
and projected economic prospects, because investors apparently expect a quick recovery based on
continued and unprecedented central bank intervention. However, a perceived or real shift in
central bank intervention in financial markets could negatively affect investors’ concept of risk
and, in turn, negatively affect asset markets and the economic recovery.112 In addition to central
banks’ actions, the IMF concludes that a number of preexisting vulnerabilities could affect the
timing and the rate of the economic recovery. These vulnerabilities include corporate and
household debt levels in developed and some emerging market economies that could become
unmanageable in a prolonged recession; a rising number of insolvencies that could test the
resilience of the banking sector; additional stresses that could affect nonbank financial
institutions; and the prospect of some developing economies facing high external financing
requirements.113
Worker Assistance Programs
As part of their fiscal policy measures, governments in advanced economies either enhanced
existing worker support programs, or adopted new programs. As indicated in Table 4, the OECD
categorized the various job retention programs into six major groups, which the OECD estimated
had supported 60 million workers in developed economies.114 The programs consisted of short-
term support that subsidized hours not worked, or wage subsidies that also subsidized hours
worked. Some countries also eased qualification requirements to facilitate workers or businesses
gaining access to support funds.
Programs to assist workers varied across countries, but they generally comprised subsidies to
support workers for work hours lost or extended wage subsidies to maintain pre-pandemic
employment levels. Other programs assisted individual firms in retaining workers with the
objective of facilitating a quick return to full activity once pandemic-related restrictions are
lifted.115 In some cases, benefits were increased by extending the length of time benefits are
available and benefits were extended to workers in non-standard jobs such as temporary and self-
employed workers. New programs adopted by some OECD members were designed to assist
some temporary and non-standard workers quickly gain access to support funds.116
In its July 2021 updated employment outlook, the OECD concluded that many workers in OECD
countries had not regained full-time employment by mid-2021 and that elevated rates of
unemployment could persist on average beyond 2022. In addition, the OECD concluded that the
longer workers go without regaining employment, the more difficult it could be for them to
compete with those whose jobs had been sustained during the recession and the greater the risks
of a rapid increase in long-term unemployment.117 The OECD also concluded that the timing of
any withdrawal of government fiscal support could affect the timing and strength of a recovery
and it urged governments to continue supporting families most in need of jobs, while providing
incentives for job creation and for returning workers. It also concluded that withdrawing support
too soon “to the many still in need risks generating mass bankruptcies and job losses in sectors

112 Global Financial Stability Report Update. International Monetary Fund, December 2020, p. 4.
113 Ibid., pp. 6-7.
114 OECD Employment Outlook 2021, p. 15.
115 Job Retention Schemes During the COVID-19 Lockdown and Beyond, Organization for Economic Cooperation and
Development, October 7, 2020, p. 2.
116 OECD Employment Outlook 2021, pp. 5-6.
117 Ibid, p. 15.
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still deeply affected by containment measures, making the recovery more difficult and
uncertain.”118
In anticipation of governments reducing or eliminating worker support programs, the OECD
encouraged governments to:
 Continue providing support to firms affected by social distancing restrictions and
reducing delays in providing payments.
 Target workers support programs to jobs that are likely to remain viable in the
medium term in firms or sectors where activity can resume.
 Use worker support programs to limit excessive layoffs in cases of temporary
reduction in business activity and not to support firms with structural
difficulties.119
Table 4. Developed Economy Worker Support Programs During COVID-19
Increased
access for
Preexisting
workers in
short-time
Increased
Increased
non-
New short-
New wage
work
access and
benefit
standard
time work
subsidy
scheme
coverage
generosity
jobs
scheme
scheme

Australia
x





Austria
x
x
x



Belgium
x
x
x



Canada
x
x




Chile
x
x
x
x


Czech Republic
x
x
x



Denmark
x
x
x



Estonia
x





Finland
x
x
x
x


France
x
x
x
x


Germany
x
x
x
x


Greece
x





Hungary
x





Iceland
x





Ireland
x
x




Italy
x
x
x



Japan
x
x
x
x


Korea
x
x
x



Latvia
x





Lithuania
x





Luxembourg
x
x
x




118 Ibid, p. 6.
119 Ibid, p. 100.
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Increased
access for
Preexisting
workers in
short-time
Increased
Increased
non-
New short-
New wage
work
access and
benefit
standard
time work
subsidy
scheme
coverage
generosity
jobs
scheme
scheme

Netherlands
x
x




New Zealand
x




Norway
x
x
x



Poland
x





Portugal
x
x
x



Slovak Republic
x
x
x



Slovenia
x





Spain
x
x
x
x


Sweden
x
x
x



Switzerland
x
x
x



Turkey
x
x
x



United Kingdom




x

United States
x
x
x



Source: Job Retention Schemes During the COVID-19 Lockdown and Beyond, Organization for Economic
Cooperation and Development, October 12, 2020, p. 7.
Monetary and Prudential Measures
Among central banks, the Federal Reserve initiated extraordinary steps not experienced since the
2008-2009 global financial crisis to address the economic effects of COVID-19. Simultaneously,
as indicated in Table 5, various central banks and monetary authorities adopted an array of
measures to address the potential economic effects of the pandemic, including lowering interest
rates and reserve requirements, announcing new lending and financing facilities, asset purchases,
foreign exchange swaps, prudential measures, and relaxed capital buffers and, in some cases,
countercyclical capital buffers,120 adopted after the 2008-2009 financial crisis, potentially freeing
up an estimated $5 trillion in funds.121
Central banks not only filled the role of lender of last resort through large purchases of
government debt, but also the buyers or lenders of last resort for private sector securities, in many
cases engaging in activities that previously had been considered off-limits.122 As a result of these
activities, the BIS argued that central banks effectively managed the initial liquidity crisis, the
first of three phases often identified with financial crises. The second and third phases, insolvency

120 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/.
121 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.
122 For a review of monetary policies of the Federal Reserve, the ECB, the Bank of Japan, and the Bank of England, see
Haas, Jacob, Christopher J. Neely, William B. Emmons, Responses of International Central Banks to the COVID-19
Crisis, Federal Reserve Bank of St. Louis Review, Fourth Quarter 2020.
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link to page 34 link to page 34 link to page 34 Global Economic Effects of COVID-19

and recovery, are being navigated in some cases and could become more challenging should the
pandemic-related economic crisis be prolonged. Capital buffers were raised after the financial
crisis to assist banks in absorbing losses and staying solvent during financial crises. Some
governments have directed banks to freeze dividend payments and halt pay bonuses. The
Financial Stability Board (FSB) argued in its July 15, 2020, report to the G-20 Finance Ministers
and Governors that the actions taken to date to support the functioning of the global financial
system appeared to have effectively worked to contain the financial and economic impact of the
pandemic so far, although the crisis is not over.123
Table 5. Selected Central Bank and Prudential Measures to Address COVID-19


Advanced economies
Emerging market economies
Type of
Measures
U
E
J
G
C
A
C
B
C
I
I
K
M
T
Z
tool
S
A
P
B
A
U
H
R
N
D
N
R
X
H
A
Interest
Policy rate
x


x
x
x

x
x
x
x
x
x
x
x
rate
cut
Lending
Gen.
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
liquidity
liquidity
provisiona
Specialized
x
x
x
x

x
x
x
x

x
x
x
x

lending
Asset
Governme
x
x
x
x
x
x



x
x
x

x
x
purchase
nt bonds
s/ sales
Commercia
x
x
x
x
x






x



l paper
Corporate
x
x
x
x
x






x

x

bonds
Other

x
x

x










private
securitiesb
FX swap/
USD swap

x
x
x
x
x
x
x



x
x


interven-
line
tion
FX






x
x

x
x
x
x


interven-
tion
Pruden-
Capital
x
x
x
x
x
x
x
x
x
x
x
x
x

x
tial rules
require-
and
ments
Regula-
tions
Liquidity
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
require-
ments
Payout

x

x
x
x
x
x

x
x
x
x
x
x
restrictions
Market

x
x
x
x
x
x
x
x
x
x
x
x
x
x
functioningc
Source: Annual Economic Report 2020, Bank for International Settlements, June 2020, p. 23.

123 COVID-19 Pandemic: Financial Stability Implications and Policy Measures Taken: Report Submitted to the G-20
Finance Ministers and Governors
, Financial Stability Board, July 15, 2020.
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Notes:
a. Repo and reverse repo operations, standing facilities, modified discount window and lower reserve
requirement ratio.
b. Asset- and mortgage-backed securities, covered bonds and exchange-traded funds.
c. Shortsel ing bans and circuit breakers. US: United States; EA: Euro Area; JP: Japan; GB: Great Britain; CA:
Canada; AU: Australia; CH: Switzerland; BR: Brazil; CN: China; ID: Indonesia; IN: India; KR: South Korea;
MX: Mexico; TH: Thailand; ZA: South Africa.
Economic Forecasts
Global Growth
Although prospects have brightened for renewed rates of growth, the economic situation remains
highly fluid globally and for most countries and regions. Uncertainty about the length and depth
of the health crisis-related economic effects continue to drive 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 contain its spread and prevent a
subsequent rounds of infections have added to market volatility. At various times, corporations
postponed investment decisions, laid off workers who previously had been furloughed, and in
some cases filed for bankruptcy. Progress in producing and administering vaccines through the
first half of 2021 raised prospects that social distancing rules could be relaxed or removed, which
could improve economic activity. Most forecasts indicate that 2021 GDP growth rates for most
countries could outpace pre-pandemic forecasts; while economic growth in 2022 could return to
more historical rates.
In the early months of the economic recession, the economic situation was compounded by a
historic drop in the price of crude oil. Since then, oil prices have recovered from the low of nearly
$20 per barrel in April 2020. Through the end of 2020, oil prices moved in the range of $40 to
$45 per barrel, in part reflecting the decline in global economic activity. By early June 2021, the
international price of Brent crude oil crossed the $70 per barrel threshold not reached since before
the pandemic-related recession began.
On April 29, 2020, Federal Reserve Chairman Jerome Powell stated that the Federal Reserve
would use its “full range of tools” to support economic activity as the U.S. economic growth rate
dropped by 33.0% at an annual rate in the second 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 weigh heavily on economic activity, employment, and inflation
in the near term, and poses considerable risks to the economic outlook over the medium term.”124
Before the COVID-19 outbreak, the global economy was struggling to regain a broad-based
recovery as a result of a number of issues, including the lingering impact of growing trade
protectionism; trade disputes among major trading partners; falling commodity and energy prices;
and economic uncertainties in Europe over the impact of the UK withdrawal from the European
Union. Individually, each of these issues presented a solvable challenge for the global economy.
Collectively, however, the issues weakened the global economy and reduced the available policy
flexibility of many national leaders, especially among the leading developed economies. While
the level of economic effects has become clearer, the response to the pandemic potentially has
had a significant and enduring impact on the way businesses organize their work forces, on global

124 Federal Reserve Issues FOMC Statement, Board of Governors of the Federal Reserve System, April 29, 2020.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200429a.htm.
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supply chains, and how governments respond to a global health crisis.125 As a result of the rapidly
spreading virus and its compounding effects on global and national rates of economic growth,
forecasting the impact of the virus has been especially challenging.
The International Monetary Fund (IMF), the Organization for Economic Cooperation and
Development (OECD), and The World Bank all revised their forecasts downward between late
2019 and mid-2020, reflecting the rapidly deteriorating state of the global economy and a marked
decline in projected rates of growth. Between October 2019 and January 2021, for instance, the
IMF lowered its global economic growth forecast for 2020 from a positive 3.4% to a negative
3.5%. In its June 2020 forecast, the OECD forecasted the effects of a single and double wave of
infections, with the projections for a single wave reflected in Table 6. By late 2020 and early
2021, most forecasts were revised upward to reflect assessments the recession would be less
severe than had been forecasted for 2021, as indicated in Figure 4. The OECD estimated in May
2021 that global GDP had declined by 3.5% in 2020, compared with a December forecast of -
4.2%, and would experience a stronger recovery in 2021 of 5.8% instead of a March forecast of
5.6%.126 Between January 2020 and January 2021, the World Bank also lowered its forecast of
global growth from 2.5% to a negative 4.3%. In most forecasts, advanced economies were
projected to experience the steepest declines in economic growth from 2019 to mid-June 2020.
Table 6. Major Economic Forecasts
Percentage changes at annual rates
World
Advanced economies Developing economies
United States


2020 2021
2020
2021
2020
2021
2020
2021
International Monetary Fund
October 2019
3.4%
3.6%
1.7%
1.6%
4.6%
4.8%
2.1%
1.7%
April 2020
–3.0
5.8
–6.1
4.5
–1.0
6.6
–5.9
4.7
June 2020
-4.9
5.4
-8.0
4.8
-3.0
5.9
-8.0
4.5
October 2020
–4.4
5.2
–5.8
3.9
–3.3
6.0
–4.3
3.1
January 2021
-3.5
5.5
-4.9
4.3
-2.4
6.3
-3.4
5.1
Organization for Economic Cooperation and Development
Nov 2019
2.9
3.0
1.6
1.7
4.0
4.0
2.0
2.0
March 2020
2.4
3.3
0.8
1.2
NA
NA
1.9
2.1
June 2020 single
-6.0
5.2
-7.5
4.8
-4.6
5.6
-7.3
4.1
June 2020 double
-7.6
2.8
-9.3
2.2
-6.1
3.2
-8.5
1.9
Sept. 2020
-7.6
2.8
-9.3
2,2
-6.1
3.2
-8.5
1.9
Dec. 2020
-4.2
4.2
-5.5
3,2
-3.0
5.1
-3.7
3.2
March 2021
-3.4
5.6
NA
NA
NA
NA
-3.5
6.5
May 2021
-3.5
5.8
-4.8
5.3
-2.3
6.2
-3.5
6.9

125 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.
126 OECD Economic Outlook, Interim Report March 2021, Organization for Economic Cooperation and Development,
March, 2021.
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World
Advanced economies Developing economies
United States


2020 2021
2020
2021
2020
2021
2020
2021
World Bank
January 2020
2.5
2.6
1.4
1.5
4.1
4.3
1.8
1.7
June 2020
-5.2
4.2
-7.0
3.9
-2.5
4.6
-6.1
4.0
January 2021
-4.3
4.0
-5.4
3.3
-2.6
5.0
-3.6
3.5
Source: World Economic Outlook, various issues, International Monetary Fund; OECD Economic Outlook, various
issues, Organization for Economic Cooperation and Development; Global Economic Prospects, various issues,
World Bank.
Figure 4. Major Economic Forecasts by Region

Source: OECD Economic Outlook, March 2021, Organization for Economic Cooperation and Development.
March 2021; World Economic Outlook, Update, International Monetary Fund, January 26, 2021; Global Economic
Prospects
, World Bank Group, January 2021, Created by CRS.
Notes: The OECD estimated rates of growth as a result of two scenarios, indicated as OECD1 and OECD2.
The first scenario assumes there is a single wave of infections from COVID-19, while the second scenario
estimates the effect of a two-wave scenario.
The OECD Forecast
The Organization for Economic Cooperation and Development (OECD) released an updated
forecast in May 2021 that estimates that global economic growth declined by 3.5% in 2020,
compared with a June 2020 forecast of a 6.9% decline under a single-wave scenario in 2020 and a
7.6% decline under a second wave scenario.127 In the updated estimate, the rate of GDP growth in
developed economies declined by 4.8% in 2020 and by 2.3% in developing economies. The

127 OECD Economic Outlook, Interim Report: Coronavirus (COVID-19): Living With Uncertainty, Organization for
Economic Cooperation and Development, September 2020.
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updated forecast projects the global economy could grow by 5.8% in 2021 and 4.4% in 2022;
developed economies could grow by 5.5% in 2021 and 3.8% in 2022, while developing
economies could grow by 6.2% in 2021 and 4.9% in 2022. Despite the improvement in economic
growth rates, the OECD concluded that living standards in “too many” developed economies by
the end of 2022 would not met levels that had been projected prior to the pandemic.128
The OECD also concluded that an economic recovery would take place over the next two years,
but “the recovery would be uneven across countries, potentially leading to lasting changes in the
world economy.”129 In addition, the OECD argued that the pandemic is fragmenting the global
economy through a growing number of trade and investment restrictions and diverging policy
approaches that are being implemented on a country-by-country basis. The OECD concluded
further that
as long as the vast majority of the global population is not vaccinated, all of us remain
vulnerable to the emergence of new variants. Confidence could be seriously eroded by
further lockdowns, and a stop-and-go of economic activities. Firms, so far well protected
but often with higher debt than before the pandemic, could go bankrupt. The most
vulnerable members of society would risk further suffering from prolonged spells of
inactivity or reduced income, exacerbating inequalities, across and within countries, and
potentially destabilizing economies.130
As a consequence of the slowdown in economic activity in the fourth quarter of 2020 and
projected slow, but partial recovery in 2021, the OECD estimated there would be long-lasting
effects on the global economy, including
 Output was projected to remain around 5% below pre-crisis expectations in many
countries in 2022, raising the specter of substantial permanent costs,
disproportionately affecting vulnerable populations.
 Smaller firms and entrepreneurs are more likely to go out of business.
 Many low wage earners who lost their jobs and are only covered by
unemployment insurance, at best, with poor prospects of finding new jobs
quickly.
 People living in poverty and usually less well covered by social safety nets
experienced a deterioration in their living standards.
 Children and youth from less well-off backgrounds, and less qualified adult
workers struggled to learn and work from home, with potentially long lasting
damage.131
Uncertainty concerning the course of the global economy over the remainder of 2020 led the
OECD to produce two estimates in its June 2020 outlook that it determined were “equally likely
scenarios:” one that assumed containment measures that existed at the time would be successful
in curtailing infections, and another that assumed there would be a second wave of rapid
contagion.132 Under both scenarios, the OECD estimated the global economic recovery would be

128 OECD Economic Outlook May 2021, Preliminary Version, Organization for Economic Cooperation and
Development, June 2021.
129 OECD Economic Outlook, Interim Report March 2021, Organization for Economic Cooperation and Development.
March 2021, p. 4. http://www.oecd.org/economic-outlook/#resources.
130 OECD Economic Outlook May 2021, Preliminary Version, p. 9.
131 Ibid., p. 8.
132 Ibid., p. 13.
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slow and gradual.133 The OECD also estimated that the average unemployment rate among OECD
countries could rise to 9.2% under a single wave scenario and 10.0% under the second wave
scenario.
Through the third and fourth quarters of 2020 and the first quarter of 2021, however, most OECD
countries had not experienced extended periods of high rates of unemployment, in part due to
national income and wage maintenance programs, as indicated in Figure 5. The main exceptions
were the United States and Canada, where unemployment rates spiked starting at the end of the
first quarter and into the second quarter of 2020. By May 2021, most OECD economies had
unemployment rates in the 6.5% to 9.0% range with some exceptions: Japan (3.0%) and Germany
(3.7%) had rates below the OECD average of 6.6%, while Greece (15.4%), Spain (15.3%),
Colombia (15.2%), and Italy (10.4%) had rates that were higher than the OECD average. In a
major difference between U.S. and EU data, EU workers absent from work due to temporary
layoff are counted as employed, whereas, in the United States, they are counted as unemployed.
Figure 5. Unemployment Rates Among Major OECD Countries
In percentage terms

Source: OECD Dataset: Short-term Labor Market Statistics, Organization for Economic Cooperation and
Development. Created by CRS.
Global trade was projected to contract by 9.5% or 11.4% in 2020 under the single or second wave
scenarios, respectively. The OECD projections in Table 7 reflect the single wave scenario.134
According to this scenario, global economic growth was projected to fall by 6.0% in 2020, but
rise by 5.2% in 2021. In contrast, the OECD’s second wave scenario projected a global economic
contraction of 7.6% in 2020 and a growth rate of 2.8% in 2021, delaying a return to full recovery
until 2022.
The OECD May 2021 forecast projects that economic growth among developed economies would
be weak in Europe, where the growth rate was projected to fall by 6.7% in 2020, compared with
the March 2020 forecast of an increase of 0.8% in 2020 and by 1.2% in 2021. Similarly, U.S.
economic growth was projected to contract in 2020 by 3.5%, but rebound by 6.9% in 2021. The
UK was projected to experience a contraction in GDP growth in 2020 of 9.8%, slightly less than

133 OECD Economic Outlook, June 2020, Organization for Economic Cooperation and Development. June 2020, p. 23.
http://www.oecd.org/economic-outlook/#resources.
134 Ibid., p. 13.
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the earlier forecast of a decline of 10.1%. World trade was also projected to decline by 8.5% in
2020, before rising by 8.2% in 2021 and 5.8% in 2022, estimates that are higher than earlier
forecasts.

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Table 7. OECD, IMF and World Bank Economic Forecasts
Percentage change in Real GDP Growth
OECD May 2021
IMF Apr. 2021
World Bank Jan.


Projections


Projections


2021 Projections
2020
2021
2022
2020
2021
2022

2019
2020
2021


World
-3.5%
5.8%
4.4%
World
–3.5%
5.5%
4.2%
World
2.3%
-4.3%
4.0%
Adv. Economies
-4.8
5.3
3.8
Adv. Economies
–4.9
4.3
3.1
Adv. Economies
1.6
-5.4
3.3
Australia
-2.5
5.1
3.4
United States
–3.4
5.1
2.5
United States
2.2
-3.6
3.5
Canada
-5.4
8,1
3.8
Euro Area
–7.2
4.2
3.6
Euro Area
1.3
-7.4
3.6
Euro area
-6.7
4.3
4.4
Germany
–5.4
3.5
3.1
Japan
0.3
-5.3
2.5
Germany
-5.1
3.3
4.4
France
–9.0
5.5
4.1
Emerging
3.6
-2.6
5.0
France
-8.2
5.8
4.0
Italy
–9.2
3.0
3.6
E. Asia
5.8
0.9
7.4
Italy
-8.9
4.5
4.4
Spain
–11.1
5.9
4.7
China
6.1
2.0
7.9
Spain
-10.8
5.9
6.3
Japan
–5.1
3.1
2.4
Indonesia
5.0
-2.2
4.4
Japan
-4.7
2.6
2.0
United Kingdom
–10.0
4.5
5.0
Thailand
2.4
-6.5
4.0
Korea
-0.9
3.8
2.8
Canada
–5.5
3.6
4.1
Cen. Asia
2.3
-2.9
3.3
Mexico
-8.2
5.0
3.2
China
2.3
8.1
5.6
Russia
1.3
-4.0
2.6
Turkey
1.8
5.7
3.4
India
–8.0
11.5
6.8
Turkey
0.9
0.5
4.5
United
-9.8
7.2
5.5
–3.6
3.0
3.9
4.5
-3.4
3.5
Kingdom
Russia
Poland
United States
-3.5
6.9
3.6
Latin America
–7.4
4.1
2.9
Brazil
1.4
-4.5
3.0
Argentina
-9.9
6.1
1,8
Brazil
–4.5
3.6
2.6
Mexico
-0.1
-9.0
3.7
Brazil
-4.1
3.7
2.5
Mexico
–8.5
4.3
2.5
Argentina
-2.1
-10.6
4.9
China
2.3
8.5
5.8
Mid. East
–3.2
3.0
4.2
Mid. East
0.1
-5.0
2.1
India
-7.7
9.9
8.2
Saudi Arabia
–3.9
2.6
4.0
Saudi Arabia
0.3
-5.4
2.0
Indonesia
-2.1
4.7
5.1
Africa
–2.6
3.2
3.9
Iran
-6.8
-3.7
1.5
CRS-35


OECD May 2021
IMF Apr. 2021
World Bank Jan.


Projections


Projections


2021 Projections
2020
2021
2022
2020
2021
2022

2019
2020
2021


S. Africa
=7.0
3.8
2.5
Nigeria
–3.2
1.5
2.5
Egypt
5.6
3.6
2.7




S. Africa
–7.5
2.8
1.4
S. Asia
4.4
-6.7
3.3




World Trade
–9.6
8.1
6.3
Volume
India
4.2
-9.6
5.4




Oil prices ($)
–32.7
21.2
–2.4
Pakistan
1.9
-1.5
0.5








Bangladesh
8.2
2.0
1.6








Africa
2.4
-3.7
2.7








Nigeria
2.2
-4.1
1.1








S. Africa
0.2
-7.8
3.3








Angola
-0.9
-4.0
0.9
Sources: OECD Economic Outlook, Interim Report March 2021, Organization for Economic Cooperation and Development. December 2020; World Economic Outlook,
International Monetary Fund, April, 2021; Global Economic Prospects, World Bank Group, January 2021,
Note: The OECD forecast includes a single-wave scenario and a double-wave scenario in which the pandemic remains under control and recedes and another in which
there is a second wave of the pandemic, The OECD forecast numbers is this table reflect the single-wave scenario.

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Global Economic Effects of COVID-19

Among developing and emerging economies, the economic downturn is projected to most
negatively affect countries that rely on commodity exports to support annual economic growth. In
addition to lower prices for commodity exports and reduced global demand for exports,
developing countries are projected to be negatively affected by reduced remittances, weaker
currencies and tighter financial conditions.
The OECD also concluded that
 Real per capita income in 2020 was projected to decline by 8% and 9.5%,
respectively, depending on a one- or two-wave contagion, with substantial
declines in all economies. Even with an economic recovery in 2021, real per
capita income was projected to rise to only that of 2013.
 Unemployment was projected to rise to its highest level in more than 25 years,
while the average unemployment rate was projected to rise to 7.4% in 2021and
6.9% in 2022. The OECD concludes that, “scarring effects from job losses are
likely to be felt particularly by younger workers and lower-skilled workers, with
attendant risks of many people becoming trapped in joblessness for an extended
period.”
 Net productive investment (business and government) was weak prior to the
pandemic, falling behind the average rate of investment during the previous
decade. Investment was forecast to contract by half as a percentage of real GDP,
falling from 4.7% to 2.3% and 2.0%, respectively for the one-wave and two-
wave scenarios and increasing the risk of entrenched weak economic growth.
Investment is also expected to be negatively affected by bankruptcies and
insolvencies among corporations and financial institutions.135
The OECD estimated in its March 2020 forecast 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.”136 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.137
According to the OECD’s forecast
 The greatest impact of the containment restrictions has been on retail and
wholesale trade, and in professional and real estate services, although there are
notable differences between countries.
 Business closures may have reduced economic output in advanced and major
emerging economies by 15% or more; other emerging economies could have
experienced a decline in output of 25%.
 Countries dependent on tourism have been affected more severely, while
countries with large agricultural and mining sectors experienced less severe
effects.

135 Ibid., p. 31.
136 OECD Interim Economic Assessment: COVID-19: The World Economy at Risk, Organization for Economic
Cooperation and Development. March 2, 2020, p. 2.
137 Ibid., p. 4.
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 Economic effects likely varied across countries reflecting differences in the
timing and degree of containment measures.138
In addition, the OECD argued that China’s emergence as a global economic actor marked a
significant departure from previous global health episodes. China’s growth, in combination with
globalization and the interconnected nature of economies through capital flows, supply chains,
and foreign investment, magnify the cost of containing the spread of the virus through
quarantines and restrictions on labor mobility and travel.139 China’s global economic role and
globalization mean that trade has played a role in spreading the economic effects of COVID-19.
More broadly, the economic effects of the pandemic were spread through three trade channels:
(1) directly through supply chains as reduced economic activity spread from intermediate goods
producers to finished goods producers; (2) as a result of a drop overall in economic activity,
which reduced demand for goods in general, including imports; and (3) through reduced trade
with commodity exporters that supplied producers, which, in turn, reduced their imports and
negatively affected trade and economic activity of exporters.
The IMF Forecast
Having labeled the projected decline in global economic activity as the “Great Lockdown,” the
IMF released an updated forecast in April 2021. The IMF concluded in its revised forecast that
the global economy was improving, but cautioned that renewed waves of infections and new
variants of the virus could “pose concerns for the outlook.”140 In addition, the IMF estimated in
its baseline projection that the global economy could decline by 3.5% in 2020, slightly less
negative than its October forecast of -4.4%, before growing by 5.5% in 2021, revised up from its
previous forecast of 5.2%; global trade was projected to fall in 2020 by 8.5% and oil prices were
projected to fall by 32.7%. For 2021, the IMF forecast indicates that global trade could grow by
8.4% and that oil prices could rebound by 21.2%. The forecast also indicates the economic
recovery will be uneven across countries depending on, “access to medical interventions,
effectiveness of policy support, exposure to cross-country spillovers, and structural characteristics
entering the crisis.” India and China, in particular, are projected to outpace the rate of global
economic growth, experiencing a rate of growth in 2021 of 12.5% and 8.4%, respectively.
The IMF’s forecasts reflect the impact of policy measures on the U.S. economy in the first half of
2020 that are larger than it had assumed in its earlier forecasts, a slower recovery in the second
half of 2020, and the impact of U.S. spending measures adopted in 2021. Also, the IMF forecast
reflects an estimated larger decline in consumption than previously assumed as consumers
curtailed spending to increase their savings and the effects of social distancing on economic
activity. The IMF also stated that many countries have faced a multi-layered crisis that included a
health crisis, a domestic economic crisis, falling external demand, capital outflows, and a collapse
in commodity prices. In combination, these various effects have interacted in ways that made
forecasting difficult. As a result, the IMF indicated the forecast depend on a number of factors,
including
 The length of the pandemic and required lockdowns.
 Voluntary social distancing, which affects consumer spending.

138 Evaluating the Initial Impact of COVID Containment Measures on Activity, Organization for Economic Cooperation
and Development, March 27, 2020.
139 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.
140 World Economic Outlook, Update, International Monetary Fund, January 26, 2021.
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 The ability of displaced workers to secure employment, possibly in different
sectors.
 The long-term impact of firm closures and unemployed workers leaving the
workforce, compounding the ability of the economy to recover.
 The impact of changes to strengthen workplace safety—such as staggered work
shifts, enhanced hygiene and cleaning between shifts, new workplace practices
relating to proximity of personnel on production lines—which incur business
costs.
 Global supply chain reconfigurations that affect productivity as companies try to
enhance their resilience to supply disruptions.
 The extent of cross-border spillovers from weaker external demand as well as
funding shortfalls.
 A resolution of the current disconnect between rising asset values, as reflected in
market indices, and forecasts of a synchronized downturn in global economic
activity.
The IMF also forecasted that advanced economies as a group could experience an economic
contraction in 2020 of 4.9% of GDP, with the U.S. economy also projected to decline by 3.4%,
greater than the rate of decline experienced in 2009 during the financial crisis, as indicated in
Figure 6. The rate of economic growth in Euro area GDP in 2020 was projected to decline by
7.2%, but growing by 4.2% in 2021. Most developing and emerging economies were projected to
experience a decline in the average rate of economic growth of 2.2% in 2020, reflecting
tightening global financial conditions and falling global trade and commodity prices. In contrast,
China was projected to experience small, but positive rate of growth in 2020 of 2.3% and by 8.4%
in 2021, while India’s rate of growth was projected to decline by 8.0% in 2020 and grow by
12.5% in 2021. The IMF also argued 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.141
In an August 2020 analysis, the IMF indicated that fiscal and monetary actions by developed
economies provided developing and emerging market economies the ability to avoid tightening
monetary policy to stem capital outflows. Instead, the countries relied on movements in their
exchange rates to carry the brunt of the economic adjustment, while also following developed
economies in easing monetary policy, providing liquidity injections, and using unconventional
monetary policy measures such as purchases of government and corporate bonds. The IMF also
indicated that a prolonged health crisis could push developing economies to take such measures
as price controls, export restrictions, and unorthodox measures to ease credit and financial
regulation.142

141 Ibid., p. 9.
142 Mühleisen, Martin, Tryggvi Gudmundsson, and Hélène Poirson Ward, COVID-19 Response in Emerging Market
Economies: Conventional Policies and Beyond,
International Monetary Fund, August 6, 2020. https://blogs.imf.org/
2020/08/06/covid-19-response-in-emerging-market-economies-conventional-policies-and-beyond/?utm_medium=
email&utm_source=govdelivery.
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Figure 6. IMF Forecast, Gross Domestic Product
Percentage change

Source: World Economic Outlook, Update, International Monetary Fund, April 8, 2021. Created by CRS.
As a result of the various challenges, 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 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.143
The World Bank Forecast
In January 2021, the World Bank released its updated economic forecast, which indicated that
global economic growth would reach 4.3% in 2020 and 4.0% in 2021, compared with June 2020
projections of -5.2% for 2020 and 4.2% in 2021, but rise by a slower rate of 3.8% in 2022.144 The
assessment also concluded that absent “substantial and effective reforms,” the global economy
would experience a decade of “disappointing growth.” The Bank concluded that the forecast was
tilted toward downside risks. In particular, the Bank assessed that all regions of the world remain
vulnerable to renewed outbreaks of the virus, that there were logistical impediments to the
distribution of effective vaccines, that there are financial stresses in addition to elevated debt
levels and there is the possibility that the pandemic could have a more negative effect on incomes
and growth.145
An earlier forecast published on June 8, 2020, indicated the economic recession in 2020 would be
the deepest since World War II. It also estimated that the global economic recession would affect
90% of the world’s economies, a percentage that is greater than what was experienced during the
Great Depression.146 Similar to the OECD and the IMF forecasts, the World Bank argued that the

143 World Economic Outlook, p. v.
144 Global Economic Prospects, World Bank Group, January 2021, p. xvii.
145 Ibid., p. xviii.
146 Global Economic Prospects, World Bank Group, June 8, 2020, p. 15.
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economic impact of the global recession would fall most heavily on developing and emerging
economies that rely on global trade, tourism, or remittances from abroad, and those that depend
on commodity exports. In addition, the World Bank forecasted that most emerging and
developing economies could experience rates of growth in 2020 that could be the lowest overall
since the 1960s, with 90% of such economies expected to experience contractions in per capita
incomes and many millions of people falling back into poverty.
The World Bank also estimated that economic growth in advanced economies could decline by
5.4% in 2020 and recover to 3.3% in 2021, compared with the June forecast of 7.0% and 3.8%,
respectively. The United States, the Euro area and Japan were all estimated to experience a slower
rate of growth in 2020 and rise at a smaller rate in 2021 than the IMF forecast.
The global economic recession was projected to affect all regions in a type of synchronous
downturn, with some regions faring worse than others. Differences in the magnitude of regional
growth rates were attributed to the “scale of the domestic outbreak, vulnerability of the economy
to spillovers from global economic and financial stress the severity of preexisting challenges such
as widespread poverty, and the degree to which debt levels constrain the fiscal response.”147
According to the Bank’s baseline scenario, the projected economic recovery was expected to be
slow, reflecting shifts in consumption and work patterns as consumers attempted to rebuild
savings and businesses strengthen balance sheets. The World Bank also issued both a downside
and an upside scenario in which government lockdown policies were required to remain in effect
for a longer or a shorter period of time, respectively. The downside scenario projects a contraction
in global economic growth of 8% in 2020, as lockdown procedures are assumed to last an
additional three months, followed by a sluggish recovery. In contrast, the upside scenario projects
a decline in economic activity in 2020 of 4%, based on the assumption that economic activity
rebounds quickly in the third quarter of 2020.148
The Bank also concluded that global value chains (GVCs) had been important conduits through
which macroeconomic developments associated with the pandemic had been transmitted across
national borders. The economic effects of the pandemic were spread through trade linkages but
also amplified through quarantines, production shutdowns and border closures.149 Estimates by
the World Bank indicated that national policies adopted to blunt the spread of the virus affected
the global economy through four shocks: a decline in employment due to factory closures and
social distancing, a trade shock as a result of an increase in the cost of traded goods, a tourism
shock through a sharp contraction in international tourism, and a services shock. The magnitude
of the shocks varies by country depended on various factors, including the composition of output,
reliance on trade, and the level of GVC integration.
Global Trade
According to a March 31, 2021, forecast update, the World Trade Organization (WTO) estimated
that global trade volumes fell by 5.3% in 2020, nearly half as much as the drop of 9.2% the WTO
had forecasted in October 2020.150 The WTO concluded that the less negative outcome likely
resulted from strong monetary and fiscal policy actions of many governments. In particular, the

147 Global Economic Prospects June 8, 2020, p. 115.
148 Ibid., p. 33.
149 Ibid., p. 118.
150 World Trade Primed for Strong but Uneven Recovery After COVID-19 Pandemic Shock, World Trade Organization,
March 31, 2021.
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link to page 48 Global Economic Effects of COVID-19

WTO attributed the improved growth performance to fiscal policies that supported personal
incomes in advanced economies that, in turn, supported relatively higher levels of consumption
and global trade. Similarly, UNCTAD concluded in its May 2021 forecast that global trade
increased by about 10% in the first quarter of 2021 year-over-year and that the rebound in global
trade in 2021 would be faster than that experienced in the previous two recessions (2009, 2015).
The growth in merchandise trade was reportedly being driven by exports from East Asian
countries, while trade in services remained below recent averages. The forecast concluded that
global trade would increase by 16% in 2021 relative to the second and third quarters of 2020.151
WTO preliminary fourth quarter 2020 data indicate the decline in global trade in 2020 was not as
severe as it had estimated in its October 2020 forecast. Global trade volumes are projected to
partially recover in 2021 by increasing at an annual growth rate of 7.2%. This forecast reflects a
marked revision from the WTO’s April 8, 2020, forecast that global trade volumes could decline
between 13% and 32% in 2020 as a result of the economic impact of COVID-19, as indicated in
Table 8. The updated forecast also indicates that the recovery in global trade in 2021 could be
noticeably slower than the WTO had projected in April 2020, primarily reflecting expectations of
a slower recovery in global GDP in 2021.
In the first quarter of 2020, global exports and imports fell by 7.8% and 6.8%, respectively, in
volume terms and 10.6% and 8.6% in value terms, reflecting the global economic impact of the
pandemic, as indicated in Figure 7. In the second quarter, global exports and imports dropped by
11.6% and 11.1%, respectively, in volume and by 13.4% and 14.1%, in value terms. The WTO
also estimated that some trade sectors were affected more than others, particularly trade in fuels
and mineral products fell by 38%, while trade in agricultural products fell by 5%. In the third
quarter, however, export and import volumes rebounded, increasing by 15.7% and 12.9%,
respectively, while export and import values increased by 20.7% and 18.3%, respectively. In the
fourth quarter, global exports and imports increased by 6.1% and 7.2%, respectively, in volume
terms and by 9.7% and 9.6%, in value terms. Although the WTO has no comprehensive data on
trade in services, it concluded that the trend in trade in services likely matched that experienced in
trade in merchandise goods. The updated forecast also projected that global GDP could decline at
an annual rate of 4.8% in 2020, but recover in 2021 with an annual growth rate of 4.9%.
The WTO indicated in its forecast update that renewed economic lockdowns in response to a
resurgence of COVID-19 cases in the fall of 2020 could shave an additional 2% to 3% percentage
points off the annual global GDP growth rate in 2021 and negatively affect global trade. In
addition, the WTO estimated that uncertainty over additional fiscal measures and relatively high
rates of unemployment could reduce global merchandise trade growth by up to 4% in 2021. By
region, the WTO forecast indicated that Europe and North America could experience the largest
declines in the rate of growth of trade volumes, while Asia would experience the smallest decline
in the growth rate of trade volumes, primarily based on a projected increase in trade by China.
The WTO reported in its June 29, 2020, report on G-20 trade measures that during the mid-
October 2019 to mid-May 2020 period, countries had made “significant” progress in facilitating
imports, including products related to COVID-19.152 According to the report, various
governments initially responded to the pandemic by introducing new trade restrictive measures,
90% of which were export bans on medical products, such as surgical masks, gloves, medicine
and disinfectant. Since then, the WTO indicated that G20 economies have repealed 36% of the

151 Global Trade Update, United Nations Conference on Trade and Development, May, 2021.
152 WTO Report on G20 Shows Moves to Facilitate Imports Even as Trade Restrictions Remain Widespread, World
Trade Organization,
June 29, 2020. https://www.wto.org/english/news_e/news20_e/trdev_29jun20_e.htm.
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restrictions and lowered barriers to imports of many pandemic-related products. As of mid-May
2020, the WTO reported that 65 of the 93 pandemic-related trade measures implemented during
the monitoring period were of a trade-facilitating measures, rather than trade-restricting
measures.153
Figure 7. WTO Estimates of Quarterly Global Exports and Imports,
Volumes and Values

Source: World Trade Organization, March 31, 2021. Created by CRS.
In its April 2020 forecast, the WTO presented two estimates of global growth, reflecting the high
degree of uncertainty concerning the length and economic impact of the pandemic. According to
the WTO, the more optimistic scenario assumed that trade volumes would recover quickly in the
second half of 2020 to their pre-pandemic trend, or that the global economy would experience a
V-shaped recovery. In comparison, the more pessimistic scenario assumed there would be a
partial recovery in global trade that lasted into 2021, or that global economic activity would
experience a U-shaped recovery. The updated forecast reflects the WTO’s estimate that global
trade volumes in 2020 will not fall by as much as it had projected under both of the scenarios in
its April 2020 forecast. The WTO concluded, however, that the impact on global trade volumes
could exceed the drop in global trade during the height of the 2008-2009 financial crisis.154
Table 8. WTO Forecast: Merchandise Trade Volume and Real GDP 2020-2021
Annual percentage change
Optimistic
Pessimistic
Forecast
scenario
scenario
scenario
Forecast scenario

(April 2020)
(April 2020)
(October 2020)
(March 2021

2020
2021
2020
2021
2020
2021
2020
2021
2022
Volume of world
merchandise trade

-12.9%
21.3%
-31.9%
24.0%
-9.2%
7.2%
-5.3%
8.0%
4.0%
Exports









North America
-17.1
23.7
-40.9
19.3
-14.7
10.7
-8.5
7.7
5.1

153 Report on G20 Trade Measures (Mid-October 2019 to Mid-May 2020), World Trade Organization, June 29, 2020.
154 Trade Set to Plunge as COVID-19 Pandemic Upends Global Economy, World Trade Organization, April 8, 2020.
https://www.wto.org/english/news_e/pres20_e/pr855_e.htm.
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Optimistic
Pessimistic
Forecast
scenario
scenario
scenario
Forecast scenario

(April 2020)
(April 2020)
(October 2020)
(March 2021
South and Central America
-12.9
18.6
-31.3
14.3
-7.7
5.4
-4.5
3.2
2.7
Europe
-12.2
20.5
-32.8
22.7
-11.7
8.2
-8.0
8.3
3.9
CIS






-3.9
4.4
1.9
Africa






-8.1
8.1
3
Middle East






-8.2
12.4
5.0
Asia
-13.5
24.9
-36.2
36.1
-4.5
5.7
0.3
8.4
3.5
Other regions
-8.0
8.6
-8.0
9.3
-9.5
6.1



Imports









North America
-14.5
27.3
-33.8
29.5
-8.7
6.7
-6.1
11.4
4.9
South and Central America
-22.2
23.2
-43.8
19.5
-13.5
6.5
-9.3
8.1
3.7
Europe
-10.3
19.9
-28.9
24.5
-10.3
8.7
-7.6
8.4
3.7
CIS






-4.7
5.7
2.7
Africa






-8.8
5.5
4
Middle East






-11.3
7.2
4.5
Asia
-11.8
23.1
-31.5
25.1
-4.4
6.2
-1.3
5.7
4.4
Other regions
-10
13.6
-22.6
18.0
-16.0
5.6



World Real GDP at
market exchange rates

-2.5
7.4
-8.8
5.9
-4.8
4.9
-3.8
5.1
3.8
North America
-3.3
7.2
-9.0
5.1
-4.4
3.9
-4.1
5.9
3.8
South and Central America
-4.3
6.5
-11
4.8
-7.5
3.8
-7.8
3.8
3.0
Europe
-3.5
6.6
-10.8
5.4
-7.3
5.2
-7.1
3.7
3.6
CIS






-0.5
1.0
1.2
Africa






-2.9
2.6
3.8
Middle East






-6.0
2.4
3.5
Asia
-0.7
8.7
-7.1
7.4
-2.4
5.9
-1.1
6.1
4.1
Other regions
-1.5
6.0
-6.7
5.2
-5.5
3.5



Source: World Trade Primed for Strong but Uneven Recovery After COVID-19 Pandemic Shock, World Trade
Organization, March 31, 2021.
Notes: Data for 2021 and 2022 are projections; GDP projections are based on scenarios simulated with the
WTO Global Trade Model. In the April and October forecasts, the CIS countries, Africa, and the Middle East
were grouped together as “Other Regions.” CIS is the Commonwealth of Independent States: Azerbaijan,
Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan, and
Ukraine.
The WTO’s various forecasts indicate that all geographic regions could experience a rise in trade
volumes in 2021 and 2022 compared with 2020, while North America and Europe could
experience a percentage increase in trade volumes in 2021 comparable to the decline in volumes
in percentage terms experienced in 2020. The forecast also projected that sectors with extensive
value chains, such as automobile products and electronics, could experience the steepest declines
in 2020. Although services were 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
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and the closure of retail and hospitality establishments. Such services as information technology,
however, were growing to satisfy the demands of employees working from home.
The pandemic also raised questions about the costs and benefits of the global supply chains that
businesses have 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. According to a December 2020 report by DHL and the New York University Stern
Scholl of Business, global interconnectedness comprises four distinct types of transactions: trade,
capital, information, and people.155 This analysis concluded that the pandemic affected cross-
border movements of people in response to travel restrictions and in trade through a sharp
contraction in the global economy. Capital flows also dropped during 2020 as a result of lower
corporate earnings, business travel restrictions, negative business prospects, and concerns over
global supply chains.156
In some cases, businesses have been reassessing their exposure to the risks posed by extensive
supply chains that potentially are vulnerable to numerous points of disruption. Also, some
governments have been assessing the risks supply chains pose to national supplies of items
considered to be important to national security as a result of firms locating or shifting production
offshore. For multinational businesses, changing suppliers and shifting production locations can
be especially costly for some firms and can introduce additional risks.157 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 (BEA) 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 the sales of the
majority-owned foreign affiliates of U.S. parent companies are shipped to the U.S. parent, while
82% is sold in China and another 12% is shipped to other foreign countries.158
Beyond the current challenges the pandemic poses to global supply chains, a recent report
catalogues a number of risks that can disrupt supply chains.159 The report estimates that 16% to
26% of global goods exports, worth $2.9 trillion to $4.6 trillion, potentially could move to new
countries over the next five years “if companies restructure their supplier networks.” The report
concluded, however, that the pandemic so far had not reshaped global production networks in
dramatic ways, because the networks reflect, “economic logic, hundreds of billions of dollars’
worth of investment, and long-standing supplier relationships.”160 In addition, the report
concluded that although firms can shift production locations, the interconnected nature of these
chains “limits the economic case for making large-scale changes in their physical location.”161
Instead of shifting production locations, firms are considering a number of strategies to withstand
the challenges of a global economy by increasing sources of raw materials and critical materials,

155 Altman, Steven A. and Phillip Bastian, DHL Global Connectedness Index 2020, 2020
156 Ibid., p. 32.
157 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.
158 Activities of U.S. Multinational Enterprises: U.S. Parent Companies and Their Foreign Affiliates, Preliminary 2017
Statistics
, Bureau of Economic Analysis, August 23, 2019, Table II.E.2. https://www.bea.gov/news/2019/activities-us-
multinational-enterprises-2017.
159 Risk, Resilience, and Rebalancing in Global Value Chains, McKinsey Global Institute, August 2020, p. 1
160 Ibid., p. 2.
161 Ibid., In Brief.
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expanding and diversifying supplier bases, investing in suppliers to upgrade their capabilities, and
regionalizing supply chains, among a number of possible actions.162
Amidst the decline in global trade, 15 countries, including Brunei, Colombia, Indonesia, Laos,
Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam. Australia, China, Japan, New
Zealand, and South Korea, signed the Regional Comprehensive Economic Partnership (RCEP) on
November 15, 2020, to create potentially one of the largest free trade agreements.163 The
agreement needs to be ratified by at least six ASEAN countries and three non-ASEAN countries.
This agreement follows by two years the conclusion of negotiations over the Comprehensive and
Progressive Agreement for Trans-Pacific Partnership (CPTPP) that replaced the proposed Trans-
Pacific Partnership agreement after the United States pulled out of the negotiations. The
agreement includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand,
Peru, Singapore, and Vietnam. The UK reportedly has applied to join the trade agreement.
Global Foreign Investment
Similar to the negative impact policy measures to control the spread of COVID-19 have had on
global trade, the measures negatively affected global foreign investment flows. In addition,
national governments have implemented new or expanded foreign investment policies related to
national security, while attempting to navigate between legitimate national security risks and
policies that some policymakers argue are fundamentally protectionist. During 2020, various
governments adopted measures at both the national and international level to address the health
and economic consequences of the COVID-19 pandemic, as indicated in Table 9.164 According to
UNCTAD, these measure include incentives to increase domestic production of vaccines and
personal protective equipment (PPE) and direct state intervention through nationalization or
through directives to increase output at facilities that currently produced PPE materials or to
initiate production at other facilities. EU members are moving independently to amend current
legislation or adopt new rules to expand their review of foreign investments for national security
reasons, particularly rules related to acquisitions of firms involved in the production of medical
care and health. Also, Australia, Canada, and Japan expanded the range of foreign investments
they screen In some cases, policy changes include enhanced foreign investment screening of
foreign investment for “public interest” reasons that may remain after the pandemic crisis.165
The UN also reported that governments adopted new regulations across a spectrum of areas and
also supported joint international efforts to address public aspects of the pandemic, as indicated in
Table 10. State intervention has spanned policy approaches from investment incentives to
promote the production of medicines and medical equipment, assistance to affected firms and
industries, measures to circumvent intellectual property rights restrictions, and international
efforts to speed up vaccine production and cross-border sharing.
The shift in approach toward the national security dimensions of foreign investment, especially
by developed economies, has tended to blur the distinction between foreign investment, trade, and
national security and reflects the evolving nature of the concept of national security relative to
foreign investment. Conceivably, changes in technology and the global economy have made it

162 Risk, Resilience, and Rebalancing in Global Value Chains, p. 16.
163 Shih, Gerry, and Simon Denyer, As Trump Era Ends, Massive New Asian Trade Deal Leaves U.S. on the Sidelines,
Washington Post, November 16, 2020. https://www.washingtonpost.com/world/asia_pacific/trade-china-trump-obama-
asia/2020/11/16/f02f43e4-27b7-11eb-9c21-3cc501d0981f_story.html.
164 World Investment Report 2020, United Nations Conference on Trade and Development, 2020, p. 93.
165 Ibid., p. 96.
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more difficult to assess the economic costs and benefits of changes in foreign investment policies
taken on national security grounds.
Table 9. Foreign Investment Screening Legislation Adopted During COVID-19
Country
Investment Measure
Spain
Adopted a Royal Decree to suspend its liberalization regime regarding listed and
unlisted Spanish companies and require authorization to acquire 10% or more of stock
in certain sectors, including critical infrastructure, critical technologies, media and food
security.
European Union
The EU Commission issued a Guidance to Member States concerning efforts by non-EU
investors to attempt to acquire health care capacities or related industries through
foreign investment during the pandemic and recommended that EU members make ful
use of FDI screening regimes or establish such regimes where they are not ful y
developed.
Australia
Temporarily lowered the monetary screening threshold to zero for all foreign
investments, requiring prior approval for all foreign investments and extended the
timeframe for screening procedures from 30 days to six months.
Italy
Expanded the scope of its FDI screening regime, including acquisitions from within the
EU, by adding finance, credit and insurance to its list of strategic sectors.
India
Introduced a requirement for prior governmental approval for all investment originating
from countries that share land borders with India.
Canada
Announced “enhanced security” reviews of foreign investments in Canadian firms to
prevent foreign firms from taking advantage of low stock valuations during the pandemic
to acquire any Canadian firm, but particularly those related to public health or involved
in the supply of critical goods and services to Canadians to protect Canadian’s health
and safety.
France
Added biotechnology to its list of critical sectors requiring prior governmental approval
for foreign acquisitions and temporarily lowered the voting rights threshold for listed
companies for FDI screening from 25% to 10%.
Germany
Amended its Foreign Trade and Payments Ordinance to emphasize critical public health
sectors and require prior governmental approval for foreign acquisitions of 10% or
more of the stock of German companies involved in developing, manufacturing or
producing vaccines, medicines, protective medical equipment and other medical goods
for the treatment of highly infectious diseases. Also adopted measures to align German
reviews with EU rules.
Hungary
Adopted a foreign investment screening mechanism that requires approval for
investments in 21 industries, including health care, pharmaceuticals and medical device
manufacturing, and non-medical industries. An investment can be denied that violates or
threatens public security or order, particularly the security of supply of basic social
needs.
Japan
Amended its list of sectors considered critical to national security by adding the
production of vaccines, medicines and advanced medical equipment, including
ventilators.
Poland
Adopted a FDI screening regime for foreign acquisitions of 20 % or more in publicly
listed companies, companies control ing strategic infrastructure or developing critical IT
software, or companies active in 21 industries, including pharmaceuticals, manufacturing
of medical devices, food processing and utilities.
Source: World Investment Report 2020, United Nations Conference on Trade and Development, 2020, p. 92-93.
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Table 10. Investment Policy Instruments Adopted at the National and International
Levels to Address the COVID-19 Pandemic
Investment policy areas
Policy measures
Policy actions at the national level
Investment facilitation
Alleviate administrative burdens and bureaucratic
obstacles for firms.

Use of online tools and e-platforms.
Investment retention and aftercare by investment
COVID-19-related information services.
promotion agencies (IPAs)

Administrative and operational support during the
crisis.

Move to online services.
Investment incentives
Financial or fiscal incentives to produce COVID-19-
related medical equipment.

Incentives for conversion of production lines.

Incentives for enhancement of contracted economic
activities.
State participation in crisis-affected industries
Acquisition of equity in companies, including
nationalization.
Local small and medium enterprises (SMEs) and supply
Financial or fiscal support for domestic suppliers (such
chains
as SMEs).
National security and public health
Application and potential reinforcement of FDI
screening in pandemic-relevant industries.
Other State intervention in the health industry
Mandatory production.

Export bans.

Import facilitation.
Intellectual property (IP)
General authorization of non-voluntary licensing, to
speed up research and development (R&D).

IP holder-specific non-voluntary licensing, to enable
imports of medication.
Policy actions at the international level
International support measures for investment
International pledges in support of cross-border
investment.
IIAs
Reform International Investment Agreements (IIAs) to
support public health policies and to minimize investor–
State dispute risks.
Intellectual property (IP)
General authorization of non-voluntary licensing, to
speed up research and development (R&D).
Source: World Investment Report 2020, United Nations Conference on Trade and Development, 2020, p. 89.
According to the United Nations Conference on Trade and Development (UNCTAD), global
foreign direct investment inflows fell by 42% in 2020 compared with the same period in 2019,
with continued weakness expected in 2021, as indicated in Figure 8.166 Global inflow totals were

166 Investment Trends Monitor, United Nations Conference on Trade and Development, January, 2021. Investment
Policy Instruments Adopted at the National and International level to Address the COVID-19 Pandemic
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driven in large part by the decline in foreign investment inflows to developed economies, which
fell by 69%. Inflows to Europe fell to -$4 billion, compared with inflows in 2019 of $344 billion.
In contrast, inflows to developing economies fell by 12% over the period, aided in large part by
positive inflows to China. Investment flows to developing Asia, at $476 billion, dropped by 4%
compared with 2019 and accounted for about half the total $859 billion global direct investment
inflows in 2020.
Figure 8. Foreign Direct Investment Inflows by Major Country Groups
Inflows in billions of dollars

Source: United Nations Conference on Trade and Development. Created by CRS.
As indicated in Figure 9, all major geographic areas except Asia experienced a drop in foreign
direct investment inflows in 2020 compared with 2019.167 This drop in foreign investment was
apparent in the three major types of foreign investment: cross-border investments; greenfield
investment, or investment in new business activity; and international project finance. In the three
types of investment activity, global activity fell by 10%, 35%, and 2%, respectively in 2020
compared with 2019. Cross-border merger and acquisition (M&A) activity increased by 31% and
147%, respectively, in Asia and Transition economies, but declined by 11% in developed
economies and 67% in Latin America. International project finance, reportedly an important
source of infrastructure finance, fell globally by 2%, but rose by 7% in developed economies,
primarily in Europe, and by 17% in Asia.

167 Investment Trends Monitor, United Nations Conference on Trade and Development, January 24, 2021.
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Figure 9. Global Foreign Direct Investment Inflows
In billions of dollars and percentage change

Source: United Nations Conference on Trade and Development. Created by CRS.
For the United States, BEA reported that U.S. direct investment abroad (outflows) and foreign
direct investment in the United States (inflows) fell by 74% and 89%, respectively, in the first
half of 2020 compared with the first half of 2019, as indicated in Figure 10.168 The lower
investment numbers reflect, in part, the lower values for equity, mirroring the declines in major
equity markets in the first half of 2020. For 2020 as a whole, U.S. direct investment outflows fell
by 19%, while foreign direct investment inflows fell by 40%.
Figure 10. U.S. Direct Investment; Inflows and Outflows

Source: Bureau of Economic Analysis, Created by CRS.

168 U.S. International Transactions, Fourth Quarter and Year 2020, Bureau of Economic Analysis, March 23, 2020.
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Notes: In the balance of payments, direct investment outflows are represented as a negative value, indicating an
outflow and direct investment inflows are represented as positive values. For presentation purposes, the signs
for direct investment abroad, or outflows, have been reversed.
Economic 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, have been overwhelmed by the
quickly changing nature of the global health crisis that turned into a global trade and economic
crisis. During the initial stages of the pandemic, policymakers weighed the impact of policies that
addressed the immediate economic effects at the expense of longer-term considerations such as
debt accumulation. As the pandemic persisted, however, policymakers adopting additional fiscal
or monetary measures, in particular, that could complicate the economic impact of the policies
after the pandemic resides. Initially, many policymakers felt constrained in their ability to respond
to the crisis as a result of limited flexibility for monetary and fiscal support within conventional
standards, given the broad-based synchronized slowdown in global economic growth, especially
in manufacturing and trade, that had developed prior to the viral outbreak. The pandemic has also
affected global politics as world leaders cancelled international meetings,169 nations began
competing for medical supplies, and some nations reportedly stoked conspiracy theories that
shifted blame to other countries.170
Initially, the economic effects of the virus were expected to be short-term supply issues as factory
output fell because workers were quarantined to reduce the spread of the virus through social
interaction. The drop in economic activity, initially in China, has had international repercussions
as firms experienced delays in supplies of intermediate and finished goods through supply chains.
Concerns grew, however, that virus-related supply shocks created 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 potentially escalating and binding credit and liquidity constraints. While manufacturing firms
experienced supply chain shocks, reduced consumer activity through social distancing affected
the services sector of the economy, which accounts for two-thirds of annual U.S. economic
output. In this environment, manufacturing and services firms initially tended to hoard cash,
which affected market liquidity. In response, the Federal Reserve, along with other central banks,
lowered interest rates where possible and expanded lending facilities to provide liquidity to
financial markets and to firms potentially facing insolvency.
As the economic effects have persisted, their impact has spread through trade and financial
linkages to an ever-broadening group of countries, firms and households. These growing
economic effects potentially increased liquidity constraints and credit market tightening in global
financial markets as firms hoarded cash, with negative fallout effects on economic growth. At the
same time, financial markets had been factoring in an increase in government bond issuance in
the United States, Europe, and elsewhere as government debt levels began rising 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

169 Taylor, Adam, Teo Armus, and Rick Noak, “Live updates: COVID-19 Turmoil Widens as U.S. Death Toll Mounts;
Xi Cancels Japan Trip, Washington Post, March 5, 2020, https://www.washingtonpost.com/world/2020/03/05/COVID-
19-live-updates/.
170 Shih, Gerry, “China Is Subtly Stoking COVID-19 Conspiracy Theories That Blame the U.S. for Outbreak,”
Washington Post, March 5, 2020. https://www.washingtonpost.com/world/2020/03/05/COVID-19-live-updates/.
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consumers, labor market issues, and a reduced level of activity among businesses, rather than
risky trading by global banks, led to corporate credit issues and potential insolvency. These
market dynamics led some observers at the time to question if these events marked the beginning
of a full-scale global financial crisis.171
Liquidity and credit market issues presented policymakers with a different set of challenges than
addressing supply-side constraints. As a result, the focus of government policy expanded from a
health crisis to macroeconomic and financial market issues that were addressed through a
combination of monetary, fiscal, and other policies, including border closures, quarantines, and
restrictions on social interactions. Essentially, while businesses attempted to address worker and
output issues at the firm level, national leaders attempted to implement fiscal policies to prevent
economic growth from contracting sharply by assisting workers and businesses that faced
financial strains, and central bankers adjusted 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, as unemployment numbers rose, job losses resulted in defaults on
mortgages and delinquencies on rent payments, requiring some financial institutions to provide
loan forbearance or other mechanism to provide financial assistance. In turn, mortgage defaults
threatened to negatively affect the market for mortgage-backed securities, the availability of funds
for mortgages, and negatively affect the overall rate of economic growth. Losses in the value of
most equity markets in the U.S., Asia, and Europe also affect household wealth, especially that of
retirees living on a fixed income and others who own equities. Investors that trade in mortgage-
backed securities reportedly reduced their holdings while the Federal Reserve attempted to
support the market.172 In the initial stages of the crisis, even traditional policy tools, such as
monetary accommodation, apparently were not always 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 added to uncertainties about
what governments could do to address weaknesses in the global economy.
Major Economic Developments
Between late February 2020 and January 2021, financial markets from the United States to Asia
and Europe were whipsawed as investors alternated 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 could be.173 Investors 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, 2020.174 In response to concerns
that the global economy was in a freefall, the Federal Reserve lowered key interest rates on

171 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.
172 Armstrong, Robert, “Mortgage Investment Funds Become ‘Epicenter’ of Crisis,” Financial Times, March 24, 2020.
https://www.ft.com/content/18909cda-6d40-11ea-89df-41bea055720b.
173 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.
174 The price and yield of a bond are inversely related; increased demand for Treasury securities raises their price,
which lowers their yield. Levisohn, Ben, “The 10-Year Treasury Yield Fell Below 1% for the First Time Ever. What
That Means,” Barrons, March 3, 2020. https://www.barrons.com/articles/the-10-year-treasury-yield-fell-below-1-for-
the-first-time-ever-what-that-means-51583267310.
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March 3, 2020, to shore up economic activity, while the Bank of Japan engaged in asset
purchases to provide short-term liquidity to Japanese banks; Japan’s government indicated it
would also assist workers with wage subsidies. The Bank of Canada also lowered its key interest
rate. The International Monetary Fund (IMF) announced that it was making about $50 billion
available through emergency financing facilities for low-income and emerging market countries
and through funds available in its Catastrophe Containment and Relief Trust (CCRT).175
Financial Markets
Reflecting investors’ uncertainties, the DJIA lost about one-third of its value between February
14, 2020, and March 23, 2020, as indicated in Figure 11. Expectations that the U.S. Congress
would adopt a $2.0 trillion spending package moved the DJIA up by more than 11% on March 24,
2020. From March 23 to April 15, the DJIA moved higher by 18%, paring its initial losses by
half. Since then, the DJIA trended upward, but moved erratically at times as investors weighed
news about the human cost and economic impact of the pandemic and the prospects of various
medical treatments. Between March 23 and July 1, the DJIA regained 70% of the value lost
during the February to March decline. On Monday, November 9, the DJIA gained over 800
points, or nearly three percentage points, as markets responded positively to press reports that an
effective COVID-19 vaccine had been developed. On November 10, the DJIA rose above 29,400
for the first time since the index fell in February 2020. Between January 1, 2021, and February 4,
2021, the DJIA increased by about 3.0%, continuing a rise in the index of 17% since the end of
October 2020. Through April, 2021, the DJIA had gained more than 12% in value and was 16%
higher than the value on February 14, 2020.
As indicated in Table 11, the DJIA lost the largest part of its market valuation in trading during
February and March when the index lost nearly one-fourth of its value as more trading sessions
ended with overall market values lower than higher. Since March, the index has posted more
trading sessions that closed with positive gains than losses. By October 23, 2020, the DJIA had
recovered most of the value lost in February and March. During the final week of October, the
DJIA lost more than 1,800 points, the largest weekly loss since March 2020 as Germany, France
and other European countries reinstituted lockdowns in response to a resurgence of COVID-19
cases. In the first three days of November, however, the Index regained three-fourths of the value
it lost the previous week. During the first six months of 2021, the DJIA gained 15% in market
value. During June 2021, the DJIA had one more day of the index closing down than up as the
index lost one-quarter of a point overall, the first such decline since January 2021.
Announcements of vaccines portending a resurgence of economic activity boosted market
sentiment in November and December with the DJIA rising by over a combined 3,700 points or
by nearly 14%. In January 2021, the DJIA dropped by about 1% with more trading days ending
with the index down than days with the index up from the previous day. For some policymakers,
the drop in equity prices in February and March 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, especially in areas such as
health, medical research, and critical infrastructure.176

175 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/.
176 Chazan, Guy and Jim Brunsden, “COVID-19 Crisis Pushes Europe into Nationalist Economic Turn,” Financial
Times
, March 26, 2020. https://www.ft.com/content/79c0ae80-6df1-11ea-89df-41bea055720b.
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Table 11. Dow Jones Industrial Average Market Changes by Month
Sessions up Sessions down
Open
Close
Change in index valuation

January
13
8
28,638.97
28,256.03
-382.94
-1.34%
February
8
11
28,319.65
25,409.36
-2,910.29
-10.28%
March
10
12
25,590.51
21,917.16
-3,673.35
-14.35%
April
12
9
21,227.38
24,345.72
3,118.34
14.69%
May
10
10
24,120.78
25,383.11
1,262.33
5.23%
June
14
8
25,342.99
25,812.88
469.89
1.85%
July
13
9
25,879.38
26,428.32
548.94
2.12%
August
14
7
26,542.32
28,430.05
1,887.73
7.11%
September
12
9
28,439.61
27,781.70
-657.91
-2.31%
October
10
12
27,816.90
26,501.60
-1,315.30
-4.73%
November
12
8
26,691.28
29,638.64
2,947.36
11.04%
December
14
8
29,707.50
30,606.48
808.98
2.71%
January 2021
8
11
30,223.89
29,981.10
-242.79
-0.80%
February
15
5
30,054.73
30,932.37
877.64
2.92%
March
13
10
31,065.90
32,981.55
1,915.65
6.17%
April
12
8
33,054.58
33,874.85
820.27
2.48%
May
13
7
33,904.89
34,529.45
624.56
1.84%
June
10
11
34,584.19
34, 502.51
-81.68
-0.24%
Source: Financial Times, calculations by CRS.
Similar to the 2008-2009 global financial crisis, central banks implemented a series of monetary
operations to provide liquidity to their economies. These actions, however, initially were not
viewed entirely positively by all financial market participants who questioned the use of policy
tools by central banks that were similar to those employed during the 2008-2009 financial crisis,
despite the fact that the COVID-19 and the previous crises were fundamentally 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 2020 environment, central banks attempted to
address financial market volatility and prevent large-scale corporate insolvencies that reflected
the underlying economic uncertainty caused by the pandemic.
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Figure 11. Dow Jones Industrial Average Index
February 14, 2020, through June 30, 2021

Source: Financial Times. Created by CRS.
The yield on U.S. Treasury securities dropped to historic levels on March 6, 2020, and March 9,
2020, as investors moved 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.177 On March 5, the U.S. Congress passed an $8 billion spending
bill to provide assistance for health care, sick leave, small business loans, and international
assistance. At the same time, commodity prices dropped sharply as a result of reduced economic
activity and disagreements among oil producers over production cuts in crude oil and lower
global demand for commodities, including crude oil.
The drop in some commodity prices raised concerns about corporate profits and led some
investors to sell equities and buy sovereign bonds. In overnight trading in various sessions
between March 8, and March 24, U.S. stock market indexes moved sharply (both higher and
lower), triggering automatic circuit breakers designed to halt trading if the indexes rise or fall by
more than 5% when markets are closed and 7% when markets are open.178 By early April, the
global mining industry had reduced production by an estimated 20% in response to falling
demand and labor quarantines and as a strategy for raising prices.179
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.180 At the

177 Smith, Colby, Richard Henderson, Philip Georgiadis, and Hudson Lockett, “Stocks Tumble and Government Bonds
Hit Highs on Virus Fears,” Financial Times, March 6, 2020. https://www.ft.com/content/9f94d6f8-5f51-11ea-b0ab-
339c2307bcd4.
178 Georgiadis, Philip, Adam Samson, and Hudson Lockett, “Stocks Plummet as Oil Crash Shakes Financial Markets,”
Financial Times, March 9, 2020. https://www.ft.com/content/8273a32a-61e4-11ea-a6cd-df28cc3c6a68.
179 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.
180 Chazan, Guy, David Keohane, and Martin Arnold, “Europe’s Policymakers Search for Answers to Virus Crisis,”
Financial Times, March 9, 2020. https://www.ft.com/content/d46467da-61e1-11ea-b3f3-fe4680ea68b5.
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same time, the Fed announced that it was expanding its repo market transactions (in the
repurchase market, investors borrow cash for short periods in exchange for high-quality collateral
like Treasury securities) after stock market indexes fell sharply, government bond yields fell to
record lows (reflecting increased demand), and demand for corporate bonds fell. Together these
developments raised concerns for some analysts that instability in stock markets could threaten
global financial conditions.181
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 Christine Lagarde in a conference call to EU leaders
warned that without coordinated action, Europe could face a recession similar to the 2008-2009
financial crisis.182 The Bank of England lowered its key interest rate, reduced capital buffers for
UK banks, and provided a funding program for small and medium businesses. The UK
Chancellor of the Exchequer also proposed a budget that would appropriate £30 billion (about
$35 billion) for fiscal stimulus spending, including funds for sick pay for workers, guarantees for
loans to small businesses, and cuts in business taxes. The European Commission announced a €25
billion (about $28 billion) investment fund to assist EU countries and the Federal Reserve
announced that it would expand its repo market purchases to provide larger and longer-term
funding to provide added liquidity to financial markets.
President Trump imposed restrictions on travel from Europe to the United States on March 12,
2020, surprising European leaders and adding to financial market volatility.183 At its March 12
meeting, the ECB announced €27 billion (about $30 billion) in stimulus funding, combining
measures to expand low-cost loans to Eurozone banks and small and medium-sized businesses
and implement an asset purchase program to provide liquidity to firms. Germany indicated that it
would provide tax breaks for businesses and “unlimited” loans to affected businesses. The ECB’s
Largarde roiled markets by stating that it was not the ECB’s job to “close the spread” between
Italian and German government bond yields (a key risk indicator for Italy), a comment reportedly
interpreted as an indicator the ECB was preparing to abandon its support for Italy, a notion that
was denied by the ECB.184 The Fed also announced that it would increase its lending in the repo
market and its purchases of Treasury securities to provide liquidity. As a result of tight market
conditions for corporate bonds, firms turned to their revolving lines of credit with banks to build
up their cash reserves. The price of bank shares fell, reflecting sales by investors who reportedly
had grown concerned that banks would experience a rise in loan defaults.185 Despite the various
actions, the DJIA fell by nearly 10% on March 12, recording the worst one-day drop since 1987.
Between February 14 and March 12, the DJIA fell by more than 8,000 points, or 28% of its value.

181 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.
182 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.
183 McAuley, James and Michael Birnbaum, “Europe Blindsided by Trump’s Travel Restrictions, with Many Seeing
Political Motive,” Washington Post, March 12, 2020. https://www.washingtonpost.com/world/europe/europe-
blindsided-by-trumps-travel-restrictions-with-many-seeing-political-motive/2020/03/12/42a279d0-6412-11ea-8a8e-
5c5336b32760_story.html.
184 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.
185 Morris, Stephen, Laura Noonan, Henny Sender, and Olaf Storbeck, “Banks Scramble as Companies Rush to Tap
Back-up Credit Lines,” Financial Times, March 12, 2020. https://www.ft.com/content/a3513a54-6486-11ea-b3f3-
fe4680ea68b5.
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Credit rating agencies began reassessing corporate credit risk, including the risk of firms that had
been considered stable.186
On March 13, President Trump declared a national emergency, potentially releasing $50 billion in
disaster relief funds to state and local governments. The announcement moved financial markets
sharply higher, with the DJIA rising 10%.187 Financial markets also reportedly moved higher on
expectations the Fed would lower interest rates. House Democrats and President Trump agreed to
a $2 trillion spending package to provide paid sick leave, unemployment insurance, food stamps,
support for small businesses, and other measures.188 The EU indicated that it would relax budget
rules that restrict deficit spending by EU members. In other actions, the People’s Bank of China
cut its reserve requirements for Chinese banks, potentially easing borrowing costs for firms and
adding $79 billion in funds to stimulate the Chinese economy; Norway’s central bank reduced its
key interest rate; the Bank of Japan acquired billions of dollars of government securities (thereby
increasing liquidity); and the Reserve Bank of Australia injected nearly $6 billion into its
financial system.189 The Bank of Canada also lowered its overnight bank lending rate.
The Federal Reserve lowered its key interest rate to near zero on March 15, 2020, arguing that the
pandemic had “harmed communities and disrupted economic activity in many countries,
including the United States” and that it was prepared to use its “full range of tools.”190 It also
announced an additional $700 billion in asset purchases, including Treasury securities and
mortgage-backed securities, expanded repurchase operations, activated dollar swap lines with
Canada, Japan, Europe, the UK, and Switzerland, opened its discount window to commercial
banks to ease household and business lending, and urged banks to use their capital and liquidity
buffers to support lending.191
Despite the Fed’s actions the previous day to lower interest rates, interest rates in the U.S.
commercial paper market, where corporations raise cash by selling short-term debt, rose on
March 16, 2020, to their highest levels since the 2008-2009 financial crisis, prompting investors
to call on the Fed to intervene.192 The DJIA dropped nearly 3,000 points, or about 13%. Most
automobile manufacturers announced major declines in sales and production;193 similarly, most

186 Edgecliffe-Johnson, Andrew, Peggy Hollinger, Joe Rennison, and Robert Smith, “Will the COVID-19 Trigger a
Corporate Debt Crisis?” Financial Times, March 12, 2020. https://www.ft.com/content/4455735a-63bc-11ea-b3f3-
fe4680ea68b5. Sectors most exposed to debt financing issues include automotive, insurance, capital goods, utilities, oil
and gas, technology, aerospace and defense, real estate, telecoms, consumer products, metals, mining and steel,
healthcare, retail/restaurants, chemicals, packaging, transportation, media and entertainment, and forest products.
187 Fritz, Angela and Meryl Kornfield, “President Trump Declares a National Emergency, Freeing $50 Billion in
Funding,” Washington Post, March 13, 2020. https://www.washingtonpost.com/world/2020/03/13/COVID-19-latest-
news.
188 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/.
189 Georgiadis, Philip, Hudson Lockett, and Leo Lewis, “European Stocks and US Futures Soar After Historic Rout,”
Financial Times, March 13, 2020. https://www.ft.com/content/3bab76ac-64cd-11ea-a6cd-df28cc3c6a68.
190 Federal Reserve Releases FOMC Statement, Board of Governors of the Federal Reserve System, March 15, 2020.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm.
191 Greeley, Brendan, Colby Smith, Adam Samson, Joe Rennison, Katie Martin, and Jennifer Ablan, “Fed Cuts Rates to
Zero as Part of Sweeping Crisis Measures,” Financial Times, March 15, 2020. https://www.ft.com/content/a9a28bc0-
66fb-11ea-a3c9-1fe6fedcca75.
192 Rennison, Joe Rennison and Colby Smith, “Investors Call for Fed Help in ‘Frozen’ Commercial Paper Market,”
Financial Times, March 16, 2020. https://www.ft.com/content/34213560-677b-11ea-a3c9-1fe6fedcca75.
193 Campbell, Peter, Joe Miller, and David Keohane, “European Car Plants Close as Industry Crisis Deepens,”
Financial Times, March 16, 2020. https://www.ft.com/content/dd76d42a-678b-11ea-a3c9-1fe6fedcca75.
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airlines reported they faced major cutbacks in flights and employee layoffs due to diminished
economic activity.194 Economic data from China indicated the economy would slow markedly in
the first quarter of 2020, potentially greater than that experienced during the global financial
crisis.195 The Bank of Japan announced that it would double its purchases of exchange traded
funds and the G-7 countries196 issued a joint statement promising “a strongly coordinated
international approach,” although no specific actions were mentioned. The IMF issued a
statement indicating its support for additional fiscal and monetary actions by governments and
that the IMF “stands ready to mobilize its $1 trillion lending capacity to help its membership.”
The World Bank also promised an additional $14 billion to assist governments and companies
address the pandemic.197
Following the drop in equity market indexes the previous day, the Federal Reserve unveiled a
number of facilities on March 17, 2020, in some cases reviving actions it had not taken since the
financial crisis. It announced that it would allow the 24 primary dealers in Treasury securities to
borrow cash collateralized against some stocks, municipal debt, and higher-rated corporate bonds;
revive a facility to buy commercial paper; and provide additional funding for the overnight repo
market.198 The UK government proposed government-backed loans to support businesses; 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, nonstandard asset
purchase program, the Pandemic Emergency Purchase Program (PEPP), to acquire an additional
€750 billion (over $820 billion) 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 billion in securities).199 The
ECB also broadened the types of assets it would accept as collateral to include nonfinancial
commercial paper, eased collateral standards for banks, and waived restrictions on acquiring
Greek government debt.200 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, following similar plant
closures in Europe.201 Major U.S. banks announced a moratorium on share repurchases, or stock
buy-backs, denying equity markets a major source of support and potentially amplifying market

194 Smyth, Jamie Smyth, Andrew Edgecliffe-Johnson, Peggy Hollinger, Myles McCormick, David Keohane, and
Richard Milne, “Most Airlines Face Bankruptcy by End of May, Industry Body Warns,” Financial Times, March 16,
2020. https://www.ft.com/content/30a3a26e-674f-11ea-800d-da70cff6e4d3.
195 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.
196 The G-7 comprises Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
197 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.
198 Politi, James, Brendan Greeley, Colby Smith, and Joe Rennison, “Fed to Lend Against Stocks and Bonds in Bid to
Stabilize Markets,” Financial Times, March 17, 2020. https://www.ft.com/content/cf485398-689d-11ea-800d-
da70cff6e4d3.
199 “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.
200 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.
201 Campbell, Peter and Claire Bushey, “Ford, General Motors and Fiat Chrysler Agree Widespread Shutdown,”
Financial Times, March 18, 2020. https://www.ft.com/content/feae3808-6949-11ea-800d-da70cff6e4d3.
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volatility.202 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 selling sovereign and other bonds as firms and other financial
institutions attempted to increase their cash holdings, although actions central banks took during
the week appeared to calm financial markets. Compared to previous financial market dislocations
in which stock market values declined while bond prices rose, stock and bond values fell at the
same time in March 2020 as investors reportedly adopted a “sell everything” mentality to build
up cash reserves.203 Senate Republicans introduced the Coronavirus Aid, Relief, and Economic
Security Act to provide $2 trillion in spending to support the U.S. economy.
On March 20, the Federal Reserve announced that it would expand a facility to support the
municipal bond market and Britain’s Finance Minister announced an “unprecedented” fiscal
package to pay up to 80% of an employee’s wages and deferring value added taxes by
businesses.204 The ECB’s Largarde justified actions by the Bank during the week to provide
liquidity by arguing that the “coronavirus pandemic is a public health emergency unprecedented
in recent history.” Market indexes fell again on March 23, 2020, as the Senate debated the
parameters of a new spending bill to support the economy. Oil prices also continued to fall as oil
producers appeared to be in a standoff over cuts to production.
Financial market indexes continued to fall on March 23, 2020, reaching 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.205 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.206
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

202 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.
203 Stubbington, Tommy and Colby Smith, “Investment Veterans Try to Get to Grips With ‘Broken’ Markets,”
Financial Times, March 20, 2020. https://www.ft.com/content/97186440-6aa0-11ea-800d-da70cff6e4d3.
204 Parker, George Parker, Chris Giles, and Sebastian Payne, “Sunak Turns on Financial Firepower to Help Workers,”
Financial Times, March 20, 2020, https://www.ft.com/content/826d465a-6ac3-11ea-a3c9-1fe6fedcca75.
205 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.
206 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.
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for a severe economic recession.207 U.S. financial markets were buoyed on March 25 and 26 over
passage in Congress of a $2.2 trillion economic stimulus package.
On March 27, leaders of the G-20 countries announced through a video conference they had
agreed to inject $5 trillion into the global economy and to do “whatever it takes to overcome the
pandemic.” Also at the meeting, the OECD offered an updated forecast of the viral infection,
which projected that the global economy could shrink by as much as 2% a month. Nine Eurozone
countries, including France, Italy, and Spain called on the ECB to consider issuing
“coronabonds,” a common European debt instrument to assist Eurozone countries in fighting
COVID-19.208 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.209
Japan announced that it would adopt an emergency spending package worth $238 billion, or
equivalent to 10% of the country’s annual GDP.210 Despite the various actions, global financial
markets turned lower 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.211
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.212 In commodity markets,
Brent crude oil prices continued to fall, reaching a low of $22.76. Strong global demand for
dollars continued to put upward pressure on the international value of the dollar. In response, the
Federal Reserve introduced a new temporary facility that would work with its swap lines to allow
central banks and international monetary authorities to enter into repurchase agreements with the
Fed.213 From mid-March to mid-April, U.S. workers’ claims for unemployment benefits reached
over 17 million 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.
International Role of the Dollar
Similar to conditions during the 2008-2009 financial crisis, the dollar emerged as the preferred
currency by investors, reinforcing its role as the dominant global reserve currency. As indicated in
Figure 12, 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.

207 Arnold, Martin Arnold and Valentina Romei, “Business Activity Crashes to Record Low in Eurozone,” Financial
Times
, March 24, 2020. https://www.ft.com/content/f5ebabd4-6dad-11ea-89df-41bea055720b.
208 Dombrey, Daniel, Guy Chazan, and Jim Brunsden, “Nine Eurozone Countries Issue Call for ‘Coronabonds,’”
Financial Times, March 26, 2020. https://www.ft.com/content/258308f6-6e94-11ea-89df-41bea055720b.
209 Arnold, Martin and Tommy Stubbington, “ECB Shakes Off Limits on New €750bn Bond-Buying Plan,” Financial
Times
, March 27, 2020. https://www.ft.com/content/d775a99e-13b2-444e-8de5-fd2ec6caf4bf.
210 Kajimoto, Tetsushi, Izumi Nakagawa, “Japan Plans Huge Stimulus Package to Cushion Blow from Coronavirus,”
Reuters, March 27, 2020, https://www.reuters.com/article/us-health-coronavirus-japan-stimulus/japan-plans-huge-
stimulus-package-to-cushion-blow-from-coronavirus-idUSKBN21E0UW.
211 Georgiadis, Philip, Hudson Lockett, and Leo Lewis, “Global Stocks Falter After Two Days of Big Gains,” Financial
Times
, March 27, 2020. https://www.ft.com/content/bc33c31c-f019-4ef8-85df-0014a5406ac1.
212 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.
213 Politi, James, Brendan Greeley, and Colby Smith, “Fed Sets Up Scheme to Meet Booming Foreign Demand for
Dollars,” Financial Times, March 31, 2020. https://www.ft.com/content/6c976586-a6ea-42ec-a369-9353186c05bb.
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Since the highs reached on March 23, the exchange value of the dollar has dropped between 1%
and 2% per month in a slow decline as financial strains have eased and demand for the dollar in
international financial markets has lessened.
Between mid-May and mid-June, the dollar lost about 3% of its value relative to the currencies of
other major trading partners and was equal to its value in mid-March. During July, the dollar lost
over 2% of its value against the currencies of major trading partners, about where it had been in
mid-March. By mid-October, the trade-weighted value of the dollar had declined by 8% from the
highest values reached in March and nearly matched the value it recorded at the beginning of
2020. On November 5, the dollar index returned to the value reported on January 2, 2020, and
remained below that value since. By the end of January 2021, the dollar had depreciated by more
than 11% from the highest value it reached in March 2020. The development of COVID-19
vaccines likely affected the value of the dollar in various ways, including factors that tend to
appreciate the dollar as a result of renewed economic growth in the United States and opposing
forces that tend to depreciate the dollar if demand declines for the dollar as a safe-haven currency.
Despite the appreciation and subsequent depreciation of the dollar through 2020 and 2021 by the
end of April, 2021, the dollar was down 2% compared with the value on January 2, 2020. In part,
the resolution of the UK’s withdrawal from the EU has strengthened both the Euro and the pound,
tending to depreciate the value of the dollar. The decline in the value of the dollar reportedly
pushed some countries to consider intervening to weaken their currencies.214
Figure 12. U.S. Dollar Trade-Weighted Broad Index, Goods and Services
January 2, 2020, through June 25, 2021

Source: St. Louis Federal Reserve Bank. Created by CRS.
The Bank for International Settlements (BIS) emphasized the role of the dollar as a dominant
global currency in its 2019 triennial survey of currency markets.215 According to the survey, 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, as indicated in Figure 13. It also accounts for about 60% of central bank

214 Szalay, Eva, Central Banks Take Rare Step of Flagging Currency Sales in Advance, Financial Times, February 3,
2021. https://www.ft.com/content/0383f3a4-41a0-464a-b831-fd1a09a6b1b0.
215 Foreign Exchange Turnover in April 2019, Bank for International Settlements, September 16, 2019.
https://www.bis.org/statistics/rpfx19_fx.htm.
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foreign exchange holdings, half of non-U.S. banks foreign currency deposits, and two-thirds of
non-U.S. corporate borrowings from banks and the corporate bond market.216 In comparison, the
United States accounts for about one-fourth of global GDP and about one-fifth of global trade
(exports plus imports).
Figure 13. International Role of the Dollar

Source: U.S. Dollar Funding: An International Perspective, CGFS Papers No. 65, Bank for International Settlements,
June 2020. Created by CRS.
Notes: (1) Data refer to 2019. (2) Data refer to 2019. (3) U.S. dol ar-denominated cross-border loans by banks
to counterparties in all countries; data refer to Q4 2019 (excluding interoffice claims but including interbank
claims on account of loans and deposits); loans comprise nonnegotiable debt instruments that are loaned by
creditors directly to a debtor or represented by evidence of a deposit. (4) US dol ar denominated international
debt securities by all issuers; data refer to Q4 2019; these securities are issued outside the local market of the
country where the borrower resides, and capture issues conventionally known as eurobonds and foreign bonds
and exclude negotiable loans; instruments such as bonds, medium-term notes and money market instruments are
included. (5) Data refer to 2019. (6) Data refer to Q4 2019. (7) As estimated in Gopinath (2015). (8) Data refer
to February 2020. Sources: Gopinath (2015); Federal Reserve; IMF; CPB World Trade Monitor; Bloomberg;
SWIFT; BIS Triennial Central Bank Survey of Foreign Exchange and Over-the-counter (OTC) Derivatives
Markets; BIS locational banking statistics (LBS).
As a result of the dominant role of the dollar as a global reserve currency, disruptions in the
smooth functioning of the global dollar market can have far-reaching repercussions on
international trade and financial transactions. A June 2020 report by BIS stressed the central role
of the dollar in the global economy. The report concluded that dollar funding activities are highly
complex, geographically dispersed, and interconnected in ways that provide benefits to the
stability of the global financial system. This also means, however, that strains in the system can
easily be transmitted across different financial markets and across regions.217
In addition, the dominant role of the dollar in international trade pricing and trade financing
means the dollar plays a key role in the global economic recovery and that it could amplify the
impact of the pandemic, according to the IMF.218 Traditionally, most economic models are based

216 See CRS In Focus IF10112, Introduction to Financial Services: The International Foreign Exchange Market.
217 Bank for International Settlements, U.S, Dollar Funding: An International Perspective, CGFS Papers, No. 65, June
2020, p. 52. https://www.bis.org/publ/cgfs65.htm.
218 Dominant Currencies and External Adjustment, IMF Staff Discussion Note 20/05, International Monetary Fund,
July 2020.
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on the assumption that countries set their prices in their home currencies. As a result,
domestically produced goods and services become cheaper for trading partners when the
domestic currency weakens, leading to increased demand from trading partners and more exports.
However, much international trade, including many commodities, is priced in dollars, which
means that trade volumes respond less than they would if goods were priced in exporters’ home
currencies. Limited evidence indicates that a significant share of bilateral trade between countries
other than the United States is invoiced in U.S. dollars.219 As a result, an appreciation of the dollar
against other currencies, or a weakening in other currencies, has a muted effect on exports by
other countries, at least in the short run, as has been evident in recent movements in exchange
rates and trade volumes of emerging market and developing economies. The IMF also concluded
that because countries other than the United States price much of their trade in dollars, an
appreciation in the value of the dollar, or a depreciation in the value of other currencies relative to
the dollar, reduces both exports and imports. As a result, a depreciation in other currencies
relative to the dollar provides less of a boost in their exports and, therefore, less of a
countercyclical support.
Together, these effects translate into movements in the exchange value of the dollar that at times
contrasts with traditional theory, since such movements do not affect trade volumes as might be
expected. For instance, after appreciating in March 2020, the trade-weighted value of the dollar
steadily depreciated through December. In standard models, the depreciation in the dollar would
be expected to lower export prices and, in turn, increase demand for U.S. exports, or increase the
volume of exports, while import volumes would be expected to decline along with the rising price
of foreign currencies relative to the dollar. GDP data through the third quarter indicate, however,
that U.S. trade dropped sharply in real, or index terms, in both the quantity of goods exported or
imported and in the value of those goods, as indicated in Figure 14.
Figure 14. Quarterly Price and Quantity Indexes, U.S. Goods Exports and Imports

Source: Bureau of Economic Analysis. Created by CRS.
Note: 2012 = 100.
BEA data show the sharp drop in U.S. trade volumes for both exports and imports in the first and
second quarters of 2020 compared with the previous quarters, largely reflecting the global
economic recession due to policy actions to contain the spread of the viral pandemic, as indicated
in Table 12. In quantity terms, U.S. export and import volumes fell by 24% and 16%,

219 Ibid., p. 8.
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respectively, in the second quarter, compared with the preceding quarter.220 In value terms, the
price of U.S. exports fell by 6.5%, while the price of imports fell by 3.8% in the second quarter
compared with the first quarter. In the third quarter, both export and import volumes increased by
about 20% in volume terms, while export and import prices rose by 3.7% and 2.3%, respectively,
despite a depreciation in the dollar. In the fourth quarter, U.S. export and import prices increased
slightly, while export and import volumes both increased by 7.0%. As a result, the overall value
of exports and imports rose slightly less than 5% in the fourth quarter of 2020. According to U.S.
balance of payments data, the overall annual value of U.S, goods exports and imports (the
combined changes in prices and volumes) dropped by 35% and 16%, respectively year-over-year
(2020 compared to 2019).
In the first quarter of 2021, U.S. export volumes fell slightly, while import volumes rose by1.4%.
Export and import price indexes both rose, reflecting an increase in petroleum export prices of
30% and a rise in petroleum import prices of 38%. Compared to the decline in exports and import
volumes in the second quarter of 2020, first quarter 2021 export and import volumes were up
28% and 31%, respectively, reflecting an increase in the global rate of economic growth.
Table 12. U.S. Exports and Imports, Change in Quarterly Price and Quantity Indexes
Percentage change

Year over Year % Change
Quarter over Quarter % Change

2019
2020
2020
2021

1q
2q
3q
4q
1q
Exports
Quantity
-0.1%
-3.6%
-0.7%
-24.1%
19.5%
7.0%
-0.2%
Price
-2.2
-2.6
-1.2
-6.5
3.7
1.7
6.0
Imports
Quantity
-2.9
5.3
-3.0
-15.7
20.4
7.0
1.4
Price
-2.5
-1.5
0.4
-3.8
2.3
0.5
3.6
Source: Bureau of Economic Analysis. Quarterly GDP estimates, export and imports price and quantity indices.
Created by CRS.
Notes: Annual changes represent percentage change in 4th quarter index values over the 4th quarter of the
preceding year; quarterly changes represent the change in quarterly index values over the previous quarter.
The international role of the dollar and the well-developed U.S. capital markets also provide the
United States with greater latitude in financing its trade deficit. For some trade specialists, the
widely accepted characterization of the current account as a product of a domestic saving-
investment relationship fails to distinguish between a country’s domestic saving-investment
balance, its ability to finance its trade deficit, and the role of cross-border capital flows. These
flows suggest that the ability of the United States to finance its trade imbalances through capital
inflows eases the constraint imposed by the domestic saving-investment balance.
The international role of the dollar also increases pressure on the Federal Reserve essentially to
assume the lead role as the global lender of last resort. Reminiscent of the financial crisis, the
global economy 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

220 Gross Domestic Product, First Quarter, 2021 (Advance Estimate), Bureau of Economic Analysis, April 29, 2021.
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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.221 Typically, banks lend long-term and borrow short-term and can only
borrow from their home central bank. In turn, central banks can only provide liquidity in their
own currency. Consequently, a bank can become illiquid in a panic, meaning it cannot borrow in
private markets to meet short-term cash flow needs. Swap lines are designed to allow foreign
central banks the funds necessary to provide needed liquidity to their country’s banks in dollars.
Global Energy Markets
The price of oil has served as additional indicator of the impact of the pandemic on the global
economy. As global economic activity fell in March and April 2020, demand for oil also fell,
resulting in rising inventories and falling prices. In response, oil producers reduced oil
production, only slowly restoring output as the global economic activity recovered. By the close
of trading on March 20, 2020, the DJIA index had fallen by 17% from March 13. At the same
time, the dollar gained in value against other major currencies, but generally trended lower since
May and the price of Brent crude oil dropped close to $20 per barrel on March 20, as indicated in
Figure 15.
As a result of the steep drop in oil prices, oil producers agreed in April to reduce global supply by
10%, or 9.6 million barrels per day. Since the low prices recorded in April, the price of Brent
crude oil generally moved within a range of $40 to $44 per barrel through late November, when it
began edging above $50 per barrel. In trading December 10, the price of Brent crude oil breached
the $50 per barrel mark for the first time since March 2020. As energy demand showed some
signs of recovering, the cuts in oil production that began in April were trimmed to 7.7 million
barrels per day and were expected to be trimmed by an additional 2 million barrels per day in
January 2021.
On February 23, 2021, the price of Brent crude oil rose above $67 per barrel, the highest price
since January 9, 2020. By March 3, 2021, the price of Brent crude oil had dropped to $64 per
barrel. On March 5, 2021, the Brent crude price of a barrel of oil rose to $69 per barrel, the
highest since January 2020, as OPEC and Russia decided against increasing petroleum output.222
By the end of June 2021 the price per barrel had pushed above $75. OPEC oil producers
reportedly were scheduled to meet in early July 2021 to consider increasing output by 2 million
barrels a day, although some members were hesitant given questions concerning the course of the
global economy as a result of new viral hotspots.223 In meetings in early July 2021, OPEC
members agreed on the need to increase production as the international price of crude oil reached
nearly $78 per barrel, but objections by the United Arab Emirates (UAE) over the calculation
used to increase production targets held up the agreement.224
On December 3, OPEC and Russia agreed to increase oil production by 500,000 barrels per day
starting in January 2021, despite concerns over continued weak global demand.225 According to

221 Politi, James, Brendan Greeley, and Colby Smith, “Fed Sets Up Scheme to Meet Booming Foreign Demand for
Dollars,” Financial Times, March 31, 2020. https://www.ft.com/content/6c976586-a6ea-42ec-a369-9353186c05bb.
222 Raval, Anjli, Oil Jumps as OPEC and Allies Decide Against Big Rise in Output, Financial Times, March 5, 2021.
https://www.ft.com/content/771ebf3a-cff0-4ff3-ab9a-0bbd01a33f55.
223 Gregg, Aaron, Oil Producers Are 'Treading a Tight Rope’ to Match Surging Fuel Demand, The Washington Post,
July 1, 2021.
224 Sheppard, David, Why is OPEC+ in Turmoil When Oil Prices Are Elevated?, Financial Times, July 5, 2021.
225 Raval, Anjli, OPEC and Russia Agree to Raise Oil Supply From January, Financial Times, December 3, 2020.
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the International Energy Agency (IEA), expectations about a COVID-19 vaccine tended to boost
markets prices in November and December, although oil market fundamentals—primarily weak
demand in Developed economies, slightly stronger demand in developing economies, and
production increases in Libya, Iraq, and the United States—raised questions about the viability of
oil price increases.226 The IEA also attributed the rise in oil prices since late spring to increased
demand in China and India as those economies regained strength.
Figure 15. Brent Crude Oil Price Per Barrel in Dollars
January 9, 2020, through June 28, 2021

Source: Markets Insider. Created by CRS.


https://www.ft.com/content/18279043-f2ef-40a8-b65d-b68ea0bf21ba.
226 Oil Market Report June 2020, International Energy Agency, June 2020. https://www.iea.org/reports/oil-market-
report-november-2020.
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Comparing the Current Crisis and the 2008 Crisis
Sharp declines in the stock market and broader financial sector turbulence; interest rate cuts and large-scale
Federal Reserve intervention; and discussions of massive government stimulus packages have led some observers
to compare the current market reaction to that experienced a little over a decade ago. There are similarities and
important differences between the current economic crisis and the global financial crisis of 2008/2009. Foremost,
the earlier crisis was rooted in structural weakness in the U.S. financial sector. Fol owing the col apse of the U.S.
housing bubble, it became impossible for firms to identify demand and hold inventories across many sectors
(construction, retail, etc.). This led to massive oversupply and sharp retail losses which extended to other sectors
of the U.S. economy and eventual y the global economy. Moreover, financial markets across countries were linked
together by credit default swaps. As the crisis unfolded, large numbers of banks and other financial institutions
were negatively affected, raising questions about capital sufficiency and reserves. The crisis then quickly engulfed
credit-rating agencies, mortgage lending companies, and the real estate industry broadly. Market resolution came
gradually with a range of monetary and fiscal policy measures that were closely coordinated at the global level.
These were focused on putting a floor under the falling markets, stabilizing banks, and shoring up investor
confidence to get spending started again. Starting in September 2007, the Federal Reserve cut interest rates from
over 5% in September 2007 to between 0 and 0.25% before the end of the 2008. Once interest rates approached
zero, the Fed turned to other so-called “unconventional measures,” including targeted assistance to financial
institutions, encouraging Congress to pass the Troubled Asset Relief Program (TARP) to prevent the col apse of
the financial sector and boost consumer spending. Other measures included swap arrangements between the
Federal Reserve and the European Central Bank and smaller central banks, and so-called “quantitative easing” to
boost the money supply. On a global level, the United States and other countries tripled the resources of the IMF
(from $250 bil ion to $750 bil ion) and coordinated domestic stimulus efforts.
Unlike the 2008 crisis, the current crisis began as a supply shock. As the global economy has become more
interdependent in recent decades, most products are produced as part of a global value chain (GVC), where an
item such as a car or mobile device consists of parts manufactured all over the world, and involving multiple
border crossings before final assembly. The earliest implications of the current crisis came in January as plant
closures in China and other parts of Asia led to interruptions in the supply chain and concerns about dwindling
inventories. As the virus spread from Asia to Europe, the crisis switched from supply concerns to a broader
demand crisis as the measures being introduced to contain the spread of the virus (social distancing, travel
restrictions, cancelling sporting events, closing shops and restaurants, and mandatory quarantine measures)
prevent most forms of economic activity from occurring. Thus, unlike the 2008 crisis response, which involved
liquidity and solvency-related policy measures to get people spending again, the current crisis did not start as a
financial crisis, but could evolve into one if a recovery in economic activity is delayed. While larger firms may have
sufficient capital to wait out a crisis, many aspects of the economy (such as restaurants or retail operations)
operate on very tight margins and would likely not be able to pay employees after closures lasting more than a few
days. Many people wil also need to balance child care and work during quarantine or social distancing measures.
During this type of crisis, while monetary policy measures play a part—and the Federal Reserve has once again cut
rates to near zero—they cannot compensate for the physical interaction that the global economy is dependent
upon. As a result, fiscal stimulus wil likely play a relatively larger role in this crisis in order to prevent personal and
corporate bankruptcies during the peak crisis period. Efforts to coordinate U.S. and foreign economic policy
measures wil also have an important role in mitigating the scale and length of any global economic downtown.
Source: Prepared by Martin A. Weiss, CRS.
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 would “use
all appropriate policy tools” to sustain economic growth.227 The Finance Ministers also pledged

227 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 They Don’t
Announce Any New Action,” Washington Post, March 3, 2020. https://www.washingtonpost.com/business/2020/03/
03/economy-COVID-19-rate-cuts/.
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fiscal support to ensure health systems can sustain efforts to fight the outbreak.228 In most cases,
however, countries 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.”229 At the time, the cut
was the largest one-time reduction in the interest rate by the Fed since the 2008-2009 global
financial crisis.
After a delayed response, other central banks followed the actions of the G-7 countries. Most
central banks 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 adopted various fiscal measures to sustain economic activity. In general,
these measures included making payments directly to households, temporarily deferring tax
payments, extending unemployment insurance, and increasing guarantees and loans to businesses.
See Appendix B to this report for detailed information about the policy actions by individual
governments.230
The United States
Recognizing the growing impact the pandemic was having on financial markets and economic
growth, the Federal Reserve (Fed) took a number of steps to promote economic and financial
stability involving the Fed’s monetary policy and “lender of last resort” roles. Some of these
actions were intended to stimulate economic activity by reducing interest rates; other actions were
intended to provide liquidity to financial markets so firms would 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.231” 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.232 In
October, Congress and the Trump Administration negotiated over the substance of an additional
spending package to support the U.S. economy.
On April 29, 2021, the Bureau of Economic Analysis (BEA) released updated data on U.S. GDP
growth for the first quarter of 2021 and updated data for 2020 that indicates the economy grew by
6.4% in the first quarter of 2020, outpacing the 4th quarter 2020 rate of 4.3%. In contrast, U.S.
GDP fell at an annual rate of 31.4% in the second quarter, after falling by 5.0% at an annual rate
in the first quarter, as indicated in Figure 16.233 On an annual basis, the 2020 rate of growth fell
by 3.5%, compared with a 2019 rate of 2.9%. In the second quarter, amidst a large decline overall
in U.S. economic activity in response to business lockdowns, some sectors experienced a decline

228 Giles et al., “Finance Ministers Ready to Take Action.”
229 Federal Reserve Releases FOMC Statement, March 3, 2020, https://www.federalreserve.gov/newsevents/
pressreleases/monetary20200303a.htm.
230 Stage Three Proposal, U.S. Department of the Treasury, 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.
231 Federal Reserve Issues FOMC Statement, March 15, 2020. https://www.federalreserve.gov/newsevents/
pressreleases/monetary20200315a.htm.
232 Politi, James and Aime Williams, “Trump to Suspend Some Tariffs for 90 Days,” Financial Times, March 31, 2020.
https://www.ft.com/content/46add447-2048-4348-bd34-2088ad0e3bc8.
233 Gross Domestic Product, First Quarter 2021 (Advance Estimate), Bureau of Economic Analysis, April 29, 2021.
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in activity of 80% or more, including recreation, food services and accommodation and
transportation sectors. In the third quarter, however, all sectors except mining experienced
positive rate of growth. Personal consumption increased by 41% in the third quarter, after falling
by 31.4% in the second quarter.
Figure 16. U.S. GDP, Percentage Change From Preceding Quarter
Seasonally adjusted at annual rate

Source: Bureau of Economic Analysis. Created by CRS.
Note: Exports and imports represent the combination of goods and services.
On July 2, 2021, the U.S. Census Bureau reported an increase in the overall U.S. goods and
services trade deficit in May 2021, compared with April 2021, of $2 billion to reach a monthly
total of $71.2 billion. The decrease in the monthly deficit in goods and services primarily
reflected a 0.3% increase in goods exports, compared to a 1.2% increase in goods imports relative
to the previous month’s totals. Nominal values for services trade rose 1.5% for exports and 1.8%
for imports, as indicated in Figure 17.234 According to BEA data, goods exports increased from
$145.1 billion in April 2021 to $145.5 billion in May 2021 and goods imports rose from $232.0

234 Monthly U.S. International Trade in Goods and Services, May 2021, Census Bureau, July 2, 2021.
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billion to $234.7 billion. On a year-over-basis, the overall goods and services trade deficit in 2020
increased by $105 billion, or 18.2%, compared with 2019 and demonstrates the impact that
business lockdowns had on U.S. and global trade in the first quarter of 2020. Relative to 2019,
U.S. goods exports in 2020 fell by 13.2%, while goods imports fell by 6.6%, accounting for the
largest part of the increase in the annual U.S. trade balance. Services exports declined by 21% in
2020 relative to 2019, while services imports fell by 22%, reflecting the drop overall in services
activities as a result of quarantines and business lockdowns.
Figure 17. Monthly U.S. Exports and Imports of Goods and Services 2020-2021

Source: Census Bureau, Bureau of Economic Analysis. Created by CRS.
On July 2, 2021, the BLS released data on the employment situation in June, which indicated that
nonfarm payroll rose by 850,000, up from 583,000 jobs gained in May, with an unemployment
rate of 5.9%.235 The data also indicate that 6.2 million persons reported in June they did not work
at all or worked fewer hours at some point in the previous 4 weeks because their employer closed
or lost business due to the pandemic.
As indicated in Figure 18, with the exception of December, the U.S. economy experienced
monthly gains in jobs since the loss of more than 20 million jobs in April, 2020. In general, the
monthly gains in jobs has varied and by June 2021 had not equaled the number of jobs lost. The
number of unemployed workers was 9.5 million in June 2021, up from the previous month’s total
of 9.3 million. Over the period from May 2020 through June 2021, job gains were notable in the
leisure and hospitality industry (particularly in food services and drinking establishments), retail
trade, public-sector education and health services, health care and social assistance, professional
and business services, and other services, while employment in government (mostly state and
local governments) fell.

235 The Employment Situation-June 2021, Bureau of Labor Statistics, July 2, 2021. https://www.bls.gov/. The
unemployment number does not include 4.6 million workers who were working part time not by choice and 6.4 million
individuals seeking employment. In addition, BLS indicated that some workers had been misclassified as employed,
but should have been classified as unemployed, which would have raised the rate of unemployment by 0.4 percentage
points.
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