Global Economic Effects of COVID-19

March 13, 2020 – November 10, 2021 R46270

Global Economic Effects of COVID-19
November 10, 2021
The COVID-19 viral pandemic is an unprecedented global phenomenon that is also a highly
personal experience with wide-ranging effects. On September 20, 2021, U.S. viral deaths
James K. Jackson,
surpassed the 675,446 total from the 1918 Spanish flu, the previously worst U.S. pandemic-
Coordinator
related death total on record. The pandemic has disrupted lives across all countries and
Specialist in International
communities and negatively affected global economic growth in 2020 beyond anything
Trade and Finance
experienced in nearly a century. Estimates indicate the virus reduced global economic growth in

2020 to an annualized rate of around -3.2%, with a recovery of 5.9% projected for 2021. Global
Martin A. Weiss
trade is estimated to have fallen by 5.3% in 2020, but is projected to grow by 8.0% in 2021.
Specialist in International
According to a consensus of forecasts, the economic downturn in 2020 was not as negative as
Trade and Finance
initially estimated, due in part to the fiscal and monetary policies governments adopted in 2020.

In most countries, economic growth fell sharply in the second quarter of 2020, rebounded quickly
in the third quarter, and has been mostly positive since. Although lessening, the total global
Andres B. Schwarzenberg
economic effects continue to mount. In particular, the prolonged nature of the health crisis is
Analyst in International
affecting the global economy beyond traditional measures with potentially long-lasting and far-
Trade and Finance
reaching repercussions. Economic forecasts reflect continuing risks to a sustained global

recovery posed by a resurgence of infectious cases and potential inflationary pressures associated
Rebecca M. Nelson
with pent-up consumer demand fueled by an increase in personal savings. On the supply side,
Specialist in International
shortages reflect lingering disruptions to labor markets, production and supply chain bottlenecks,
Trade and Finance
disruptions in global energy markets, and shipping and transportation constraints that are adding

to inflationary pressures.
Karen M. Sutter
Specialist in Asian Trade
As some developed economies start recovering, central banks and national governments are
and Finance
weighing the impact and timing of tapering off monetary and fiscal support as a result of

concerns over potential inflationary pressures against the prospect of slowing the pace of the
recovery. These concerns are compounded by the emergence of new disease variants and rolling
Michael D. Sutherland
pandemic hotspots that challenge national efforts to contain infections and fully restore economic
Analyst in International
activities. Major advanced economies, comprising 60% of global economic activity, are projected
Trade and Finance
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 the
synchronized nature of the global economic slowdown in the first half of 2020, the global

economy has shown signs of a two-track recovery that began in the third quarter of 2020 and has
been marked by a nascent recovery in developed economies where rates of vaccinations are high, but a slower pace of growth
in developing economies where vaccination rates are low.
As a whole, developed economies have made strides in vaccinating growing shares of their populations, raising prospects of a
sustained economic recovery in late 2021 and into 2022 and, in turn, a recovery in the broader global 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, Latin America, Russia, the United States, Japan,
Brazil, India, and across much of Africa renewed calls for lockdowns and curfews and threatened to weaken or delay a
potential sustained economic recovery into late 2021. The economic fallout from the pandemic has had a disparate impact on
certain sectors of the economy, particularly the service sector, and certain population groups and could risk continued labor
dislocations. In some cases, workers are reconsidering their career choices and work patterns, which may imply post-
pandemic economies marked by more varied labor arrangements and altered urban environments.
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 65 million to 75
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 the decline in global trade in 2020 exacted an especially heavy
economic toll on trade-dependent developing and emerging economies. 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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Global Economic Effects of COVID-19

Overview
The World Health Organization (WHO) first declared COVID-19 a global 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 every country
and all U.S. states.2 The focal point of infections shifted from China to Europe, especially Italy,
by early March 2020, but by April, the focus had shifted to the United States, where the number
of infections had been accelerating. By April 2021, India, Brazil, parts of Africa and Asia
emerged as viral hot spots with the number of infections and deaths reaching daily record levels.
By mid-September 2021, the more virulent COVID-19 Delta variant reportedly had become the
more globally dominant strain of the virus and prompted various national leaders to call for
additional health measures, including reintroducing travel restrictions.3 Projections by the
European Center for Prevention and Disease Control (ECDC) indicated the variant could account
for 90% of coronavirus infections across much of Europe by the end of August 2021 and “could
lead to a fast and significant increase in daily cases in all age groups.”4 The Delta variant was also
growing as a share of total cases in the United States, accounting for 97.9% of all cases in late
August 2021, according to the Center for Disease Control (CDC).5 After escaping the initial
rounds of infections, cases were growing rapidly in Australia and New Zealand, which instituted
restrictions on social gatherings and movement.6 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.
According to the World Health Organization, by November 1, 2021, the COVID-19 virus had
sickened over 246.6 million people globally with over 5.0 million fatalities:7 the United States
reported that over 45.6 million Americans had been diagnosed and over 740 thousand people 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.8 On August 23, 2021, the

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 Ang, Katerina, Delta is By Far World’s Most Dominant Coronavirus Variant, WHO Says, The Washington Post,
September 22, 2021; 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.
4 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.
5 Center for Disease Control. https://covid.cdc.gov/covid-data-tracker/#variant-proportions.
6 Pannett, Rachael, Sydney Enters ‘Scariest’ Phase of Pandemic as Delta Variant Spreads, Leader Says, The
Washington Post, June 24, 2021.
7 World Health Organization. https://covid19.who.int/.
8 “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-
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Food and Drug Administration (FDA) gave full approval to the Pfizer-BioNTech coronavirus
vaccine, leading various institutions and the U.S. military to begin mandating vaccinations for
employees and members.9
As infectious cases began rising sharply in late February 2020, governments took unprecedented
steps in March 2020 to lock down social activities to contain the spread of the pandemic,
inadvertently creating a global economic recession. Government responses in March 2020 were
extraordinary in terms of the speed with which they took place, the broad scope of the fiscal and
monetary policies they adopted, and the number of countries that were involved, often without a
formal, coordinated plan. Initially, governments adopted monetary policies aimed at stabilizing
financial markets and ensuring the flow of credit. In the second phase, governments focused
policy actions on fiscal measures aimed at sustaining economic growth as they adopted
quarantines and social distancing measures. In the third phase, governments shifted policies 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 Bureau of Economic Analysis (BEA) reported that policy actions to lock down the economy
pushed the U.S. GDP growth rate down to 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.10 Subsequently, U.S. GDP grew by 7.5% in the third quarter, or at
an annualized rate of 30%, based primarily on gains in personal consumption, reflecting an
increase in income and support through government transfer payments.11 Fourth quarter 2020 data
indicate the U.S. economy grew by slightly more than 1.0% over the third quarter, or at an
annualized rate of 4.5%. On a year-over-year basis, U.S. real GDP is estimated to have declined
by 3.4% in 2020 compared with 2019.12 In the third quarter of 2021, the annual rate of growth of
U.S. GDP rose by 2.0%, after rising by 6.3% and 6.7% in the first and second quarters,
respectively.
In its September 8, 2021, Beige Book analysis, the Federal Reserve (Fed) reported that economic
activity had slowed slightly in the July through August period compared with moderate to robust
growth in all 12 Federal Reserve Districts during the May to early July period. The Fed attributed
the slowdown in activity to lower levels of consumer dining and recreation activities arising from
concerns over the spread of infections by the Delta variant of the COVID-19 virus. Other sectors
of the economy experienced slower growth as a result of labor and supply-side shortages. Low
inventory levels in the auto sector and reduced supplies of residential housing also constrained
sales activity in these sectors; the Fed also reported mild gains in residential and nonresidential
construction and in the energy and agricultural sectors.13 In its Monetary Policy report on
September 22, the Fed indicated the economy had recovered to the point where it could begin a

get-ahead-of-the-COVID-19.
9 Guarino, Ben, Laurie McGinley and Tyler Pager, Pfizer-BioNTech Coronavirus Vaccine Gets Full FDA Approval,
Potentially Persuading the Hesitant to Get a Shot, The Washington Post, August 23, 2021.
10 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.
11 Gross Domestic Product, Third Quarter 2020 (Advance Estimate), Bureau of Economic Analysis, October 29, 2020.
12 Gross Domestic Product, Third Quarter 2021 (Advance Estimate), Bureau of Economic Analysis, October 28, 2021.
13 The Beige Book: Summary of Commentary on Current Economic Conditions by Federal Reserve District, the Federal
Reserve System, September 8, 2021. https://www.federalreserve.gov/monetarypolicy/beige-book-default.htm.
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gradual tapering off its monthly asset purchases in November, characterized as a “moderation in
the pace of asset purchases,” and make adjustments to interest rates in 2022.14
The Fed’s Beige Book analytical period occurred prior to a strong Gulf-centered hurricane in late
August that compounded existing shipping and transportation issues through Gulf ports that were
struggling with pandemic-related issues that had handicapped oil production, refining and
transportation, and shipments of agricultural products. In addition, damage to housing stock,
urban infrastructure, and increased need for medical assistance in Gulf Coast areas increased
strains on communities already struggling with the impact of the pandemic that further
compounded efforts by workers to return to their jobs.15
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

14 Press Release, Board of Governors of the Federal Reserve System, September 22, 2021; Smith, Colby and Kate
Duguid, The Fed Prepares to Tighten: Five Takeaways From its Latest Meeting, Financial Times, September 22, 2021.
https://www.ft.com/content/1cc28b4c-63ea-44c5-a0af-af681ee6a4a4.
15 Plume, Karl, U.S. Gulf Coast Grain Exports Slowly Resume After Ida as More Power Restored, Reuters, September
9, 2021; Mohindru, Sameer C., and Pradeep Rajan, Hurricane Ida Roils Global Shipping Market: Sources, S&P Global,
September 17, 2021.
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European-style job retention programs that maintain pre-crisis employment, even
as those jobs could disappear once the support ends.16
Background
According to the October 2021 World Economic Outlook prepared by the International Monetary
Fund (IMF), global economic growth fell to an annualized rate of around -3.2% in 2020, with a
recovery of 5.9% projected for 2021 and 4.9% for 2022.17 The IMF also concluded that advanced
economies would face continued economic challenges into 2022 as a result of supply shortages
and that prospects for low-income developing economies “had darkened considerably” due to the
disparities in access to vaccines and differences in economic policy support. The pandemic-
related recession is characterized as being more global in nature than that experienced during the
2009-2010 global financial crisis as a result of its effects on developing economies. In its recent
forecast, the IMF projected geographic regions of the global economy would recover at different
speeds, 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.
Through late October 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 pre-COVID-19 pandemic levels.18 In addition, a resurgence in viral
cases and the emergence of new and more virulent strains of the COVID-19 virus caused some
institutions in late 2021 to lower their economic growth projections for 2021.19 Although
vaccination rates increased in various developed economies, particularly the United States,
developing economies struggled to get access to vaccines and their populations vaccinated, and
consequently, to get their economies operating at or above pre-pandemic levels. Financial market
indices largely recovered from the losses experienced in March and April 2020, international oil
prices surpassed the pre-pandemic levels, pressure appreciating the dollar had generally eased,
and labor markets appeared to be stabilizing.
By fall 2021, prior to the end of U.S. pandemic-related unemployment assistance, U.S. and
European consumers appeared to have adjusted to pandemic restrictions by relying on
unemployment benefits, personal savings, and credit to sustain their consumption activities.
Personal consumption expenditures generally increased and fell with the state of the spread of the
virus and partial business closures. Increased household and business spending, however,
increased demand for a broad range of products, including housing, food, energy, and new and
used cars and trucks, that were constrained by supply shortages and raised U.S. consumer and
producer prices in September, which rose at a monthly rate of 0.4% and 0.5%, or at annual rates
of over 4.8% and 6.0%, respectively.20
Over the long run, damage to labor markets could be problematic with a large share of the labor
force unable to or, in some sectors, unwilling to return to pre-pandemic jobs. In some cases,
workers who were unemployed during the crisis reportedly reconsidered returning to their

16 Job Retention Schemes During the COVID-19 Lockdown and Beyond, Organization for Economic Cooperation and
Development, August 3, 2020.
17 World Economic Outlook Update, International Monetary Fund, October, 2021, p. 6.
18 Mapping the Spread of the COVID-19.
19 Platt, Eric and Colby Smith, Economists Trim Forecasts and Investors Feel Jitters Over Delta Variant, Financial
Times, August 19, 2021. https://www.ft.com/content/c21958ff-80d2-4b3b-863c-c492b361b2a4.
20 Consumer Price Index September 2021, Bureau of Labor Statistics, October 13, 2021; Producer Price Index
September 2021. Bureau of Labor Statistics, October 14, 2021.
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previous jobs and were exploring other options, which potentially could affect the pace of the
economic recovery.21 Reportedly, employment in the U.S. child-care sector in August 2021was
down more than 137,000 workers compared with March 2020 levels and played a role in keeping
1.6 million women who are mothers of children under the age of 17 from returning to the labor
force.22 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), also 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.23
Economic Policy Challenges
Over the course of the pandemic and economic crises, policymakers have had to adjust to the
changing nature of the crises, while 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. Initially, policymakers were overwhelmed by the quickly changing
nature of the global health crisis and the immediate economic effects. The extended health crisis,
however, created wide-ranging spill-over effects beyond those typically associated with monetary
and fiscal policies in ways that have hampered national economic recoveries and reinforced a
more wide-spread 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. 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, which
had developed prior to the viral outbreak.
Initially, the economic effects of the pandemic had been expected to arise from 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 China’s GDP growth rate of 8.7% in the first quarter of
2020, as indicated in Table 1, had broad international repercussions that became evident in the
second quarter of 2020 as firms experienced delays in supplies of intermediate and finished goods
through supply chains. Concerns grew, however, that virus-related supply shocks had created
more prolonged and wide-ranging demand shocks as reduced activity by consumers and
businesses led to a lower rate of economic growth in most countries and most areas. Nearly every
country experienced a decline in economic activity in the second quarter of 2020, with the notable
exception of China, which experienced a rebound in its rate of growth by 10% over the previous
quarter and was one of a few number of countries to post an overall positive rate of growth in
2020. In contrast to China’s positive rate of growth in the second quarter of 2020, a broad range
of countries experienced historic declines in growth, with India’s GDP falling by nearly 25%.
Similarly, most countries experienced a rebound in economic growth in the third quarter of 2020,

21 Dodd, Darren, Businesses Suffer Labor Pains as Economies Reopen, Financial Times, June 21, 2021.
https://www.ft.com/content/e47575aa-b6ec-4635-a0be-f4e623dacbdb.
22 The Employment Situation August 2021, Bureau of Labor Statistics, September 3, 2021; Long, Heather, The Pay is
Absolute Crap: Child-care Workers Are Quitting Rapidly: A Red Flag for the Economy, The Washington Post,
September 20, 2021.
23 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.
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although at rates that generally were lower than the rate of decline in the second quarter,
reflecting challenges posed by the on-going health crisis.
As demand shocks unfolded, businesses experienced 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.
Table 1. Change in Gross Domestic Product by Major Country
Percentage change from previous period

2020
2021
Country
2019
2020
Q1
Q2
Q3
Q4
Q1
Q2
Argentina
-2.1%
-9.9%
-4.1%
-15.8%
13.2%
4.4%
2.6%
..
Australia
-0.3
-2.5
-0.3
-7.0
3.6
3.2
1.9
0.7
Austria
1.4
-6.3
-2.6
-10.6
11.6
-3.1
-1.1
4.3
Belgium
1.8
-6.3
-3.3
-11.9
11.8
-0.1
1.1
1.7
Brazil
..
..
-2.3
-9.0
7.7
3.1
1.2
-0.1
Canada
1.9
-5.3
-2.0
-11.3
9.1
2.2
1.4
-0.3
Chile
0.9
-5.8
1.9
-12.7
5.4
6.5
3.4
1.0
China
6.1
2.3
-8.7
10.0
2.8
3.0
0.4
1.3
Colombia
3.3
-6.8
-2.6
-14.8
9.7
6.2
2.9
-2.4
Costa Rica
2.2
-4.5
-1.2
-7.8
2.2
2.6
1.4
..
Czech R.
3.0
-5.8
-3.4
-8.9
6.8
0.7
-0.4
1.0
Denmark
2.1
-2.1
-0.7
-6.4
6.1
0.9
-0.9
2.3
Finland
1.3
-2.8
-0.5
-6.1
4.6
0.5
0.1
2.1
France
1.8
-7.9
-5.7
-13.5
18.6
-1.1
0.0
1.1
Germany
1.1
-4.6
-1.8
-10.0
9.0
0.7
-2.0
1.6
Greece
1.9
-8.2
-0.4
-13.0
3.9
3.5
4.5
3.4
Hungary
4.6
-5.0
-0.3
-14.4
10.6
1.6
2.0
2.7
India
..
..
0.6
-24.5
21.2
8.6
2.3
-10.2
Indonesia
5.0
-2.1
-0.9
-6.4
3.1
2.3
0.3
1.3
Ireland
4.9
5.9
2.6
-2.9
9.8
-4.6
8.7
6.3
Israel
3.8
-2.2
-1.2
-9.2
8.9
2.4
-0.4
3.9
Italy
0.3
-8.9
-5.6
-13.1
16.0
-1.8
0.2
2.7
Japan
0.3
-4.8
-0.6
-7.9
5.4
2.8
-1.1
0.5
Korea
2.0
-1.0
-1.3
-3.2
2.2
1.1
1.7
0.8
Luxembourg
2.3
-1.3
-1.6
-7.1
9.2
1.9
1.4
..
Mexico
-0.1
-8.2
-0.9
-17.3
12.7
3.3
1.1
1.5
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2020
2021
Country
2019
2020
Q1
Q2
Q3
Q4
Q1
Q2
Netherlands
2.0
-3.8
-1.6
-8.4
7.5
0.0
-0.8
3.1
New Zealand
2.0
-1.1
-1.4
-9.9
13.9
-1.0
1.4
2.8
Norway
0.9
-0.8
-1.5
-4.6
4.3
0.8
-0.6
1.1
Poland
4.7
-2.7
-0.1
-9.2
7.7
-0.3
1.3
2.1
Portugal
2.5
-7.6
-4.0
-14.0
13.4
0.2
-3.2
4.9
Russia
2.0
..
-0.7
-2.6
0.7
-0.2
-0.0
..
Saudi Arabia
0.3
-4.1
-1.6
-5.5
2.1
1.8
-0.5
0.6
South Africa
0.2
-7.0
-0.4
-16.6
13.7
1.4
1.1
..
Spain
2.0
-10.8
-5.4
-17.8
17.1
0.0
-0.4
2.8
Sweden
2.0
-2.8
-0.8
-8.1
7.5
0.2
0.8
0.9
Switzerland
1.2
-2.4
-1.6
-6.2
6.4
-0.1
-0.4
1.8
Turkey
0.9
1.8
0.4
-10.8
16.4
1.2
2.2
0.9
United Kingdom
1.4
-9.8
-2.8
-19.5
16.9
1.3
-1.6
4.8
United States
2.3
-3.4
-1.3
-8.9
7.5
1.1
1.5
1.6
EU – 27
1.8
-5.9
-3.1
-11.3
11.8
-0.2
-0.1
2.1
OECD – Total
1.7
-4.7
-1.8
-10.4
9.4
1.1
0.6
1.7
Source: Organization for Economic Cooperation and Development, Quarterly National Accounts Dataset,
September 17, 2021.
As the economic effects persisted through the spring and summer of 2020, the economic impact
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 factored in what they anticipated would
be an increase in government bond issuance in the United States, Europe, and elsewhere as
government debt levels rose to meet spending obligations during an expected economic recession
and increased fiscal spending to fight the effects of COVID-19. Unlike the 2008-2009 financial
crisis, reduced demand by consumers, labor market issues, and a reduced level of activity among
businesses, rather than risky trading by global banks, led to corporate credit issues and potential
insolvency.
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 were concerned about a repeat of the loss of
wealth they experienced during the 2008-2009 financial crisis when the value of their primary
residence dropped sharply. Instead, home prices rose in the United States and Europe as supply
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bottlenecks raised the cost of construction materials and demand for housing increased due in part
to low interest rates. Simultaneously, rising rates of unemployment and job losses raised concerns
that defaults on mortgages and delinquencies on rent payments could increase and would require
some financial institutions to provide loan forbearance or other mechanism to provide financial
assistance. Various central banks offered specific programs to forestall mortgage foreclosures and
rent assistance to prevent an increase in homelessness. In the first stages of the economic
downturn, mortgage defaults threatened to negatively affect the market for mortgage-backed
securities, the availability of funds for mortgages, and negatively affected the overall rate of
economic growth. Losses in the value of most equity markets in the U.S., Asia, and Europe were
projected at that time to affect household wealth, especially that of retirees living on a fixed
income and others who own equities. Subsequently, increased demand for housing outside large
urban areas by workers shifting to at-home work and an increase in prices for construction
materials raised the prices for U.S. housing by an estimated 13.2% in 202024 and contributed to an
increase in U.S. household wealth.25
Within countries, the employment and earnings of youth, women, and the relatively lower-skilled
workers have been affected disproportionately. 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 increased the impact of the crisis on the global
economy and complicated economic forecasts. The IMF estimated in October 2021 the economic
fallout from the pandemic pushed 65 to 75 million people into extreme poverty, reversing a
decades-long trend.26 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.
In addition to the asynchronous recovery, the IMF concluded that support provided by central
banks may have had unintended consequences of supporting equity valuations that at times may
have been misaligned with their model-estimated fundamentals and may have increased financial
risks overall that could become problematic should interest rates rise.27 These risks could increase
for non-financial firms and households that had high levels of debt relative to income prior to the
pandemic crisis. 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.28
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 largest losses are estimated to
fall disproportionately on low-income and emerging market economies. In addition, the IMF
estimated that (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

24 Adamczyk, Alicia, The Typical Home Price is Up a Record 13.2% Compared to Last Year, According to Zillow,
CNBC, June 16, 2021. https://www.cnbc.com/2021/06/16/typical-us-home-price-up-record-13point2percent-compared-
to-last-year.html.
25 According to the Federal Reserve, between Q1 2020 and Q1 2021, the value of U.S. household holdings of real estate
increased by nearly 10%, rising to $37.6 trillion and accounting for 84% of household wealth. Financial Accounts of
the United States, Board of Governors of the Federal Reserve System, First Quarter 2021, June 10, 2021.
26 Fiscal Monitor, International Monetary Fund, October 2021, p. 2.
27 Global Financial Stability Report, International Monetary Fund, October, 2021, p. 2.
28 Ibid., p. 36.
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address the pandemic could hinder the treatment of other diseases; (3) business bankruptcies
could reduce productivity; and (4) rising debt levels could crowd out potential borrowing and
investment.29
The IMF urged G-20 leaders to maintain supportive 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.30
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.31 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 raised concerns over the growing debt problems in developing economies,
where the IMF projected that as much as 40% of banks assets were in danger of becoming
distressed.
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 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

29 G-20 Surveillance Note, International Monetary Fund, November, 2020, p. 6.
30 Ibid., p. 10.
31 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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(1.7%).32 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 June 2021, the ILO published an updated report that estimated employment levels globally
remained below pre-pandemic levels through the first half of 2021, due to waves of COVID-19
infectious cases. Consequently, the ILO estimated that working hours fell by 4.8% in the first
quarter of 2021 and by 4.4% in the second quarter of 2021, or an amount equivalent to 140
million jobs and 127 million full-time jobs, respectively. The ILO also estimated the loss in total
hours worked in the first half of 2021 was equivalent to 5.3% loss in global worker income,
exclusive of government transfer payments and benefits, or an amount equivalent to $1.3 trillion.
Despite a projected rebound in job growth in 2021 and 2022, the ILO estimated that employment
levels would fall short by 75 million jobs in 2021 and 25 million in 2022 compared to the number
of jobs that had been projected to be created in the absence of the pandemic.33
Similarly, the OECD estimated in July 2021 the pandemic-related recession cost 22 million jobs
in OECD countries in 2020 and that 114 million jobs had been lost globally, compared with
2019.34 The estimate concluded that unprecedented government fiscal policies supported worker’s
incomes, thereby 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.35
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,

32 ILO Monitor: COVID-19 and the World of Work, Seventh Edition, International Labor Organization, January 15,
2021, p. 2.
33 World Employment and Social Outlook, Trends 2021, International Labor Organization, June 2021.
34 OECD Employment Outlook 2021: Navigating the COVID-19 Crisis and Recovery, Organization for Economic
Cooperation and Development, July 2021, p. 4.
35 Ibid., p. 5.
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auto dealerships, and meat-packing facilities, among other places.36 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.37
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.38
U.S. Labor Market
In the United States, labor markets were recovering, but by September 2021 the overall rate of
unemployment remained above pre-pandemic rates. In testimony before the Senate and House in
mid-July 2021, Federal Reserve Chairman Jerome Powell indicated that vaccinations had led to a
reopening of the economy and “strong economic growth and improvements in the labor market,”
but that there was still a long way to go.39 He indicated the rate of unemployment had fallen, but
the rate was still elevated and the official published rate understated the actual shortfall in
employment as a result of a workforce participation rate that remained below pre-pandemic
levels. The Federal Reserve also indicated in an accompanying monetary policy report the
pandemic-related economic recession was disproportionately affecting certain groups in the
economy: lower-wage and less-educated workers, racial and ethnic minorities, and women.40
According to the U.S. 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.41
Additionally, the Census Bureau data indicated 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 reported that

36 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
37 McKinsey Global Institute, The Future of Work After COVID-19, February 18, 2021.
38 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.
39 Powell, Jerome, H., Testimony before the House Financial Services Committee and the Senate Committee on
Banking, Housing, and Urban Affairs, July 15, 2021.
40 Board of Governors of the Federal Reserve System, Monetary Policy Report, July 9, 2021.
41 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.
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 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.42
During the 82-week period from mid-March 2020 to end-October, 2021, 95.8 million Americans
(more than half the 160 million civilian work force) had filed for unemployment insurance at
some point during the preceding 18 months.43 On a seasonally adjusted basis, the number of
insured unemployed individuals was 2.1 million on October 23, 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, new claims totaled
269,000 in the week ending October 30, 2021, falling by 14,000 from the previous week’s total of
283,000. This number is above the average number of weekly claims recorded prior to the
pandemic of about 200,000. In the week ending October 16, 2021, 2.7 million people claimed
benefits in all programs, down 158,000 from the previous week’s total.
The insured unemployment rate for the week ending October 23, 2021, was 1.6%, down 0.1
percentage point from the previous week. As workers approached, or surpassed, the traditional
26-week maximum for receiving standard unemployment benefits they had been able to apply for
benefits under the extended Pandemic Emergency Unemployment Compensation (PEUC)
program or the Pandemic Unemployment Assistance (PUA) program.44 Between October 16,
2021, and October 9, 2021, claims under the PEUC program fell by 10,695 to 233.684, while
claims under the PUA program rose by 7,096 to 272,109. Benefits were extended by P.L. 116-
260, signed by President Trump on December 27, 2020. Subsequently, benefits were extended
again through September 6, 2021, by the American Rescue Plan Act of 2021, P.L. 117-2, signed

42 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.
43 Unemployment Insurance Weekly Claims, Department of Labor, November 4, 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/
44 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.
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by President Biden on March 11, 2021. On September 6, 2021, unemployment benefits under the
two pandemic-related programs expired.
In June, 2021, 26 states announced they were ending early the extended pandemic-related federal
benefits, potentially affecting more than 7.5 million workers. Some state leaders argued the
extended unemployment benefits enabled workers to remain unemployed, thereby creating a
labor shortage and hobbling a return to full economic activity. The nearly equal division of states
between those that maintained and those that ended the pandemic-related unemployment benefits
prior to the September scheduled cutoff provided economists and other analysts the opportunity
to assess the impact of the extended unemployment benefits on employment decisions. In general,
most assessments concluded the benefits played a small role in workers’ decisions to return to
work. Instead, such decisions were prompted by concerns over the spread of the virus, childcare
arrangements, the status of schools openings, and retirements. In some cases, job openings were
filled by individuals who had dropped out of the labor market, rather than by those recently
unemployed, which altered the composition of the labor market rather than changing the rate of
unemployment.45
Figure 2. 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,46 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
1930s.47 In contrast, on October 8, 2021, BLS reported that nonfarm employment rose by 194,000

45 Iacurci, Greg, 26 States Ended Federal Unemployment Benefits Early. Data Suggests it’s Not Getting People Back to
Work, Bloomberg, August 4, 2021; Smith, Colby and Christine Zhang, End of US’s Extra Unemployment Benefits
Gives Little Boost to Labor Market, Financial Times, September 21, 2021; Ganong, Peter, Pascal J. Noel, and Joseph
S. Vavra, US Unemployment Insurance Replacement Rates During The Pandemic, NBER Working Paper No. 27216,
May 2020; Petrosky-Nadeau, Nicolas and Robert G. Valletta, UI Generosity and Job Acceptance: Effects of the 2020
CARES Act, Working Paper 2021-13, Federal Reserve Bank of San Francisco, June 2021.
46 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.
47 The Employment Situation-September 2020, Bureau of Labor Statistics, October 8, 2020. https://www.bls.gov/.
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in September to reach 147.6 million, rising by less than the previous month’s increase of 366,000;
the total number of unemployed Americans was 7.7 million, down from the previous month’s
total of 8.4 million;48 the unemployment rate fell to 4.8%, again with some caveats.49
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 2020, 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. As previously indicated, the rate of economic growth slowed in the
fourth quarter of 2020 and through the second quarter of 2021 in Europe and the broader OECD.
The emergence of more infectious strains of the COVID-19 virus pushed governments to
reimpose lockdowns and curtail social and economic activity during the fourth quarter. Updated
forecasts indicate the pandemic affected 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, news concerning the pandemic
dominated financial news and at times was a major factor driving market activity. For instance,
the Dow Jones Industrial Average Index (DJIA), along with other market indices, lost one-third of
its value between February 14, 2022 and March 23, 2020. The Index rose steadily between March
and November and rose nearly three percentage points on Monday, November 9, 2020, reportedly
on news that a COVID-19 vaccine had been developed.50 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 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 2021.51 The DJIA has trended upward during 2021,
rising above 35,000 for the first time on July 23 and rising by over 14% between January 4, 2021,
and September 17.
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. In places where vaccines have not been broadly distributed, policymakers may have to
continue weighing efforts that balance the competing requirements of households, firms, and state

48 This total does not include 4.5 million workers who were working part time not by choice and 5.7 million individuals
who were seeking employment.
49 The Employment Situation-September 2021. 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.
50 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/.
51 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.
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and local governments. Various U.S. states reversed course in late June 2021 to impose or
reimpose 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.52
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.53 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.
Economic Policy Responses
After a delayed response, central banks and monetary authorities in developed and emerging
market economies engaged in an ongoing series of interventions in financial markets and national
governments 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 surpassed that of the global financial crisis of
2008-2009. In addition, the BIS argued the evolving nature of the health crisis caused the
financial crisis to evolve as well, changing from a liquidity crisis in the initial stages to a solvency
crisis that could have been worse had the economic recovery been delayed. As global economic
conditions deteriorated in the first quarter of 2020, large internationally active banks tripled the
amount of assets they held as loss provisions, according to BIS.54 With improving economic
conditions in the second quarter, however, banks began reducing their asset holdings and by the
end of 2020, loss provisions had returned to pre-pandemic levels. 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.”55

52 Global Financial Stability Report, International Monetary Fund, October 2020, p. 1.
53 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.
54 BIS Quarterly Review, March 2021, Bank for International Settlements, p. 10.
55 Annual Economic Report 2020, Bank for International Settlements, June 2020, p. ix.
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For a complete list of actions 193 countries have taken in response to the economic challenge of
COVID-19, see the list compiled by the IMF.56
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 2.57 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 produced PPE materials or to initiate
production at other facilities. In some cases, policy changes included enhanced screening of
foreign investment for “public interest” reasons that may remain as a legacy issue after the
pandemic crisis has been resolved.58
The shift in approach toward the national security dimensions of foreign investment, especially
by developed economies, has blurred the distinction between foreign investment, trade, and
national security and could reflect a fundamental change in the concept of national security
relative to foreign investment. Arguably, 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.

56 See International Monetary Fund, Policy Responses to COVID-19. https://www.imf.org/en/Topics/imf-and-covid19/
Policy-Responses-to-COVID-19.
57 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.
58 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
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, June 16, 2020,
p. 89.
Fiscal Measures
As indicated in Table 3, central governments in advanced and emerging economies 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.59 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 approved historic fiscal spending packages, while other governments
abandoned traditional borrowing caps in order to increase fiscal spending 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.60
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. 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.

59 Ibid.
60 Ibid., p. 25.
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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
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 extent of the global fiscal and monetary responses by governments, the
IMF estimated that government spending and revenue measures to sustain economic activity
adopted through September 2021 amounted to $16.9 trillion.61 The IMF also updated its estimate
of the increase in borrowing by governments globally to finance their fiscal responses to rise to
10.2% of global gross domestic product (GDP) in 2020, before falling to 7.9% in 2021 and 5.2%
in 2022, 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.62

61 Fiscal Monitor, International Monetary Fund, October 2021. p. 7.
62 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, October 2021. Created by CRS.
Notes: Data for 2021 and 2022 are estimates.
Among developed economies, the fiscal deficit to GDP ratio is projected to rise to 10.8% in 2020,
before falling to 8.8% in 2021 and 4.8% in 2022; the ratio for the United States is projected to
rise to 14.9% in 2020, the highest ratio for any country or region, before falling to 10.8% in 2021
and 6.9% in 2022.63 For most areas and countries, the IMF forecasts that debt to GDP ratios will
fall 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.64
According to the IMF, France, Germany, Italy, Japan, and the United Kingdom announced public
sector support measures in 2020 that total more than 10% of their annual GDP.65 For emerging
market economies, the fiscal deficit to GDP ratio is projected to rise from 9.6% in 2020 to 6.6%
in 2021 and 5.8% in 2022, significantly increasing their debt burden.66 According to some
estimates, the most fiscally vulnerable countries are Argentina, Venezuela, Lebanon, Jordan, Iran,
Zambia, Zimbabwe, and South Africa.67 The IMF concluded that among low-income developing
countries, near-term debt vulnerabilities remain high.68

63 Fiscal Monitor, Table 1.1.
64 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.
65 Fiscal Monitor, International Monetary Fund, October 2021, p. 3.
66 Ibid., p. 3
67 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.
68 Global Financial Stability Report, October 2021, p. xi.
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The IMF argued the actions by central banks risked creating a disconnect between the pricing of
risk in financial markets and projected economic prospects, because investors apparently had
expected a quick recovery in 2020 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.69 In addition to central banks’ actions, the IMF concluded 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.70
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.71As would be expected, programs to
assist workers varied across countries, but they generally were comprised of increased subsidies
for existing programs designed 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.72 In some cases, benefits were increased by extending the length of
time benefits were 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.73 Some countries also eased qualification requirements to facilitate workers or businesses
gaining access to support funds
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 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.74 The OECD also indicated 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

69 Global Financial Stability Report Update, International Monetary Fund, December 2020, p. 4.
70 Ibid., pp. 6-7.
71 OECD Employment Outlook 2021, p. 15.
72 Job Retention Schemes During the COVID-19 Lockdown and Beyond, Organization for Economic Cooperation and
Development, October 12, 2020, p. 2.
73 OECD Employment Outlook 2021, pp. 5-6.
74 Ibid., p. 15.
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still deeply affected by containment measures, making the recovery more difficult and
uncertain.”75
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.76
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

75 Ibid., p. 6.
76 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

Netherland
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. According to a
March 2021 BIS review of the monetary policies adopted by the central banks of 11 advanced
economies and 28 developing economies between February and July 2020 to address the impact
of the pandemic, the banks moved quickly and on a massive scale,77 as indicated in Table 5.
Central banks in advanced economies acted to prevent a financial crisis by purchasing assets and
providing liquidity at favorable rates. In contrast, central banks in emerging economies responded
less aggressively, in part reflecting the success of advanced economy central banks in easing
global financial pressures, which effectively made it possible for emerging economies to focus
their efforts on supporting domestic demand.
BIS grouped the central bank measures into five categories: (1) interest rates; (2) reserve policies;
(3) lending operations; (4) asset purchases; and (5) foreign exchange policies, including foreign
exchange swaps. In some cases, central banks also relaxed capital buffers and countercyclical

77 Cantu, Carlos, Paolo Cavalino, Fiorella De Fiore, and James Yetnam, A Global Database of Central Banks’
Monetary Responses to COVID-19, BIS Working Papers No. 934, Bank for International Settlements, March 2021, p.5.
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capital buffers,78 adopted after the 2008-2009 financial crisis.79 Generally, however, banks did not
use their capital buffers to supply credit in their respective economies.80
The five policy areas identified by BIS are
 Interest rates. Interest rates were reduced in most countries, except in Japan and
the Euro area, where interest rates were zero. In numerous countries, monetary
authorities attempted to ease the concerns of financial market participants by
announcing they would maintain accommodative policies (low interest rates) for
an extended period.
 Reserve policies. With low interest rates, some central banks adjusted reserve
requirements for commercial banks, which alters the amount of assets banks are
required to hold. Some central banks also adjusted the remuneration rate, or the
rate the central bank uses to pay interest on required and excess reserves. Some
banks also changed compliance requirements, or the types of assets that could be
counted as reserves.
 Lending operations. Central banks adjusted lending facilities to maintain
liquidity, either by expanding existing lending facilities or by creating new
programs, which accounted for 60% of lending operations. In some cases,
policies were targeted to specific financial market segments, particularly banks
and small and medium-sized enterprises.
 Asset purchases. Central banks in advanced economies used targeted and non-
targeted lending operations to support monetary policies and maintain liquidity in
the financial system. These goals were accomplished by increasing the size of
existing programs and by lengthening the maturities of loans. Central banks in
emerging economies expanded their existing liquidity facilities by lowering
interest rates, broadening the types of eligible collateral, and increasing the
number and types of eligible counterparties. The main difference between
existing and new lending policies was that a large share of the new facilities
targeted the private sector, including lending measures to support the flow of
credit to households and non-financial corporations. In advanced economies
about 40% of asset purchase programs were new facilities, while the share of
new programs in emerging economies accounted for over 90%. In addition, asset
purchases were split nearly evenly between public and private assets in advanced
economies
 Foreign exchange. The Federal Reserve implemented foreign exchange swaps
initially with five countries (Canada, Euro area, Japan, UK, Switzerland),
followed by swap lines extended to nine other countries (Australia, Brazil, Korea,
to relieve pressure in the dollar funding market.
Throughout the early stages of the economic crisis, central banks served as lenders of last resort
through large purchases of government debt and as the buyers or lenders of last resort for private

78 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/.
79 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.
80 Lessons Learnt From the COVID-19 Pandemic From a Financial Stability Perspective: Interim Report, Financial
Stability Board, July 13, 2021, p. 9.
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sector securities, in many cases engaging in activities that previously had been considered off-
limits.81 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 and recovery, were also navigated successfully, but could still
become more challenging the longer the pandemic-related economic crisis persists. Capital
buffers were raised after the 2008-2009 financial crisis to assist banks in absorbing losses and
staying solvent during financial crises. Some governments directed banks to freeze dividend
payments and halt pay bonuses. The Financial Stability Board (FSB) argued in its July 13, 2021,
report to the G-20 Finance Ministers and Governors that the monetary and fiscal actions taken by
central banks and national governments, respectively, in combination with regulatory and
supervisory measures adopted following the 2008-2009 global financial crisis effectively
contained the impact of the crisis, supported the functioning of the global financial system, and
facilitated funding to the real economy.82
Since the beginning of the pandemic, central banks often adopted similar policies, although not
always in unison. Most central banks followed the Federal Reserve in cutting interest rates as one
of their main policy tools to support economic activity; the ECB (Euro Area) and Japan are
notable exceptions, since they had reduced their main interest rates to zero prior to the economic
recession. The low interest rates had an additional, although not necessarily intended, impact on
currency markets by reducing arbitrage opportunities and, thereby, reducing volatility in
exchange rates.83 According to some analysts, the period through mid-summer 2021 experienced
the longest period on record of low volatility between the dollar and the euro.
Table 5. Selected Central Bank and Prudential Measures to Address COVID-19
Advanced Economies
Tool type
Measure
US
EA
JP
GB
CA
AU
CH
DK
NO
NZ
SE
Interest
Policy Rate cut
X

X
X
X

X
X
X
Lending
Liquidity provision
X
X
X
X
X
X

X
X
X
X
operations
Targeted lending
X
X
X
X

X
X

X
X
Asset
Government
X
X
X
X
X
X

X
X
purchases
bonds
Corporate paper
X
X
X
X
X

X
Corporate bonds
X
X
X
X
X

X
Other

X
X

X

X
Foreign
US dol ar swap line

X
X
X
X
X
X
X
X
X
X
exchange
Swaps

Spot intervention

X

Reserve
Remuneration

X
X

X

policy
Required Ratio
X

Compliance

81 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.
82 Lessons Learnt From the COVID-19 Pandemic, p. 10.
83 Duguid, Kate and Tommy Stubbington, Central Bank Sync Puts Foreign Exchange Market to Sleep, Financial
Times, September 21, 2021.
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Middle East and Asia
Tool type
Measure
AE
DZ
IL
KW MA
SA
TR
ZA

Interest
Policy Rate cut
X
X
X
X
X
X
X
X

Lending
Liquidity provision

X
X
X
X
X
X
X

operations

Targeted lending
X

X

X
X
X

Asset
Government

X

X
X

purchases
bonds
Corporate paper

Corporate bonds

X

Other

Foreign
US dol ar swap line

exchange

Swaps

X

Spot intervention

X

Reserve
Remuneration

X

policy

Required Ratio
X
X

X

Compliance

Emerging Asia
Tool type
Measure
CN
HK
ID
IN
KR
MY
PH
SG
TH
VN

Interest
Policy Rate cut
X
X
X
X
X
X
X

X
X

Lending
Liquidity provision
X
X
X
X
X

X

X

operations
Targeted lending
X

X
X

X
X
X
X

Asset
Government

X
X
X

X

X

purchases
bonds
Corporate paper

X

Corporate bonds

X

X

Other

Foreign
US dol ar swap line

X

X

exchange
Swaps

X
X

X

Spot intervention

X
X

Reserve
Remuneration

X

policy
Required Ratio
X
X
X
X

Compliance

X
X

Latin America

Eastern Europe
Tool type
Measure
AR
BR
CL CO
MX
PE

CZ
HU
PL
RO
Interest
Policy Rate cut
X
X
X
X
X
X

X
X
X
X
Lending
Liquidity provision

X
X
X
X
X

X
X
X
X
operations

Targeted lending
X
X
X

X
X

X

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Asset
Government

X
X

X
X
X
purchases
bonds

Corporate paper

Corporate bonds

X

Other

X
X

X

Foreign
US dol ar swap line
X

X

exchange

Swaps

X
X
X
X
X

X

Spot intervention

X

X

Reserve
Remuneration
X
X

X
X

policy

Required Ratio
X
X

X
X
X

X

Compliance
X
X

X

Source: Cantu, Carlos, Paolo Cavalino, Fiorella De Fiore, and James Yetnam, A Global Database of Central Banks’
Monetary Responses to COVID-19, BIS Working Papers No. 934, Bank for International Settlements, March 2021,
p. 5.
Notes: AE: United Arab Emirates; AR: Argentina; AU: Australia; BR: Brazil; CA: Canada; CH: Switzerland; CL:
Chile; CN: China; CO: Colombia; CZ: Czech Republic; DK: Denmark; DZ: Algeria; EA: Euro Area; GB: Great
Britain; HK: Hong Kong; HU: Hungary; ID: Indonesia; IL: Israel; IN: India; JP: Japan; KR: South Korea; KW:
Kuwait; MA: Morocco; MY: Malaysia; MX: Mexico; NO: Norway; NZ: New Zealand; PE: Peru; PH: the
Philippines; PL: Poland; RO: Romania SG: Singapore; SA: Saudi Arabia; SE: Sweden; TH: Thailand; TR: Turkey; US:
United States; VN: Vietnam; ZA: South Africa;
Economic Forecasts
Global Growth
As the COVID-19 pandemic began, the global economy was struggling to regain a broad-based
recovery. Global economic growth was being challenged by 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 economic impact has become less uncertain, the combination of policy responses may
continue to have a significant and enduring impact on the way businesses organize their work
forces, on global supply chains, and on government responses to a global health crisis.84 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.
In the early stages of the global economic recession, economic forecasts were compounded
further by a historic drop in the price of crude oil. Since then, oil prices recovered from the low of
nearly $20 per barrel in April 2020 to a range of $40 to $45 per barrel by the end of 2020, in part
reflecting the decline in global economic activity. By early June 2021, the international price of

84 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.
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Brent crude oil had crossed the $70 per barrel mark, where it remained through early October,
when it rose above $80 dollars per barrel.
Through the first half of 2021, economic forecasts turned more positive based on an expected
return to pre-pandemic rates of growth. Nevertheless, the economic situation has remained highly
fluid globally and for most countries and regions. Uncertainty about the length and depth of the
health crisis-related economic effects continue to influence 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 round 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 historic rates. However,
these forecasts may be dampened by: a resurgence in viral cases that could move governments to
reinstate business and social lockdowns, continuing shortfalls in supplies through supply chains
that have not fully recovered, and rising demand for construction materials that is driven by
government infrastructure projects and new residential housing construction.
The IMF, the OECD, and The World Bank 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%.85 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

85 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
January 2021
-3.5
5.5
-4.9
4.3
-2.4
6.3
-3.4
5.1
July 2021
-3.2
6.0
-4.6
5.6
-2.1
6.3
-3.5
7.0
October 2021
-3.1
5.9
-4.5
5.2
-2.1
6.4
-3.4
6.0
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
September 2021
-3.4
5.7
NA
NA
NA
NA
-3.4
6.0
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
Sources: 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.
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Figure 4. Major Economic Forecasts by Region
Projections in annual percent change

Source: OECD Economic Outlook, March 2021, Organization for Economic Cooperation and Development.
March 2021; World Economic Outlook, Update, International Monetary Fund, October 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
estimated the effect of a two-wave scenario.
The OECD Forecast
The Organization for Economic Cooperation and Development (OECD) released an updated
forecast in September 2021, which estimated that global economic growth had declined by 3.4%
in 2020, but also estimated that the global economy would grow at an annual rate of 5.7% in 2021
and 4.5% in 2022, assuming continued strong support from macroeconomic policies and
accommodative monetary policies.86 In the updated forecast, the rate of GDP growth in the Euro
area was forecast to grow at a rate of 5.3% in 2021 and the U.S. economy would grow at rate of
6.0%. The G20, which includes both developed and major developing economies, was projected
to grow by 6.1% in 2021 and by a rate of 4.8% in 2022. The OECD estimated that global GDP
had surpassed the pre-pandemic level, but that output levels and employment in mid-2021
remained 3.5% below pre-pandemic projections, which was estimated to be equivalent to an
income loss of about $4.5 trillion, or the value of a year of global GDP growth. While inflation
began rising in developed economies, the OECD attributed the price increases to higher
commodity and shipping costs and projected they would moderate by the end of 2022, unless
higher rates of inflation became embedded in demands for higher wages.87
The OECD forecast also reflected recent analysis that an economic recovery would take place
over the next two years, but that “the recovery would be uneven across countries, potentially

86 OECD Economic Outlook, Interim Report: Keeping the Recovery on Track, Organization for Economic Cooperation
and Development, September 2020.
87 According to OECD calculations, global commodity prices were 55% higher in July and August 2021 than in the
previous year and were driven by higher metals and oil prices; containerized freight prices were estimated to be two to
three times the level of the previous year. Ibid., p. 11.
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leading to lasting changes in the world economy.”88 In addition, the OECD concluded 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.89
As a consequence of the slowdown in economic activity in the fourth quarter of 2020 and
projected slow growth and 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.90
Through the third and fourth quarters of 2020 and the first and second quarters of 2021, 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 2020 and into the second quarter of 2020. By August 2021, most OECD
economies had unemployment rates in the 6.5% to 9.0% range with some exceptions: Japan
(2.8%) and Germany (3.6%) had rates below the OECD average of 6.2%, while Greece (14.6%),
Spain (14.3%), Colombia (13.7%), and Italy (9.3%) 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.

88 OECD Economic Outlook, Interim Report March 2021, Organization for Economic Cooperation and Development.
March 2021, p. 4. http://www.oecd.org/economic-outlook/#resources.
89 OECD Economic Outlook May 2021, Preliminary Version, p. 9.
90 Ibid., p. 8.
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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.
The OECD estimated that global trade would contract by 9.5% in 2020 assuming the global
economy did not experience a strong second wave of infections that caused countries to reimpose
stringent social and business lockdowns, as indicated in Table 7.91 In addition to current rates of
unemployment, the OECD projected the length of time it could take in quarters, or three-month
periods, from the end of 2019 to the second quarter of 2025 for selected OECD countries to return
to full employment, as indicated in Figure 6. The OECD estimated in its July 2021 Employment
Outlook that by the end of 2020, around 22 million jobs had been lost in the OECD compared to
2019. The estimate indicates that four countries-Australia, Japan, New Zealand, and Poland-
could reach pre-pandemic rates of unemployment by mid-2021, or a year and a half after the start
of the recession. On the other hand, OECD countries on average would not reach pre-pandemic
level of unemployment until after the end of 2022, or three years after the start of the recession.92
Other counties were projected not to reach pre-pandemic levels of unemployment until mid-
2024, or more than four years after the recession began. The OECD indicated the delay in
returning to full employment reflected challenges that long-term unemployment present for
workers attempting to reenter the workforce.93

91 Ibid., p. 13.
92 OECD Employment Outlook 2021: Navigating the COVID-19 Crisis and Recovery, Organization for Economic
Cooperation and Development, July 17, 2021, p. 4.
93 Ibid., pp. 39-40.
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Figure 6. Projected Time to Full Recovery in Employment in Selected OECD
Countries
Periods are in quarters by year Q4 2019 to Q2 2025

Source: OECD Employment Outlook 2021.

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

Projections

Projections

2021 Projections
2020
2021
2022
2020
2021
2022

2019
2020
2021

World
-3.4%
5.7%
4.5%
World
–3.1
5.9
4.9
World
2.3%
-4.3%
4.0%
Adv. Economies
-4.8
5.3
3.8
Adv. Economies
–4.5
5.2
4.5
Adv. Economies
1.6
-5.4
3.3
Australia
-2.5
4.0
3.3
United States
–3.4
6.0
5.2
United States
2.2
-3.6
3.5
Canada
-5.3
5.4
4.1
Euro Area
–6.3
5.0
4.3
Euro Area
1.3
-7.4
3.6
Euro area
-6.5
5.3
4.6
Germany
–4.6
3.1
4.6
Japan
0.3
-5.3
2.5
Germany
-4.9
2.9
4.6
France
–8.0
6.3
3.9
Emerging
3.6
-2.6
5.0
France
-8.0
6.3
4.0
Italy
–8.9
5.8
4.2
E. Asia
5.8
0.9
7.4
Italy
-8.9
5.9
4.1
Spain
–10.8
5.7
6.4
China
6.1
2.0
7.9
Spain
-10.8
6.8
6.6
Japan
–4.6
2.4
3.2
Indonesia
5.0
-2.2
4.4
Japan
-4.6
2.5
2.1
United Kingdom
–9.8
6.8
5.0
Thailand
2.4
-6.5
4.0
Korea
-0.9
4.0
2.9
Canada
–5.3
5.7
4.9
Cen. Asia
2.3
-2.9
3.3
Mexico
-8.3
6.3
3.4
China
2.3
8.0
5.6
Russia
1.3
-4.0
2.6
Turkey
1.8
8.4
3.1
India
–7.3
9.5
8.5
Turkey
0.9
0.5
4.5
United
-9.8
6.7
5.2
Russia
–3.0
4.7
2.9
4.5
-3.4
3.5
Kingdom
Poland
United States
-3.4
6.0
3.9
Latin America
–7.0
6.3
3.0
Brazil
1.4
-4.5
3.0
Argentina
-9.9
7.6
1.9
Brazil
–4.1
5.2
1.5
Mexico
-0.1
-9.0
3.7
Brazil
-4.4
5.2
2.3
Mexico
–8.3
6.2
4.0
Argentina
-2.1
-10.6
4.9
China
2.3
8.5
5.8
Mid. East
–2.8
4.1
4.1
Mid. East
0.1
-5.0
2.1
India
-7.3
9.7
7.9
Saudi Arabia
–4.1
2.8
4.8
Saudi Arabia
0.3
-5.4
2.0
Indonesia
-2.1
3.7
4.9
Africa
–1.7
3.7
3.8
Iran
-6.8
-3.7
1.5
CRS-33

OECD Sep. 2021
IMF Oct. 2021
World Bank Jan.

Projections

Projections

2021 Projections
2020
2021
2022
2020
2021
2022

2019
2020
2021

S. Africa
-7.0
4.6
2.5
Nigeria
–1.8
2.6
2.7
Egypt
5.6
3.6
2.7

S. Africa
–6.4
5.0
2.2
S. Asia
4.4
-6.7
3.3

World Trade
–8.2
9.7
6.7
Volume
India
4.2
-9.6
5.4

Oil prices ($)
–32.7
59.1
–1.8
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, Organization for Economic Cooperation and Development, September 2021; World Economic Outlook, International
Monetary Fund, October, 2021; Global Economic Prospects, World Bank Group, January 2021.

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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%, 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 in
2020, while the average unemployment rate was projected to rise to 7.4% in
2021and 6.9% in 2022. The OECD concluded 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 in 2020 as a percent 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.94
Through its various forecasts, the OECD has estimated 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.”95 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.96
According to the OECD’s assessment
 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.
 Countries dependent on tourism have been affected more severely, while
countries with large agricultural and mining sectors experienced less severe
effects.
 Economic effects likely varied across countries reflecting differences in the
timing and degree of containment measures.97

94 Ibid., p. 31.
95 OECD Interim Economic Assessment: COVID-19: The World Economy at Risk, Organization for Economic
Cooperation and Development. March 2, 2020, p. 2.
96 Ibid., p. 4.
97 Evaluating the Initial Impact of COVID Containment Measures on Activity, Organization for Economic Cooperation
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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.98 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 October 2021. The IMF concluded in its revised forecast that
the global economy was recovering, but cautioned the recovery was hobbled by renewed waves
of infections and new variants of the virus.99 The updated forecast estimated a slightly slower rate
of growth in advanced economies than that forecasted in April 2021 and a slower rate of growth
for emerging and developing economies. IMF concluded that health risks continue to abound and
are holding back a full return to economic activity. In addition, the IMF concluded that pandemic
outbreaks in critical links of global supply chains have “resulted in longer-than-expected supply
disruptions,” which are feeding inflation in many countries. The IMF concluded that “risks to
economic prospects have increased and policy trade-offs have become more complex.”100
In its baseline forecast, the IMF estimated the global rate of economic growth declined by 3.2%
in 2020, slightly less negative than its April forecast of -3.5%, before growing by 6.0% in 2021
and 4.9% in 2022, revised upward from its previous forecast. Global trade was projected to fall in
2020 by 8.2% and oil prices were projected to fall by 32.7%. For 2021 and 2022, the IMF
forecast indicated that global trade could grow by 9.7% and 6.7%, respectively, and that oil prices
could rebound by 59.0% in 2021, before falling by 1.8% in 2022. The forecast also indicated 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, were projected to outpace the
rate of global economic growth, experiencing a rate of growth in 2021 of 9.5% and 8.0%,
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 interacted in ways that made

and Development, March 27, 2020.
98 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.
99 World Economic Outlook, International Monetary Fund, October, 2021.
100 Ibid., p. xiii.
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forecasting difficult. As a result, the IMF indicated its forecast depends on a number of factors,
including
 The length of the pandemic and required lockdowns.
 Voluntary social distancing, which affects consumer spending.
 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 forecasted indicated that advanced economies as a group experienced an economic
contraction in 2020 of 4.5% of GDP, with a rebound of 5.2% in 2021 and 4.5% in 2022; the U.S.
economic rate of growth was estimated to have declined in 2020 by -3.4%, greater than the rate of
decline experienced in 2009 during the financial crisis, but grow by 6.0% in 2021 and 5.2% in
2022, as indicated in Figure 7. The rate of economic growth in Euro area GDP in 2020 was
projected to decline by 6.3%, but grow by 5.0% in 2021 and 4.3% in 2022. Most developing and
emerging economies were projected to experience a decline in the average rate of economic
growth of -2.0% in 2020, reflecting tightening global financial conditions and falling global trade
and commodity prices, but grow at a rate of 6.0% in 2021 and 3.6% in 2022. In contrast, China
was projected to experience small, but positive rate of growth in 2020 of 2.3% and by 8.0% in
2021 and 5.6% in 2020, while India’s rate of growth was projected to decline by 7.3% in 2020
and grow by 9.5% in 2021 and 8.5% in 2020. The IMF estimated 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.101
The IMF concluded 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.

101 Ibid., p. 9.
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Figure 7. IMF Forecast, Gross Domestic Product
Percentage change

Source: World Economic Outlook, Update, International Monetary Fund, July, 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.102
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 2022.103 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.104
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.105 Similar to the OECD and the IMF forecasts, the World Bank argued that the

102 World Economic Outlook, p. v.
103 Global Economic Prospects, World Bank Group, January 2021, p. xvii.
104 Ibid., p. xviii.
105 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.”106
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 2020.107
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.108 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 an October 4, 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 2020.109 The WTO data indicated that in the first half of
2021, global merchandise export and import volumes were up 13% compared with the same

106 Global Economic Prospects June 8, 2020, p. 115.
107 Ibid., p. 33.
108 Ibid., p. 118.
109 Global Trade Rebound Beast Expectations But Marked by Regional Divergences, World Trade Organization,
October 4, 2021.
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period in 2021. Similarly, trade volumes were up 20% over the same period in the previous year
and up 5.7% quarter over quarter, as indicated in Figure 8.
Trade gains were more pronounced for North America, Europe, and Asia, with other regions
lagging behind. The WTO concluded the trade recovery was broad-based with all major goods
categories experiencing year-over-year gains and reflected strong monetary and fiscal policy
actions taken by many governments. In particular, the 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. The WTO indicated,
however, that supply shortages, particularly of semiconductor chips, could dampen the trade
recovery in subsequent quarters.110
The WTO’s comprehensive semi-annual forecast issued in March 2021 indicated the decline in
global trade in 2020 was not as severe as it had estimated in its previous forecast. The forecast
reflected a marked revision from its earlier forecast that global trade volumes could decline
between 13% and 32% in 2020 as a result of the economic impact of COVID-19. The updated
forecast also indicates the recovery in global trade in 2021 could be slightly faster than the WTO
had projected in October 2020, primarily reflecting expectations of a faster recovery in global
GDP in 2021 (5.1% compared with 4.9%).
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 8. 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
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 had declined at an
annual rate of 3.8% in 2020, but could recover in 2021 at an annual growth rate of 5.1%. The
WTO indicated in its March forecast that renewed economic lockdowns in response to a
resurgence of COVID-19 cases in the fall of 2020 potentially shaved an additional 2% to 3%
percentage points off the annual global GDP growth rate in 2021 and negatively affected global
trade.
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-19.111 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
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

110 Ibid., p. 1.
111 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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the monitoring period were of a trade-facilitating measures, rather than trade-restricting
measures.112
Figure 8. WTO Estimates of Quarterly Global Exports and Imports, Volumes and
Values

Source: World Trade Organization, October, 2021. Created by CRS.
In its October 2021 forecast, the WTO estimated the impact on trade volumes was larger in 2020
than it had estimated in previous forecasts, but trade volumes were projected to recover stronger
in 2021, by growing at 10.8%. The WTO’s various forecasts indicate that all geographic regions
would experience a rise in trade volumes in 2021 and 2022 compared with 2020, while North
America and Europe could experience a positive 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 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.
Table 8. WTO Forecast: Merchandise Trade Volume and Real GDP 2020-2022
Annual percentage change
Forecast scenario
Forecast scenario
Forecast scenario
(October 2020)
(March 2021)
(October 2021)

2020
2021
2020
2021
2022
2020
2021
2022
Volume of world
-0.1%
0.1%
-0.1%
0.1%
0.0%
-5.8%
10.8%
4.7%
merchandise trade
Exports

North America
-14.7
10.7
-8.5
7.7
5.1
-8.6
8.1
6.9
South and Central America
-7.7
5.4
-4.5
3.2
2.7
-4.7
7.2
2.0
Europe
-11.7
8.2
-8.0
8.3
3.9
-7.9
9.7
5.6

112 Report on G20 Trade Measures (Mid-October 2019 to Mid-May 2020), World Trade Organization, June 29, 2020.
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Forecast scenario
Forecast scenario
Forecast scenario
(October 2020)
(March 2021)
(October 2021)

2020
2021
2020
2021
2022
2020
2021
2022
CIS

-3.9
4.4
1.9
-1.5
0.6
8.5
Africa

-8.1
8.1
3.0
-8.8
7.0
6.0
Middle East

-8.2
12.4
5.0
-11.6
5.0
9.6
Asia
-4.5
5.7
0.3
8.4
3.5
0.3
14.4
2.3
Imports

North America
-8.7
6.7
-6.1
11.4
4.9
-6.1
12.6
4.5
South and Central America
-13.5
6.5
6.5
-9.3
8.1
-9.9
19.9
2.1
Europe
-10.7
8.7
-7.8
8.4
3.7
-7.6
9.1
6.8
CIS

-4.7
5.7
2.7
-5.6
13.8
-0.8
Africa

-8.8
5.5
4.0
-11.1
11.3
4.1
Middle East

-11.3
7.2
4.5
-13.9
9.3
8.7
Asia
-4.4
6.2
-1.3
5.7
4.4
-1.2
10.7
2.9
World Real GDP at
-4.8
4.9
-3.8
5.1
3.8
-3.5
5.3
4.1
market exchange rates
North America
-4.4
3.9
-4.1
5.9
3.8
-4.0
5.6
3.7
South and Central America
-7.5
3.8
-7.8
3.8
3.0
-7.5
4.9
2.9
Europe
-7.3
5.2
-7.1
3.7
2.6
-6.4
4.3
4.0
CIS

-0.5
1.0
1.2
-2.7
3.9
3.4
Africa

-2.9
2.6
3.8
-2.8
3.5
4.1
Middle East

-6.0
2.4
3.5
-4.6
2.9
4.5
Asia
-2.4
5.9
-1.1
6.1
4.1
-0.9
6.1
4.7
Source: Global Rebound Beats Expectations But Marked by Regional Divergences, World Trade Organization,
October 4, 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.
Supply Chains
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.113 This analysis concluded the pandemic affected cross-border
movements of people in response to travel restrictions and in trade through a sharp contraction in

113 Altman, Steven A. and Phillip Bastian, DHL Global Connectedness Index 2020, 2020
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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.114
In some cases, businesses reportedly were reassessing their exposure to the risks posed by
extensive supply chains that potentially are vulnerable to numerous points of disruption. Also,
some governments were 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.115 In addition, businesses
may be reluctant to relocate from production locations, such as China, that serve not only as
production platforms, but also represent 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 is shipped to the U.S.
parent, while 82% is sold in China and another 12% is shipped to other foreign countries.116
Beyond the current challenges the pandemic poses to global supply chains, a recent report by
McKinsey Global Institute catalogued a number of risks to supply chains.117 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, the pandemic had not caused firms to reshape their 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.”118 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.”119 Instead of shifting production locations, firms reportedly considered
various strategies to withstand the challenges of a global economy by increasing sources of raw
materials and critical materials, expanding and diversifying supplier bases, investing in suppliers
to upgrade their capabilities, and regionalizing supply chains, among a number of possible
actions.120
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.121 The

114 Ibid., p. 32.
115 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.
116 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.
117 Risk, Resilience, and Rebalancing in Global Value Chains, McKinsey Global Institute, August 2020, p. 1
118 Ibid., p. 2.
119 Ibid., In Brief.
120 Risk, Resilience, and Rebalancing in Global Value Chains, p. 16.
121 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-
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agreement needs to be ratified by at least six ASEAN countries and three non-ASEAN countries.
This agreement followed 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 applied to join the trade agreement and China
announced on September 17, 2021, that it had formally applied to join the agreement.122
Global Foreign Investment
Similar to the negative impact on global trade of policy measures that were adopted to control the
spread of COVID-19, the measures negatively affected global foreign investment flows. In
addition, national governments 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 9.123 According to
the United Nations Conference on Trade and Development (UNCTAD), these measure include
incentives and subsidies 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 moved independently to amend existing 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 included enhanced foreign investment screening of foreign investment for “public
interest” reasons that may remain after the pandemic crisis.124
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.

asia/2020/11/16/f02f43e4-27b7-11eb-9c21-3cc501d0981f_story.html.
122 Qian, Colin, Twinnie Siu, Tom Daly, Gabriel Crossley, Daniel Leussink, Sakura Murakami, Ben Blanchard, Jeanny
Kao, and David Brunnstrom, China Applies to Join Pacific Trade Pact to Boost Economic Clout, Reuters, September
17, 2021. https://www.reuters.com/world/china/china-officially-applies-join-cptpp-trade-pact-2021-09-16/.
123 World Investment Report 2020, United Nations Conference on Trade and Development, 2020, p. 93.
124 Ibid., p. 96.
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Country
Investment Measure
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, pp. 92-93.
The U.N. 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 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
more difficult to assess the economic costs and benefits of changes in foreign investment policies
taken on national security grounds.
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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 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
9.125 Global inflow totals were driven in large part due to the decline in foreign investment

125 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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inflows to developed economies, which fell by 69%. Inflows to Europe fell to -$4 billion,
indicating an outflow, 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 9. Annual 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 10, all major geographic areas except Asia experienced a drop in foreign
direct investment inflows in 2020 compared with 2019.126 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.

126 Investment Trends Monitor, United Nations Conference on Trade and Development, January 24, 2021.
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Figure 10. 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) rose by 37% and fell by half, respectively, in the
first half of 2020 compared with the first half of 2019, as indicated in Figure 11.127 The drop in
inbound foreign direct investment values partly reflect 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 rose by 155%, while foreign direct investment inflows fell by 30% compared
with 2019. In the first quarter of 2021, U.S. direct investment abroad fell by 20% compared with
the previous quarter; foreign direct investment in the United States fell by 31%, reflecting the
continuing challenges facing the global economy that are affecting a sustained recovery. In the
second quarter, U.S. direct investment outflows increased by 81% over the previous quarter to
reach $139 billion, the largest outflows recorded preceding the pandemic, while foreign direct
investment in the United States rose increased by 35% to reach $95 billion.

127 U.S. International Transactions, Second Quarter 2021, Bureau of Economic Analysis, September 21, 2021.
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Figure 11. U.S. Direct Investment; Inflows and Outflows

Source: Bureau of Economic Analysis. Created by CRS.
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.
Major Economic Developments
Between late February 2020 and spring 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.128 February 24, in particular,
stands as a red-letter date as financial market indexes from Asia, Europe, and the United States
dropped by large amounts. 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, 2020.129 In response to concerns that the global economy was in a freefall, the Federal Reserve
lowered key interest rates on March 3, 2020, to shore up economic activity, while the Bank of
Japan engaged in asset purchases to provide short-term liquidity to Japanese banks; Japan’s
government indicated it would also assist workers with wage subsidies. The Bank of Canada also
lowered its key interest rate. The International Monetary Fund (IMF) announced that it was
making about $50 billion available through emergency financing facilities for low-income and
emerging market countries and through funds available in its Catastrophe Containment and Relief
Trust (CCRT).130 As assessments of risk by financial market participants lessened, pressure on the
dollar and on U.S. Treasury securities lessened as well.

128 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.
129 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.
130 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/.
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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 12. 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, 2020, 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. On July 23, 2021, the DJIA crossed the 35,000 mark,
nearly doubling the value of the index since March 23, 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 2020,
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.
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. 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. Through October 2021, however, more trading session closed
higher than lower, the Index gained 1.24%, and closed above 35,000 for the first time on July 23,
2021. In October, trading sessions closing lower outnumbered sessions closing higher 13 to 7,
with the index as a whole rising by 5.57% in value, the largest decline since March 2021.
Table 11. Dow Jones Industrial Average Market Changes by Month
Sessions up Sessions down
Open
Close
Change in index valuation

January 2020
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%
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Sessions up Sessions down
Open
Close
Change in index valuation

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%
July
13
7
34,507.32
34,935.47
428.15
1,24%
August
13
9
34,968.56
35,360.73
392.17
1.12%
September
8
13
35,387.55
33,843.92
-1,543.63
-4.36%
October
13
7
33,930.70
35,819.56
1,888.86
5.57%
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 12. Dow Jones Industrial Average
February 14, 2020, through November 8, 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.131 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.132 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.133
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. 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
proposed a budget that appropriated £30 billion (about $35 billion) for fiscal stimulus spending,

131 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.
132 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.
133 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.
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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.
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 13, the dollar appreciated more than 3.0% during the period between March 3 and March
13, 2020, reflecting increased international demand for the dollar and dollar-denominated assets.
Since the highs reached on March 23, the exchange value of the dollar has dropped between 1%
and 2% per month in a slow decline through December 2020 as financial strains eased and
demand for the dollar in international financial markets lessened.
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. As previously noted, common
central banks policies of keeping key interest rates low also affected movements in the foreign
exchange value of the dollar in 2021 by reducing arbitrage opportunities and curtailing volatility.
Despite periods of appreciation and 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,
which tended 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.134 Between
June 10, 2021, and August 20, 2021, the dollar appreciated about 3.6%, nearly reaching the value
recorded on January 2, 2020. The strengthening in the value of the dollar is attributed to a number
of factors, including an anticipated change in Fed monetary policies.135

134 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.
135 Stubbington, Tommy, Federal Reserve’s Tilt Towards Tighter Policy Unleashes Dollar Bulls, Financial Times, July
19, 2021.
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Figure 13. U.S. Dollar Trade-Weighted Broad Index, Goods and Services
January 2, 2020, through October 29, 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.136 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 14. It also accounts for about 60% of central bank
foreign exchange holdings, half of non-U.S. banks foreign currency deposits, and two-thirds of
non-U.S. corporate borrowings from banks and the corporate bond market.137 In comparison, the
United States accounts for about one-fourth of global GDP and about one-fifth of global trade
(exports plus imports).

136 Foreign Exchange Turnover in April 2019, Bank for International Settlements, September 16, 2019.
https://www.bis.org/statistics/rpfx19_fx.htm.
137 See CRS In Focus IF10112, Introduction to Financial Services: The International Foreign Exchange Market.
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Figure 14. 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 by concluding 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.138
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 can amplify the
impact of economic disruptions, according to the IMF.139 Traditionally, most economic models
are based 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 by trading partners and increased
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

138 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.
139 Dominant Currencies and External Adjustment, IMF Staff Discussion Note 20/05, International Monetary Fund,
July 2020.
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countries other than the United States is invoiced in U.S. dollars.140 As a result, an appreciation of
the dollar against other currencies, or a weakening in other currencies, has a muted effect on
export volumes by other countries, at least in the short run, as has been evident in 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
contrast with traditional theory, since such movements do not affect trade volumes as much as
might be expected. For instance, after appreciating in March 2020, the trade-weighted value of
the dollar steadily depreciated through December 2020 and then has roller-coasted through 2021.
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 second quarter of 2021 indicate, however, that U.S. trade prices
for exports and imports and trade volumes for exports and imports generally moved in tandem, as
indicated in Figure 15.
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 during crises. 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
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.141 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.

140 Ibid., p. 8.
141 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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Figure 15. Quarterly Price and Quantity Indexes, U.S. Goods Imports and Exports

Source: Bureau of Economic Analysis. Created by CRS.
Notes: 2012 = 100.
U.S. Monthly Trade
BEA data illustrate the sharp drop in U.S. trade volumes for both exports and imports of goods
and services in 2020 compared with 2019. Trade in services was especially hard hit as a result of
lockdowns that restricted tourism travel and lower transport revenues as a result of the overall
decline in economic activity. Trade in services fell sharply with the volume of services exports
and imports declining by multiples of the percentage decline in goods trade, as indicated in Table
12. Prices for services exports and imports, however, fell slightly compared with the decline in
prices of goods imports and exports. The largest changes in prices and quantities for goods and
services occurred in the second quarter of 2020 following the same pattern as the second quarter
change in GDP. The quantity of U.S. exports and imports fell by 23% and 16%, respectively, in
second quarter 2020, compared with the preceding quarter.142
In value terms, the prices of U.S. goods exports in second quarter 2020 fell by 6.0%, while the
price of imports fell by 3.5%, compared with the first quarter. In the third quarter, both export and
import volumes increased by about 20%, while export and import prices rose by 3.8% and 2.1%,
respectively. In fourth quarter 2020, U.S. export and import prices increased slightly, while export
and import volumes increased by 6.0% and 7.0%, respectively. 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).143
In the first quarter of 2021, U.S. goods export volumes fell slightly, while import volumes rose by
2.6%. Export and import price indexes both rose, reflecting an increase of 30% in petroleum
export prices and a rise in petroleum import prices of 38%. Compared to the decline in goods
export 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. Relative to first quarter 2021, price indexes for exports and imports in the second quarter

142 Gross Domestic Product, Second Quarter, 2021 (Advance Estimate) and Annual Update, Bureau of Economic
Analysis, July 29, 2021.
143 U.S. International Trade in Goods and Services June 2021, Bureau of Economic Analysis, August 5, 2021.
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of 2021 rose by 5.8% and 3.4%, respectively. In contrast, goods export and import volumes
increased by 1.4% and 1.6$, respectively. The combined price and quantity affects indicate that
goods exports grew by 6.8% in the second quarter of 2021 compared with first quarter 2021,
while goods imports increased by 4.2%.
In the first half of 2020, trade in services experienced a sharp drop in quantity and price terms as
travel exports fell by 61% and travel imports dropped by 90%. Overall, exports of services
declined by 10.3% and 15.3% in the first and second quarters of 2020, but demonstrated mixed
changes in the subsequent four quarters. Similarly, total import services fell by 9.7% and 24.6%
in the first two quarters of 2020, but experienced positive changes in volumes since. Travel-
related imports, in particular, rose by 97.9% in fourth quarter 2020 compared with the preceding
quarter. The quarterly prices of both services exports and imports increased over each of the
subsequent four quarters. U.S. imports of services in the second quarter, however, grew twice as
fast as exports of services; the overall goods and services deficit in the second quarter increased
by 1.4% over the first quarter.144
Table 12. U.S. Goods and Services Exports and Imports, Change in Quarterly Price
and Quantity Indexes
Percentage change
Year over Year
% Change
Quarter over Quarter % Change
2020
2021

2019
2020
1q
2q
3q
4q
1q
2q
Goods

Exports

Quantity
-0.1%
-10.2%
-1.2%
-23.1%
18.8%
5.9%
-0.4%
1.4%
Price
-1.6
-4.0
-1.1
-6.0
3.8
1.7
6.1
5.8
Imports

Quantity
0.5
-5.6
-1.9
-15.6
19.5
6.8
2.6
1.4
Price
-2.1
-2.8
-0.5
-3.5
2.1
0.4
3.5
3.4
Services

Exports

Quantity
-0.1
-19.7
-10.3
-15.3
-1.3
3.8
-1.5
1.6
Price
1.7
0.4
0.4
-2.1
2.1
1.2
2.2
1.7
Imports

Quantity
3.9
-22.6
-9.7
-24.6
6.7
8.3
0.5
4.6
Price
0.9
0.5
0.7
-1.0
1.1
1.2
1.1
2.1
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.

144 Ibid.
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On October 5, 2021, the U.S. Census Bureau reported an increase in the overall U.S. goods and
services trade deficit in August 2021 of about $3 billion to reach a monthly total of $73.3 billion
(the largest monthly goods and services trade deficit on record), compared to the July total of
$70.3 billion. The increase in the August goods and services deficit primarily reflected a 1.8%
increase in the goods trade deficit and a 7.7% decrease in the services trade surplus, compared to
July data, as indicated in Figure 16.145 The August exports of goods were the highest on record,
while the imports of goods and services was also the highest on record. According to BEA data,
goods exports increased from $148.6 billion in July 2021 to $149.7 billion in August 2021; goods
imports rose from $236.4 billion to $239.1 billion. Relative to services, U.S. services exports fell
from $64.1 billion in July to $64.0 billion in August, while imports of services increased from
$46.6 billion to $47.9 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 16. Monthly U.S. Exports and Imports of Goods and Services 2020-2021

Source: Census Bureau, Bureau of Economic Analysis. Created by CRS.
Global Energy Markets
The price of oil has served as an 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. As financial
market indexes declined in 2020 and the dollar appreciated, the price of Brent crude oil dropped
close to $20 per barrel on March 20, as indicated in Figure 17.
As a result of the steep drop in oil prices, oil producers agreed in April, 2020 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
2020, when it began edging above $50 per barrel. In trading December 10, 2020, the price of
Brent crude oil breached the $50 per barrel mark for the first time since March 2020. As energy

145 Monthly U.S. International Trade in Goods and Services, August 2021, Census Bureau, October 5, 2021.
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demand showed signs of recovering in 2021, the cuts in oil production that began in April were
trimmed to 7.7 million barrels per day and were trimmed by an additional 2 million barrels per
day starting 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, but dropped to $64 per barrel by March 3, 2021. 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.146 By the end of June 2021 the
price of Brent crude oil pushed above $75 per barrel. In meetings in early July 2021, OPEC
members agreed 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.147 On July18, 2021, OPEC and Russia agreed
to increase crude oil production by an additional 400,000 barrels a day into 2022.148 On August
11, 2021, the Biden Administration, citing concerns over the negative impact rising energy prices
could have on an economic recovery, called on OPEC to increase oil production beyond levels
previously announced.149 According to the Bureau of Labor Statistics, U.S. energy prices in June
had increased by 35% over the previous year.150
Figure 17. Brent Crude Oil Price Per Barrel in Dollars
January 9, 2020, through November 9, 2021

Source: Markets Insider. Created by CRS.

146 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.
147 Sheppard, David, Why is OPEC+ in Turmoil When Oil Prices Are Elevated?, Financial Times, July 5, 2021.
148 Rovnick, Naomi, Tommy Stubbington, Hudson Lockett, and Joe Rennison, Global Markets Shaken by Fears Over
Delta Variant, Financial Times, July 19, 2021. https://www.ft.com/content/5b2248be-8f0e-4235-ba2e-2187c96f16a6.
149 Fedor, Lauren and Derek Brower, White House Calls on OPEC to Boost Production to Contain Fuel Prices,
Financial Times, August 11, 2021. https://www.ft.com/content/a8a631cf-de43-47e8-8cc4-99732c39c4da.
150 Producer Price Indexes-June 2021, Bureau of Labor Statistics, July 14, 2021.
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Country Policy Responses
As previously indicated, after a delayed response, most central banks followed the actions of
Federal Reserve. In addition, national governments adopted various fiscal measures to sustain
economic activity. 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.151 The
Finance Ministers also pledged fiscal support to ensure health systems can sustain efforts to fight
the outbreak.152 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.”153 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.
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.154 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.155 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.”156
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.157 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.

151 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/.
152 Giles et al., “Finance Ministers Ready to Take Action.”
153 Federal Reserve Releases FOMC Statement, March 3, 2020, https://www.federalreserve.gov/newsevents/
pressreleases/monetary20200303a.htm.
154 Cunnigham, Erin, New African WTO Head Urges Members to Take Action on Vaccine Inequity, The Washington
Post, April 15, 2021.
155 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/.
156 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.
157 World Health Organization, Establishment of a COVID-19 mRNA Vaccine Technology Transfer Hub to Scale Up
Global Manufacturing, April 16, 2021.
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China, which experienced positive quarterly rates of economic growth throughout the pandemic-
related recession, reportedly considered a series of actions to support its economic growth rate
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.158
According to the WHO, sixteen African countries experienced 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.159 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.
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.160
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 declined at an annual rate of 5.3% in 2020, but could increase by an estimated 6.0% in
2021 and 4.6%in 2022.161 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.162 The package provided relief to provinces and
territories to improve 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.
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.163 In early
April 2021, India and Brazil were designated global viral infection hot spots due to a resurgence

158 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.
159 Cunningham, Erin, Africa Suffers ‘Worst Pandemic Week Ever’ as Cases Surge, Vaccinations Lag, The Washington
Post, July 9, 2021.
160 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.
161 Monetary Policy Report July 2021, Bank of Canada, July 2021.
162 Canada Unveils Largest Economic Relief Package Since WW2, BBC News, December 1, 2020.
https://www.bbc.com/news/world-us-canada-55139229.
163 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.
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in cases. On May 6, India reported a single-day total of 412,000 new cases.164 By July 2, India’s
death toll from the pandemic surpassed 400,000.165 Brazil reportedly has had over 350,000 viral-
related deaths: in some cities in Brazil, COVID-related daily deaths have outnumbered daily
births.166
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.167 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.168 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.169
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 had pushed key interest rates below 1% and in one-fifth of the global
economy, interest rates were below zero. In these circumstances, economists generally argue that
adjusting fiscal policy, or government taxing and spending, is the more effective policy tool for
raising the rate of economic growth.170 The IMF concluded that, “Fiscal policy must play a
leading role in the recovery.”
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

164 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.
165 Cunningham, Erin, Covid-19 Global Updates: India’s Death Toll Tops 400,000 as Delta Variant Gains Ground
Worldwide, The Washington Post, July 2, 2021.
166 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.
167 Slater, Joanna, India’s Economy Contracts by Nearly 24%, Its 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.
168 RBI Bulletin—November 2020, Reserve Bank of India, November 2020.
169 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.
170 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.
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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.171” 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.172 In
October, Congress and the Trump Administration negotiated over the substance of an additional
spending package to support the U.S. economy. 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 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.173 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.174 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
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.175 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.176
On October 28, 2021, the Bureau of Economic Analysis (BEA) released estimated third quarter
data on U.S. GDP, which indicated the U.S. economy grew at an annual rate of 2.0% growth and
that the economy grew by annualized rates of 6.3% in the first quarter and 6.7% in the second
quarter of 2021, outpacing the 4th quarter 2020 rate of 4.5%. The deceleration in the rate of
growth in the third quarter reflected lower levels of personal consumption expenditures on motor
vehicles and parts and on food, services, and accommodation. In contrast, U.S. GDP fell at an
annual rate of 31.4% in the second quarter of 2020, after falling by 5.0% at an annual rate in the
first quarter, as indicated in Figure 18.177 On an annual basis, the 2020 rate of growth fell by
3.4%, compared with a 2019 rate of 2.3%. In the second quarter of 2020, amidst a large decline

171 Federal Reserve Issues FOMC Statement, March 15, 2020. https://www.federalreserve.gov/newsevents/
pressreleases/monetary20200315a.htm.
172 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.
173 Diamond, Dan, Tyler Pager, and Jeff Stein, Biden Commits to Waiving Vaccine Patents, Driving Wedge With
Pharmaceutical Companies, The Washington Post, May 5, 2021.
174 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.
175 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/.
176 Scott, Eugene, G-7 Leaders Commit to Making 1 Billion Coronavirus Vaccines Available Starting This Summer,
The Washington Post, June 11, 2021.
177 Gross Domestic Product, Third Quarter 2021, (Advance Estimate), Bureau of Economic Analysis, October 28,
2021.
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overall in U.S. economic activity in response to business lockdowns, some sectors experienced a
decline 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, sustaining economic growth.
Figure 18. U.S. GDP Percentage Change From Preceding Quarter
Seasonally adjusted at annual rates

Source: Bureau of Economic Analysis. Created by CRS.
Notes: Exports and imports represent the combination of goods and services.
On October 8, 2021, the BLS released data on the employment situation in September, which
indicated that nonfarm payrolls rose by 194,000, down from 366,000 jobs gained in August and
represents the lowest number of job gains since January 2021; the rate of unemployment was
4.8%.178 The data also indicated that 5.0 million persons reported in September they did not work

178 The Employment Situation-September 2021, Bureau of Labor Statistics, October 8, 2021. https://www.bls.gov/. The
unemployment number does not include 4.5 million workers who were working part time not by choice and 6.0 million
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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 19, with the exception of December 2020, 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, but by September 2021 had not equaled the number of jobs lost
in April 2020. The number of unemployed workers was 7.7 million in September 2021, down
710,000 from the previous month’s total of 8.4 million. Over the period from May 2020 through
September 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 utilities fell.
Figure 19. Change in Total Monthly U.S. Nonfarm Employment

Source: Bureau of Labor Statistics. Created by CRS.
In the first stages of the pandemic, the Department of Labor reported on May 8, 2020, that the
U.S. nonfarm unemployment rate in April, 2020, increased by 20 million workers, which raised
the total number of unemployed Americans to 23 million, or an unemployment rate of 14% of the
total civilian labor force of about 160 million. The unemployment rate did not include
approximately 10 million workers who were involuntarily working part-time and another 9
million individuals who were seeking employment. As indicated in Figure 20, the number of
unemployed individuals increased the most in the leisure and hospitality sector, reflecting
national quarantining policies to reduce the spread of COVID-19 through social contact. The
employment losses were widely spread across the economy, affecting every nonfarm sector and
all labor groups. Between March and Aril 2020, the number of U.S. nonfarm civilian workers
dropped from 150 million to 130 million. Between June 2020 and September 2021, the nonfarm
civilian labor force increased from 139 million to 148 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 0.1 percentage
point.
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Figure 20. Change in U.S. Employment by Major Industrial Sector

Source: The Employment Situation, Bureau of Labor Statistics, various months 2020 and 2021. Created by CRS.
In a speech on May 13, 2020, Federal Reserve Chairman Jerome Powell reported that Federal
Reserve analyses indicated that of individuals working in February, 2020, “almost 40 percent of
those in households making less than $40,000 a year had lost a job in March.”179 Chairman
Powell also indicated that given the extraordinary nature of the current economic downturn the
Fed would, “continue to use our tools to their fullest until the crisis has passed and the economic
recovery is well under way.”
In characterizing the monetary and fiscal response to the economic downturn, Chairman Powell
said in a speech on October 6, the monetary response included, “the full range of tools at our
disposal,” including cutting key interest rates, “unprecedented” asset purchases, establishing
emergency lending facilities to support households, businesses and state and local governments,
and implementing targeted and temporary measures for banks to support their customers.180 In
addition, the fiscal response accomplished three objectives, it provided support to households,
businesses through the Paycheck Protection Program, and financial markets. Chairman Powell
concluded his remarks by arguing for the necessity of continued fiscal support for the economy:
The expansion is still far from complete. At this early stage, I would argue that the risks of
policy intervention are still asymmetric. Too little support would lead to a weak recovery,
creating unnecessary hardship for households and businesses. Over time, household
insolvencies and business bankruptcies would rise, harming the productive capacity of the
economy, and holding back wage growth. By contrast, the risks of overdoing it seem, for
now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they
will not go to waste.181

179 Current Economic Issues; Speech at the Peterson Institute for International Economics, Jerome H. Powell, May 13,
2020.
180 Recent Economic Developments and the Challenges Ahead, Jerome H Powell, Remarks at the National Association
for Business Economists, October 6, 2020.
181 Ibid., p. 7.
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Monetary Policy182
Forward Guidance
Forward guidance refers to Fed public communications on its future plans for short-term interest
rates, and it took many forms following the 2008 financial crisis. As monetary policy returned to
normal in recent years, forward guidance was phased out. It is being used again today. For
example, when the Fed reduced short-term rates to zero on March 15, it announced that it
“expects to maintain this target range until it is confident that the economy has weathered recent
events and is on track to achieve its maximum employment and price stability goals.”
Quantitative Easing
Large-scale asset purchases, popularly referred to as quantitative easing or QE, were also used
during the financial crisis. Under QE, the Fed expanded its balance sheet by purchasing
securities. Three rounds of QE from 2009 to 2014 increased the Fed’s securities holdings by $3.7
trillion.
On March 23, the Fed announced that it would increase its purchases of Treasury securities and
mortgage-backed securities (MBS)—including commercial MBS—issued by government
agencies or government-sponsored enterprises to “the amounts needed to support smooth market
functioning and effective transmission of monetary policy.... ” These would be undertaken at the
unprecedented rate of up to $125 billion daily during the week of March 23. As a result, the value
of the Fed’s balance sheet is projected to exceed its post-financial crisis peak of $4.5 trillion. One
notable difference from previous rounds of QE is that the Fed is purchasing securities of different
maturities, so the effect likely will not be concentrated on long-term rates.
Actions to Provide Liquidity
Reserve Requirements
On March 15, the Fed announced that it was reducing reserve requirements—the amount of vault
cash or deposits at the Fed that banks must hold against deposits—to zero for the first time ever.
As the Fed noted in its announcement, because bank reserves are currently so abundant, reserve
requirements “do not play a significant role” in monetary policy.
Term Repos
The Fed can temporarily provide liquidity to financial markets by lending cash through
repurchase agreements (repos) with primary dealers (i.e., large government securities dealers who
are market makers). Before the financial crisis, this was the Fed’s routine method for targeting the
federal funds rate. Following the financial crisis, the Fed’s large balance sheet meant that repos
were no longer needed, until they were revived in September 2019. On March 12, the Fed
announced it would offer a three-month repo of $500 billion and a one-month repo of $500
billion on a weekly basis through the end of the month in addition to the shorter-term repos it had
already been offering. These repos would be larger and longer than those offered since
September. On March 31, the Fed announced the Foreign and International Monetary Authorities
(FIMA) Repo Facility, which works like the foreign repo pool in reverse. This facility allows
foreign central banks to convert their U.S. Treasury holdings into U.S. dollars on an overnight

182 This section was prepared by Marc Labonte, Specialist in Macroeconomic Policy, Government and Finance
Division, CRS. CRS Insight IN11259, Federal Reserve: Recent Actions in Response to COVID-19, by Marc Labonte.
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basis. The Fed will charge a (typically) above market interest rate of 0.25 percentage points above
the interest rate paid on bank reserves. The facility is intended to work in tandem with currency
swap lines to provide additional dollars to meet global demand and is available to a broader group
of central banks than the swap lines.
Discount Window
In its March 15 announcement, the Fed encouraged banks (insured depository institutions) to
borrow from the Fed’s discount window to meet their liquidity needs. This is the Fed’s traditional
tool in its “lender of last resort” function. The Fed also encouraged banks to use intraday credit
available through the Fed’s payment systems as a source of liquidity.
Foreign Central Bank Swap Lines
Both domestic and foreign commercial banks rely on short-term borrowing markets to access
U.S. dollars needed to fund their operations and meet their cash flow needs. But in an
environment of strained liquidity, only banks operating in the United States can access the
discount window. Therefore, the Fed has standing “swap lines” with major foreign central banks
to provide central banks with U.S. dollar funding that they can in turn lend to private banks in
their jurisdictions. On March 15, the Fed reduced the cost of using those swap lines and on March
19 it extended swap lines to nine more central banks. On March 31, 2020, the Fed set up a new
temporary facility to work in tandem with the swap lines to provide additional dollars to meet
global demand. The new facility allows central banks and international monetary authorities to
exchange their U.S. Treasury securities held with the Federal Reserve for U.S. dollars, which can
then be made available to institutions in their jurisdictions.183
Emergency Credit Facilities for the Nonbank Financial System
In 2008, the Fed created a series of emergency credit facilities to support liquidity in the nonbank
financial system. This extended the Fed’s traditional role as lender of last resort from the banking
system to the overall financial system for the first time since the Great Depression. To create
these facilities, the Fed relied on its emergency lending authority (Section 13(3) of the Federal
Reserve Act). To date, the Fed has created six facilities—some new, and some reviving 2008
facilities—in response to COVID-19.
 On March 17, the Fed revived the commercial paper funding facility to purchase
commercial paper, which is an important source of short-term funding for
financial firms, nonfinancial firms, and asset-backed securities (ABS).
 Like banks, primary dealers are heavily reliant on short-term lending markets in
their role as securities market makers. Unlike banks, they cannot access the
discount window. On March 17, the Fed revived the primary dealer credit facility,
which is akin to a discount window for primary dealers. Like the discount
window, it provides short-term, fully collateralized loans to primary dealers.
 On March 19, the Fed created the Money Market Mutual Fund Liquidity Facility
(MMLF), similar to a facility created during the 2008 financial crisis. The
MMLF makes loans to financial institutions to purchase assets that money
market funds are selling to meet redemptions.

183 For additional information about swap lines, see CRS In Focus IF11489, Federal Executive Agencies: Selected Pay
Flexibilities for COVID-19 Response, by Barbara L. Schwemle.
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 On March 23, the Fed created two facilities to support corporate bond markets—
the Primary Market Corporate Credit Facility to purchase newly issued corporate
debt and the Secondary Market Corporate Credit Facility to purchase existing
corporate debt on secondary markets.
 On March 23, the Fed revived the Term Asset-Backed Securities Loan Facility to
make nonrecourse loans to private investors to purchase ABS backed by various
nonmortgage consumer loans.
 On April 6, the Fed announced the Payroll Protection Program Lending Facility
(PPPLF) to provide credit to depository institutions (e.g., banks) making loans
under the CARES Act (H.R. 748/P.L. 116-136) Payroll Protection Program.
Because banks are not required to hold capital against these loans, this facility
increases lending capacity for banks facing high demand to originate these loans.
The PPP provides low-cost loans to small businesses to pay employees. These
loans do not pose credit risk to the Fed because they are guaranteed by the Small
Business Administration.
 On April 9, the Fed announced the Main Street Lending Program (MSLP), which
purchases loans from depository institutions to businesses with up to 10,000
employees or up to $2.5 billion in revenues. The loans to businesses would defer
principal and interest repayment for one year, and the businesses would have to
make a “reasonable effort” to retain employees.
 On April 9, the Fed announced the Municipal Liquidity Facility (MLF) to
purchase state and municipal debt in response to higher yields and reduced
liquidity in that market. The facility will only purchase debt of larger counties
and cities.
Many of these facilities are structured as special purpose vehicles controlled by the Fed because
of restrictions on the types of securities that the Fed can purchase. Although there were no losses
from these facilities during the financial crisis, assets of the Treasury’s Exchange Stabilization
Fund have been pledged to backstop any losses on several of the facilities today.
Fiscal Policy
In terms of a fiscal stimulus, Congress adopted H.R. 6074 on March 5, 2020 (P.L. 116-123), to
appropriate $8.3 billion in emergency funding to support efforts to fight COVID-19; President
Trump signed the measure on March 6, 2020. President Trump also signed on March 18, H.R.
6201 (P.L. 116-127), the Families First COVID-19 Response Act, that provided paid sick leave
and free COVID-19 testing, expanded food assistance and unemployment benefits, and required
employers to provide additional protections for health care workers. Other countries indicated at
that time that they would also provide assistance to workers and to some businesses. Congress
also considered other possible measures, including contingency plans for agencies to implement
offsite telework for employees, financial assistance to the shale oil industry, a reduction in the
payroll tax,184 and extended of the tax filing deadline.185 President Trump took additional actions,
including

184 Armus, Theo, “Federal, State Officials Attempt to Fight Virus Through Social Distancing, Stimulus Package,”
Washington Post, March 11, 2020. https://www.washingtonpost.com/world/2020/03/11/Covid-19-live-updates/.
185 Sevastopulo, Demetri, “US Treasury Considers Tax Filing Extension to Ease Virus Impact,” Financial Times,
March 11, 2020. https://www.ft.com/content/c65a6e40-639f-11ea-b3f3-fe4680ea68b5.
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 Announcing on March 11, 2020, restrictions on all travel from Europe to the
United States for 30 days, directing the Small Business Administration (SBA) to
offer low-interest loans to small businesses, and directing the Treasury
Department to defer tax payments penalty-free for affected businesses.186
 Declaring on March 13, a state of emergency that freed up disaster relief funding
to assist state and local governments to address the effects of the pandemic. The
President also announced additional testing for the virus, a website to help
individuals identify symptoms, increased oil purchases for the Strategic Oil
Reserve, and a waiver on interest payments on student loans.187
 Invoking on March 18, 2020, the Defense Production Act (DPA) that gave him
the authority to require some U.S. businesses to increase production of medical
equipment and supplies that were in short supply.188
On March 25, 2020, the Senate adopted the COVID-19 Aid, Relief, and Economic Security Act
(S. 3548) to formally implement President Trump’s proposal by providing direct payments to
taxpayers, loans and guarantees to airlines and other industries, and assistance for small
businesses, actions similar to those of various foreign governments. The House adopted the
measure as H.R. 748 on March 27, and President Trump signed the measure (P.L. 116-136) on
March 27. The law
 Provided funding for $1,200 tax rebates to individuals, with additional $500
payments per qualifying child. The rebate begins phasing out when incomes
exceed $75,000 (or $150,000 for joint filers).
 Assisted small businesses by providing funding forgivable bridge loans; and
additional funding for grants and technical assistance; authorized emergency
loans to distressed businesses, including air carriers; and suspended certain
aviation excise taxes.
 Created a $367 billion loan program for small businesses, established a $500
billion lending fund for industries, cities and states, $150 billion for state and
local stimulus funds, and $130 billion for hospitals.
 Increased unemployment insurance benefits, expanded eligibility and offered
workers an additional $600 a week for four month, in addition to state
unemployment programs.189
 Established special rules for certain tax-favored withdrawals from retirement
plans; delayed due dates for employer payroll taxes and estimated tax payments
for corporations; and revised other provisions, including those related to losses,
charitable deductions, and business interest.

186 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.
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 Hellmann, Jessie, “Trump Invokes Defense Production Act as Covid-19 Response,” The Hill, March 18, 2020.
https://thehill.com/policy/healthcare/488226-trump-invokes-defense-production-act-as-Covid-19-response.
189 For additional information about unemployment and sick leave provisions, see CRS Insight IN11249, H.R. 6201:
Paid Leave and Unemployment Insurance Responses to COVID-19, by Sarah A. Donovan, Katelin P. Isaacs, and Julie
M. Whittaker, and CRS In Focus IF11487, The Families First Coronavirus Response Act Leave Provisions, by Sarah
A. Donovan and Jon O. Shimabukuro.
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 Provided additional funding for the prevention, diagnosis, and treatment of
COVID-19; limited liability for volunteer health care professionals; prioritized
Food and Drug Administration (FDA) review of certain drugs; allowed
emergency use of certain diagnostic tests that had not been approved by the FDA;
expanded health-insurance coverage for diagnostic testing and required coverage
for preventative services and vaccines; and revised other provisions, including
those regarding the medical supply chain, the national stockpile, the health care
workforce, the Healthy Start program, telehealth services, nutrition services,
Medicare, and Medicaid.
 Temporarily suspended payments for federal student loans and revised provisions
related to campus-based aid, supplemental educational-opportunity grants,
federal work-study, subsidized loans, Pell grants, and foreign institutions.
 Authorized the Department of the Treasury temporarily to guarantee money-
market funds.
On April 23, 2020, the House of Representatives passed H.R. 266 (P.L. 116-139), the Paycheck
Protection Program and Health Care Enhancement Act, following similar actions by the Senate
the previous day. The measure provided $484 billion for small business loans, health care
providers, and COVID-19 testing. In particular, the law
 Provided additional lending authority for certain Small Business Administration
(SBA) programs in response to COVID-19, increased the authority for (1) the
Paycheck Protection Program, under which the SBA may guarantee certain loans
to small businesses during the COVID-19 pandemic; and (2) advanced on
emergency economic injury disaster loans made in response to COVID-19. The
provision also expanded eligibility for disaster loans and advances to include
agricultural enterprises.
 Provided $100 billion in FY2020 supplemental appropriations to HHS for the
Public Health and Social Services Emergency Fund, including $75 billion to
reimburse health care providers for health care related expenses or lost revenues
that were attributable to the coronavirus outbreak; and $25 billion for expenses to
research, develop, validate, manufacture, purchase, administer, and expand
capacity for COVID-19 tests to effectively monitor and suppress COVID-19.
 Allocated specified portions of the $25 billion for COVID-19 testing to states,
localities, territories, and tribes; the Centers for Diseases Control and Prevention;
the National Institutes of Health; the Biomedical Advanced Research and
Development Authority; the Food and Drug Administration; community health
centers; rural health clinics; and testing for the uninsured.
On May 12, House Democrats introduced H.R. 6800, the Heroes Act, to provide a $3 trillion
supplemental spending bill for additional financial resources to state and local governments. The
measure passed the House on May 15 and was sent to the Senate for consideration. Among other
provisions, the bill would have
 Appropriated $200 billion in hazard pay to essential workers.
 Extended additional payments to individuals, for nutrition and housing
assistance, and provide funding for additional testing and contact tracing.
 Restored the tax deduction for state and local taxes.
 Provided FY2020 emergency supplemental appropriations to federal agencies.
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 Provided payments and other assistance to state, local, tribal, and territorial
governments.
 Provided additional direct payments of up to $1,200 per individual.
 Expanded paid sick days, family and medical leave, unemployment
compensation, nutrition and food assistance programs, housing assistance, and
payments to farmers.
 Modified and expanded the Paycheck Protection Program, which provides loans
and grants to small businesses and nonprofit organizations.
 Expanded several tax credits and deductions.
 Provided funding and establish requirements for COVID-19 testing and contact
tracing.
 Eliminated cost-sharing for COVID-19 treatments;
 Extended and expanded the moratorium on certain evictions and foreclosures;
and
 Required employers to develop and implement infectious disease exposure
control plans.
On December 2, the Federal Reserve released its “Beige Book”—a mostly qualitative assessment
of the U.S. economy produced 8 times a year by the 12 regional Federal Reserve banks—that
provides an assessment of economic activity across the various regions of the country. The
assessment indicated that economic activity in November had improved modestly, although was
negligible in some Districts.190
On December 27, 2020, President Trump signed the Consolidated Appropriations Act of 2021
(P.L. 116-260) that provided funding for government operations and $900 billion in additional
funding for COVID-19 related programs and a $1.4 trillion budget that comprised 12
appropriations bills. In general, the measure provided
 $600 in stimulus checks to qualifying individuals, including adults and children.
 Extended unemployment benefits of up to $300 per week through at least March
14, 2021, and Pandemic Unemployment Assistance for qualifying individuals up
to 11 weeks.
 Financial assistance to businesses, including forgivable Paycheck Protection
Program loans, extensions of the PPP program to churches and the entertainment
industry, and grants through the Economic Injury Disaster Loans program.
 A moratorium on rental evictions through January 31, 2021, and emergency
funding for renters.
 Funds to support vaccine production, distribution, and testing.
 Funds for schools, colleges, and child-care assistance.
 Assistance to the transportation industry through funds for busses, roads, airports,
and Amtrak and assistance to the airline workers through the Payroll Support
Program.
On March 11, 2021, President Biden signed the American Rescue Plan Act (P.L. 117-2) that
appropriated $1.9 trillion to stimulating the U.S. economy. The major features of the act included

190 The Beige Book: Summary of Commentary on Current Economic Conditions by Federal Reserve District, December
2, 2020, the Federal Reserve System.
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 Expanded unemployment benefits with a $300 weekly supplement through
September 6, 2021.
 $1,400 in direct payments to individuals making up to $75,000, $112,500 for
single parents, and $150,000 for couples.
 Emergency paid leave, expanded child tax credit up to $3,600 per child,
expanded child and dependent care credit, and earned income tax credit.
 Over $50 billion in grants and other payments to small businesses.
 $350 billion in assistance to state, local, and tribal governments.
 Education funding: $130 billion for schools; $40 billion to colleges and
universities.
 Nearly $50 billion in housing assistance, emergency rental assistance,
homeowner assistance, and other housing programs.
 Over $160 billion in health care-related programs, including COVID-19
vaccines, testing, contact tracing and other health-care related funding.
 $50 billion for transportation provisions, including funding for airports, airlines,
Amtrak and other commuter rail services.
 $10.4 billion for agriculture, including debt relief for farmers.
 $1.9 billion to improve cybersecurity.
 Changes to other health care provisions.
Personal Income and Outlays
Another metric for assessing the impact of the pandemic on the U.S. economy is provided
through changes in personal income, consumption, and saving. The economic lockdown pushed
millions of Americans out of their jobs and left them without an income. During the pandemic-
related recession, transfer payments from the federal government to individuals, primarily
through unemployment insurance, offset some of their lost income and played an important role
in supporting household consumption. On August 27, 2020, the Bureau of Economic Analysis
(BEA) reported that U.S. personal income fell by 13.6% in April and 2.1% in May, primarily
reflecting a decrease in government transfer payments to individuals from federal economic
recovery programs of 41.8% in April and 11.6% in May, as indicated in Figure 21.191 In contrast,
personal income rose in June and July by 0.2% and 1.1%, respectively, reflecting an increase in
transfer payments by 1.8% in June and an increase of 2.9% in July. During the same period,
personal consumption rose by 1.1% and 0.3%, respectively as consumers increased spending. The
lower level of spending and income transfers were also associated with a lower level of personal
savings rate of 8.8% in June and 8.6% in July as consumers attempted to sustain their level of
consumption by reducing their level of saving.
In September 2021 the Census Bureau released its annual Income and Poverty192 report and its
Supplemental Poverty Measure (SPM)193 report. According to the SPM report, which measures

191 Personal Income and Outlays, April 2020, Bureau of Economic Analysis, May 29, 2020.
192 Shrider, Emily A., Mellissa Kollar, Frances Chen, and Jessica Semega, Income and Poverty in the United States:
2020, U.S. Census Bureau, September 2021.
193 Fox, Liana E. and Kalee Burns, The Supplemental Poverty Measure: 2020, U.S. Census Bureau, September 2021.
According to the Census Bureau: The SPM does not replace the official poverty measure and is not designed to be used
for program eligibility or funding distribution. The SPM is designed to provide information on aggregate levels of
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the impact of government programs designed to assist low-income families and individuals that
are not included in the official poverty measure, the overall SPM poverty rate was 9.1%, which
was 2.6 percentage points below the 2019 rate of 11.8%, representing 8.5 million people lifted out
of poverty due to the government stimulus payments.194 The SPM report also indicated that in
2020: unemployment rates were down for all major age categories, Social Security continued to
be the most important anti-poverty program and moved 26.5 million individuals out of poverty,
and pandemic-related stimulus payments moved 11.7 million people out of poverty.
During the first half of 2021, wages and salaries to individuals, generally the major source of
income for households, increased by 2.9%, compared with a drop in total personal income of
4.0% and a drop in transfer receipts of 26% in 2020.195 Similar to early 2020 data, transfer
payments to households in early 2021 increased personal income and sustained personal
consumption. In addition, household savings rates were bolstered by the transfer payments,
although the peak saving rate in 2021 was lower than the rate in 2020. After peaking again in
April 2021, the rate declined steadily as consumers drew down accumulated savings to support
consumption as economic activity began recovering. By August 2021, most measures had
returned to their first quarter 2019 levels, except for the personal saving rate, which remained
slightly elevated compared with data for early 2020, prior to the pandemic.

economic need at a national level or within large subpopulations or areas. As such, the SPM provides an additional
macroeconomic statistic for further understanding economic well-being, conditions, and trends.
194 Ibid., p. 25.
195 Personal Income and Outlays, September 2021, Bureau of Economic Analysis, October 29, 2021.
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Figure 21. U.S. Personal Income, Consumption, and Saving

Source: Personal Income and Outlays, September 2021, Bureau of Economic Analysis, October 29, 2021. Created
by CRS.
GDP Output “Gap”
Another measure of the economic impact of the COVID-19 pandemic on the global economy is
represented by the difference between actual economic performance, measured by gross domestic
product (GDP), and potential output, or the maximum amount an economy can produce at full
employment, referred to as the output gap.196 The IMF estimated that the loss in economic output
represented by the GDP output gap among major advanced economies, which as a group accounts
for about 60% of global GDP, would be -3.6% in 2020, or that the economies operated at a rate
that was 3.6% below their combined potential, as indicated in Table 13.197 According to the
IMF’s assessment, not only would the major advanced economies as a group operate below their
full potential through 2025, but none of the individual economies was projected to operate above
potential during the 2020-2025 forecasting period. The Euro area as a whole, and France and Italy
in particular, were projected to experience the largest output gap through 2022. At 3.2% the U.S.
output gap was among the smallest of the major advanced economies.

196 According to the Congressional Budget Office, The output gap is the difference between GDP and potential GDP,
expressed as a percentage of potential GDP. A positive value indicates that GDP exceeds potential GDP; a negative
value indicates that GDP falls short of potential GDP. Values for the output gap are for the fourth quarter of each year.
197 World Economic Outlook, International Monetary Fund, October 2020, Table A.8.
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Table 13. IMF Forecast of Major Advanced Economy GDP Output Gap
In percentage terms

Projected

2017
2018
2019
2020
2021
2022
2023
2024
2025
Major Advanced
-0.5%
0.2%
0.4%
-3.6%
-2.2%
-1.0%
-0.4%
-0.2%
-0.1%
Economies
United States
-1.0
0.4
1.0
-3.2
-1.5
-0.5
-0.2
-0.1
-0.1
Euro Area
-0.4
0.2
0.1
-5.1
-3.2
-1.6
-0.6
-0.2
0.0
Germany
1.0
1.2
0.4
-3.5
-1.8
-0.7
-0.2
-0.1
0.0
France
-1.3
-0.5
0.0
-5.6
-4.0
-2.5
-1.4
-0.6
0.0
Italy
-1.2
-0.7
-0.7
-5.4
-5.4
-2.6
-0.9
-0.6
-0.5
Japan
-0.3
-0.8
-0.7
-3.0
-2.1
-1.0
-0.4
0.0
0.0
United Kingdom
0.3
0.0
0.0
-3.9
-3.5
-1.7
-1.0
-0.5
0.0
Canada
0.4
0.6
0.4
-3.8
-1.4
-0.3
-0.1
0.0
0.0
Source: International Monetary Fund.
Notes: The output gap is the difference between GDP and potential GDP, expressed as a percentage of
potential GDP. A positive value indicates that GDP exceeds potential GDP; a negative value indicates that GDP
falls short of potential GDP.
On July 2, 2021, the Congressional Budget Office (CBO) issued an updated estimate of the
impact of the COVID-19 pandemic on the U.S. GDP output gap and on other major indicators.198
In the forecast, the U.S. output gap in 2020 was estimated at 3.3%, similar to the size of the gap
estimated by the IMF, the largest difference between the actual and potential output in the U.S.
economy since the period following the 2008-2009 financial crisis, as indicated in Figure 22. The
CBO also estimated that the output gap following the financial crisis persisted from 2009-2016,
reflecting the lengthy period of the recovery. In the current context, the CBO estimates that
 a rise in vaccinations will lead to reductions in social distancing and an economic
recovery;
 real GDP will expand in 2021 and reach its pre-pandemic peak in mid-2021;
 the labor force participation rate will recover, but lag behind the pre-pandemic
rate through the estimation period.199

198 An Update to the Budget and Economic Outlook: 2021 to 2031, Congressional Budget Office, July 2021.
199 Ibid., p. 2.
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Figure 22. Real and Potential U.S. GDP and the Output Gap

Source: Congressional Budget Office, July 2021. Created by CRS.
Notes: The output gap is the difference between GDP and potential GDP, expressed as a percentage of
potential GDP. A positive value indicates that GDP exceeds potential GDP; a negative value indicates that GDP
falls short of potential GDP. Values for the output gap are for the fourth quarter of each year.
CBO also estimated that U.S. GDP would grow at an annual rate of 6.7% in 2021, outpacing the
CBO’s February forecast of 4.6%. The CBO attributes this higher growth estimate to three
factors: added fiscal spending is projected to increase output; a more rapid return to pre-pandemic
levels of social activity; higher levels of consumer spending propelled by savings accumulated
during the pandemic.200 After growing by 5.0% in 2022, the economy is projected to grow at pre-
pandemic rates in the 2024-2031 period, as indicated in Table 14. The unemployment rate was
also projected to peak in 2020 at 8.1%, but trend downward and reach the pre-pandemic rate in
the 2024 to 2025 period. Similarly, the growth rates of exports and imports were projected to fall
by 12.9% and 9.3%, respectively, in 2020, before growing at positive rates through the forecast
period.
Table 14. Congressional Budget Office Projection of Major U.S. Economic Indicators,
2021 to 2031
Annual percentage change

Average annual

2024-
2026-

2021
2022
2023
2025
2031

2017
2018
2019
2020
Projected
Gross Domestic
2.3
3.0
2.2
-3.5
6.7
5.0
1.5
1.2
1.6
Product (GDP)
Potential GDP
1.7
1.8
1.9
1.9
1.9
2.1
2.1
1.9
1.7
Output Gap
0.0
0.6
1.0
-3.3
-1.3
-0.8
-0.4
0.4
-0.1
Civilian Unemp.
4.4
3.9
3.7
8.1
5.5
3.8
3.7
4.1
4.4
Rate

200 Ibid., p. 3.
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Average annual

2024-
2026-

2021
2022
2023
2025
2031

2017
2018
2019
2020
Projected
Labor Force
62.9
62.9
63.1
61.7
61.9
62.6
62.9
62.3
61.3
Participation Rate
Exports
3.9
3.0
-0.1
-12.9
7.7
9.1
3.9
1.3
1.5
Imports
4.7
4.1
1.1
-9.3
14.4
4.0
1.9
0.7
2.1
Source: An Update to the Budget and Economic Outlook: 2021-2031, Congressional Budget Office, July 2021.
Federal Reserve Forecast
On June 16, 2021, the Federal Open Market Committee released an updated forecast of the U.S.
economy. In testimony before the House Select Subcommittee on the Coronavirus Crisis, Fed
Chairman Powell reviewed the major conclusions of the assessment and indicated the U.S.
economy was recovering at a faster pace than it had forecasted in March. According to Powell,
“Widespread vaccinations have joined unprecedented monetary and fiscal policy actions in
providing strong support to the recovery.”201 Despite progress, Powell indicated the pandemic
posed continued risks to the economic outlook in part due to a slower rate of vaccinations and
new strains of the virus. He concluded by indicating that progress on vaccinations would support
a return to more normal economic conditions and that the Fed was willing to do “everything we
can to support the economy for as long as it takes to complete the recovery.”202
The Fed’s June 2021 forecast also offered a more positive assessment of the economy than
previous forecasts released in March and December, with the economy projected to grow by 7.0%
in 2021, compared with the March forecast of 6.5%, as indicated in Table 15. The forecast
typically makes three projections for such major economic variables as GDP, the unemployment
rate, and the personal consumption expenditure (PCE) measure of inflation compared with its
March 2021 projections of the same variables. The three measures include (1) the median
projected change; (2) the central tendency, which excludes the highest and lowest three
projections; and (3) the range, which indicates forecasts from the highest to the lowest values.
According to the June median forecast, U.S. GDP between 2021 and 2023 was projected grow at
a slightly faster pace in 2021, but at about the same pace for 2022 and 2023 compared with the
March forecast; the unemployment rate at 4.5% is the same as the previous forecast; the rate of
inflation could rise by 1.0% above the rate forecasted in March. The possible range for GDP,
however could vary between 6.3% and 7.8% in 2021, or 0.5% to 1.0% above the previous
forecast with a possible rate of unemployment between 4.2% and 5.0%, comparable to the
previous forecast. The Fed indicated it based its forecast on the best available information, but
cautioned there was “considerable uncertainty” about the forecast.203
The Fed also announced it would continue its dollar liquidity swap lines with nine central banks
until the end of 2021 to facilitate liquidity in the global U.S. dollar funding market. The swap

201 Powell, Jerome H., Statement, House of Representatives, Select Subcommittee on the Coronavirus Crisis, June 22,
2021, p. 1.
202 Ibid., p. 4.
203 Summary of Economic Projections, Board of Governors of the Federal Reserve System, June 16, 2021, p. 17. The
Fed indicated that due to the level of uncertainty, its forecasts could vary within a range of ±1.5% to ±2.0% for GDP;
±0.9% to ±1.8% for unemployment; and ±0.9% to ±1.0% for prices.
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lines include providing up to $60 billion to the Reserve Bank of Australia, the Banco Central do
Brasil, the Bank of Korea, the Banco de México, the Monetary Authority of Singapore, and the
Sveriges Riksbank (Sweden); and up to $30 billion each for the Danmarks Nationalbank
(Denmark), the Norges Bank (Norway), and the Reserve Bank of New Zealand.
In previous statements, the FOMC had stated that the range of estimates is necessary to represent
the “extremely elevated” uncertainty related to the economic effects of the pandemic and the
limited historical response of the U.S. economy to past economic shocks. As a result of the
“significant uncertainty and downside risks associated with the pandemic, including how much
the economy would weaken and how long it would take to recover,” the assessment of a more
pessimistic projection was judged to be no less pessimistic than the baseline scenario (median).
Another member of the Fed indicated that the pandemic-related economic crisis should be used to
distill lessons and “institute reforms so our system is more resilient and better able to withstand a
variety of possible shocks in the future, including those emanating from outside the financial
system.204
Table 15. Federal Reserve Economic Projections, September 2021
Percentage change, fourth quarter over previous year fourth quarter

Core
Change in
June
Unemploy-
June
PCE
June
PCE
June
real GDP
projection
ment rate
projection inflation projection
inflation
projection
Median1
2021
5.9
7.0
4.8
4.5
4.2
3.4
3.7
3.0
2022
3.8
3.3
3.8
3.8
2.2
2.1
2.3
2.1
2023
2.5
2.4
3.5
3.5
2.2
2.2
2.2
2.1
2024
2.0

3.5

2.1

2.1

Longer
1.8
1.8
4.0
4.0
2.0
2.0

run
Central Tendency2
2021
5.8–6.0
6.8–7.3
4.6–4.8
4.4–4.8
4.0–4.3
3.1–3.5
3.6–3.8
2.9–3.1
2022
3.4–4.5
2.8–3.8
3.6–4.0
3.5–4.0
2.0–2.5
1.9–2.3
2.0–2.5
1.9–2.3
2023
2.2–2.5
2.0–2.5
3.3–3.7
3.2–3.8
2.0–2.3
2.0–2.2
2.0–2.3
2.0–2.2
2024
2.0–2.2

3.3–3.6

2.0–2.2

2.0–2.2

Longer
1.8–2.0
1.8–2.0
3.8–4.3
3.8–4.3
2.0
2.0

run
Range3
2021
5.5–6.3
6.3–7.8
4.5–5.1
4.2–5.0
3.4–4.4
3.0–3.9
3.5–4.2
2.7–3.3
2022
3.1–4.9
2.6–4.2
3.0–4.0
3.2–4.2
1.7–3.0
1.6–2.5
1.9–2.8
1.7–2.5
2023
1.8–3.0
1.7–2.7
2.8–4.0
3.0–3.9
1.9–2.4
1.9–2.3
2.0–2.3
2.0–2.3
2024
1.8–2.5

3.0–4.0

2.0–2.3

2.0–2.4

Longer
1.6–2.2
1.6–2.2
3.5–4.5
3.5–4.5
2.0
2.0

run

204 Brainard, Lael, Some Preliminary Financial Stability Lessons From the COVID -19 Shock, At the 2021 Annual
Washington Conference, Institute of International Bankers March 1, 2021.
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Source: Summary of Economic Projections, September 22, 2021.
Notes: (1) For each period, the median is the middle projection when the projections are arranged from lowest
to highest. (2) The central tendency excludes the three highest and three lowest projections for each variable in
each year. (3) The range for a variable in a given year includes all participants’ projections, from lowest to
highest, for that variable in that year. Projections for the unemployment rate represent the average civilian
unemployment rate in the fourth quarter of the year indicated.
For additional information about the impact of COVID-19 on the U.S. economy see CRS Insight
IN11235, COVID-19: Potential Economic Effects.205
Europe
In the early stages of the pandemic, European countries did not adopt a synchronized fiscal policy
response similar to the one they developed during the 2008-2009 global financial crisis. For the
most part, EU members used a combination of national fiscal policies and bond buying by the
ECB to address the economic impact of the pandemic. Individual countries adopted quarantines
and required business closures, travel and border restrictions, tax holidays for businesses,
extensions of certain payments and loan guarantees, and subsidies for workers and businesses.
The European Commission advocated for greater coordination among the EU members in
developing and implementing monetary and fiscal policies to address the economic fallout from
the viral pandemic.
Over the summer of 2020, European governments attempted a phased reopening of businesses.206
These efforts generated a 12.4% increase in GDP in the Eurozone in the third quarter of 2020.
Initial estimates indicated 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 2020 indicated the recovery had slowed amid an increase in new COVID-19 cases after
countries had begun reimposing new quarantines and lockdowns in various parts of the Euro area,
although most lockdowns did not include schools or some manufacturing firms.207 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.208 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.209

205 CRS Insight IN11235, COVID-19: Potential Economic Effects, by Marc Labonte.
206 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.
207 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.
208 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.
209 Peel, Michael, European Countries Impose Shutdowns as Covid-19 Cases Rise, Financial Times, October 30, 2020.
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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
2020.210 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.211 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.212
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. On December
11, 2020, EU members finalized the agreement, which took effect on February 2021. The package
consists of a Recovery and Resilience Facility (RRF) that will provide up to €312.5 billion in
grants and €360 billion in loans and support and funds for existing budget priorities to speed up
Europe’s recovery from the economic impact of the pandemic. The EU describes the Facility as
the centerpiece of its NextGenerationEU program, a temporary recovery instrument that allows
the EC to raise funds to address the economic and social impact of the pandemic.213 Individual
EU members developed recovery and resilience plans to support clean technologies and
renewable energy, energy efficiency, sustainable transportation and recharging stations,
broadband services, green transition, digital transformation, and education and skills training,
among other areas.
According to data released by Eurostat in August 2021, the EU rate of GDP growth during the
second quarter of 2020 contracted by 11.1%, relative to the first quarter, and by 11.4% in the Euro
area from the previous quarter, reflecting negative rates of growth across all EU countries, as
indicated in Table 16. In contrast, the EU and the Euro area grew by 11.6% and 12.4%,
respectively, in the third quarter. Compared with growth during the third quarter in the previous
year, however, EU and Euro area growth rates were down 3.9% and 4.0%, respectively. During
fourth quarter 2020 and first quarter 2021, the rate of economic growth declined by 0.4% and
0.1%, respectively, in the EU and by 0.6% 0.3% in the Euro area as a result of a renewed social
activity restrictions and business lockdowns during the period that dampened expectations
somewhat of a strong recovery across the EU in the first half of 2021. At 18.8%, the United
Kingdom experienced the largest contraction in its GDP growth rate in the second quarter of
2020, compared with the previous quarter among European countries, but third quarter growth
rate rebounded by 16.0%, the third fastest rate behind France (18.8%) and Spain (17.1%).

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.
210 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.
211 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.
212 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.
213 European Commission, The Recovery and Resilience Facility. https://ec.europa.eu/info/business-economy-euro/
recovery-coronavirus/recovery-and-resilience-facility_en#the-recovery-and-resilience-task-force.
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Table 16. EU Real GDP Growth Rates 2020 and 2021
Seasonally adjusted data
Percentage change compared with
Percentage change compared with the
the previous quarter
same quarter of the previous year

2020
2020
2020
2020
2021
2020
2020
2020
2020
2021
Q1
Q2
Q3
Q4
Q1
Q1
Q2
Q3
Q4
Q1
EU
-3.2
-11.1
11.6
-0.4
-0.1
-2.6
-13.6
-3.9
-4.3
-1.3
Euro area
-3.6
-11.4
12.4
-0.6
-0.3
-3.2
-14.4
-4.0
-4.6
-1.3
Belgium
-3.3
-11.9
11.8
-0.1
1.1
-2.0
-14.0
-4.3
-4.9
-0.5
Bulgaria
0.4
-10.1
4.3
2.2
2.5
2.3
-8.6
-5.2
-3.8
-1.8
Czechnia
-3.4
-8.9
6.8
0.7
-0.3
-1.5
-10.9
-5.4
-5.3
-2.4
Denmark
-0.7
-6.3
6.0
0.9
-1.0
0.2
-6.6
-1.3
-0.5
-0.8
Germany
-1.8
-10.0
9.0
0.7
-2.1
-1.9
-11.3
-3.7
-2.9
-3.2
Estonia
-1.6
-5.1
2.7
2.8
4.8
-0.1
-5.6
-3.5
-1.3
5.0
Ireland
3.1
-1.4
8.3
-5.2
8.6
6.7
1.4
11.2
4.3
9.9
Greece
-0.5
-12.9
3.8
3.4
4.4
-0.5
-13.9
-10.0
-6.9
-2.3
Spain
-5.4
-17.8
17.1
0.0
-0.4
-4.3
-21.6
-8.6
-8.9
-4.2
France
-5.8
-13.5
18.8
-1.0
0.0
-5.5
-18.7
-3.6
-4.2
1.7
Croatia
-0.6
-15.1
5.9
4.1
5.8
0.8
-14.6
-10.1
-6.9
-0.9
Italy
-5.7
-13.1
16.0
-1.8
0.2
-5.8
-18.2
-5.2
-6.5
-0.7
Cyprus
-0.8
-13.0
9.5
1.1
2.0
1.1
-12.5
-4.6
-4.4
-1.6
Latvia
-2.3
-7.0
6.9
1.1
-1.7
-1.2
-8.6
-2.8
-1.8
-1.2
Lithuania
-0.3
-6.2
6.1
-0.3
2.2
2.5
-4.7
0.1
-1.1
1.4
Luxem-
-1.6
-7.1
9.2
1.9
1.4
1.1
-8.0
-0.1
1.7
4.9
bourg
Hungary
-0.4
-14.5
9.7
2.8
2.0
2.1
-13.3
-5.2
-3.9
-1.6
Malta
-3.9
-13.9
7.4
4.0
1.9
1.6
-14.8
-9.6
-7.7
-2.0
Nether-
-1.6
-8.4
7.5
0.0
-0.8
-0.4
-9.1
-2.6
-3.1
-2.3
lands
Austria
-2.6
-10.6
11.6
-3.1
-1.1
-3.1
-13.2
-3.4
-5.9
-4.5
Poland
-0.2
-8.9
7.5
-0.5
1.1
2.0
-7.9
-2.0
-2.7
-1.4
Portugal
-4.0
-14.0
13.4
0.2
-3.2
-2.2
-16.4
-5.6
-6.1
-5.3
Romania
0.7
-11.8
5.5
4.6
2.9
2.8
-10.0
-5.5
-2.0
0.1
Slovenia
-5.6
-9.9
12.6
-0.6
1.4
-3.5
-13.1
-2.9
-4.8
2.3
Slovakia
-4.6
-7.5
9.9
0.8
-2.0
-3.3
-10.9
-2.5
-2.3
0.3
Finland
-0.5
-6.1
4.5
0.5
0.0
0.0
-7.0
-2.7
-1.9
-1.4
Sweden
-0.9
-7.8
7.4
0.0
0.8
0.1
-8.1
-1.8
-1.8
-0.1
Other countries

United
-3.0
-18.8
16.0
:
:
-2.4
-20.8
-8.6
:
:
Kingdom
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Percentage change compared with
Percentage change compared with the
the previous quarter
same quarter of the previous year

2020
2020
2020
2020
2021
2020
2020
2020
2020
2021
Q1
Q2
Q3
Q4
Q1
Q1
Q2
Q3
Q4
Q1
Iceland
:
:
:
:
:
:
:
:
:
:
Norway
-1.5
-4.6
4.3
0.8
-0.6
0.4
-4.3
-0.2
-1.1
-0.2
Switzer-
-1.7
-6.8
7.2
0.1
-0.5
-0.3
-7.5
-1.4
-1.7
-0.5
land
Source: Eurostat, August 13, 2021.
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.214 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
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.215
In its June summer 2021 economic forecast, the European Commission projected that EU GDP
growth rate would rise by 4.8% in 2021, after falling by 6.0% in 2020, more than a full
percentage point lower than it had estimated in its Autumn forecast of -7.4%, as indicated in
Table 17.216 The EC forecast indicated a smaller drop in gross domestic product (GDP) in 2020
among European economies than it had forecasted in its autumn 2020 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 forecast projects a rebound in the EU economy in the
second and third quarters of 2021 before a slowdown in the fourth quarter. The forecast indicated
that
 Firms and households were adapting to pandemic-related constraints and a more
positive global environment combined with increased global trade and the effects
of domestic economic stimulus policies that were contributing to growth.
 A faster-than-expected recovery in travel, including intra-EU travel, was
reflecting higher levels of consumer spending.
 Certain manufacturing sectors were continuing to experience supply shortages,
but the impact was expected to be transitory.
 Inflation pressures were increasing as a result of rising energy and commodity
prices, production bottlenecks, and rising demand, but there was uncertainty
about whether the increase was transitory or could become entrenched.
 National public and private investment spending was expected to help sustain the
economic recovery in 2021 and 2022.217

214 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.
215 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.
216 European Economic Forecast Summer 2021, European Commission, July 2021.
217 Ibid., 2.
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Table 17. European Commission Economic Forecast
Percentage change, real GDP

Summer Forecast 2021
Spring Forecast 2021
Autumn Forecast 2020
2021
2022
2020
2021
2022
2020
2021
2022

EU
4.8
4.5
-6.0
4.2
4.4
-7.4
4.1
3.0
Euro area
4.8
4.5
-6.5
4.3
4.4
-7.8
4.2
3.0
Belgium
5.4
3.7
-6.3
4.5
3.7
-8.4
4.1
3.5
Germany
3.6
4.6
-4.8
3.4
4.1
-5.6
3.5
2.6
Ireland
7.2
5.1
3.4
4.6
5.0
-2.3
2.9
2.6
Greece
4.3
6.0
-8.2
4.1
6.0
-9.0
5.0
3.5
Spain
6.2
6.3
-10.8
5.9
6.8
-12.4
5.4
4.8
France
6.0
4.2
-7.9
5.7
4.2
-7.8
4.2
3.0
Italy
5.0
4.2
-8.9
4.2
4.4
-9.4
5.8
3.1
Luxembourg
4.8
3.3
-1.3
4.5
3.3
-9.9
4.1
2.8
Malta
5.6
5.8
-7.8
4.6
6.1
-4.5
3.9
2.7
Netherlands
3.3
3.3
-3.7
2.3
3.6
-7.3
3.0
6.2
Austria
3.8
4.5
-6.3
3.4
4.3
-5.3
2.2
1.9
Portugal
3.9
5.1
-7.6
3.9
5.1
-7.1
4.1
2.5
Finland
2.7
2.9
-2.8
2.7
2.8
-9.3
5.4
3.5
Denmark
3.0
3.4
-2.7
2.9
3.5
-4.3
2.9
2.2
Sweden
4.6
3.6
-2.8
4.4
3.3
-3.9
3.5
2.4
World
5.9
4.2
-2.9
5.9
4.2
-3.4
3.3
2.4
Source: European Economic Forecast Summer 2021, European Commission, July 2021.
The Commission indicated the EU economy was weaker in the fall of 2020 and weaker going into
2021 than its earlier forecast had indicated as a result of a resurgence of COVID-19 cases and the
emergence of new, more virulent strains of the virus in the fall that led countries to reimpose
restrictions. The Commission concluded, however, that the outlook for the EU economy had
improved since its November 2020 forecast due to the development of vaccines and the pace of
vaccinations. The economic impact of the renewed lockdowns was projected to be unequal across
EU members due to differences in the stringency of containment measures, the severity of the
infections and differences in economic institutions and policy responses.218
The Commission forecast assumed that trade activity in the EU and the UK would be negatively
affected beginning in January 2021 due to the UK withdrawal from the EU. By country, Spain,
France, Italy, Portugal, and Greece were forecasted to experience the largest declines in GDP in
2020 due to a number of factors, including a dependence on tourism, which is expected to
experience a slow economic recovery. Germany and other Northern European countries were
projected to experience a more modest decline in economic activity. Some analysts argue that this
disparity in economic effects may complicate efforts to coordinate economic policies.219

218 European Economic Forecast Winter 2021, European Commission, February 2021, p. 1.
219 Birnbaum, Michael, European Union Says That Pandemic Recession Will be Worst in its History, Washington Post,
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In assessing the challenge of the crisis, the Commission argued that, “[t]he risk … is that the
crisis will lead to severe distortions within the Single Market and to entrenched economic,
financial and social divergences between euro area Member States that could ultimately threaten
the stability of the Economic and Monetary Union.”220 The Commission estimated that European
countries would emerge from the recession at different rates and different paths, reflecting
differences in the timing of the introduction and removal of social distancing measures,
dependency on tourism, and the magnitude and effectiveness of economic policies. The
Commission also noted the rise in saving among EU households that it argued was mostly
involuntary, rather than precautionary and was projected to revert to pre-crisis levels once
consumers resumed their regular spending patterns.
In previous actions, the European Commission announced that it would relax rules on
government debt to allow countries more flexibility in using fiscal policies. Also, the European
Central Bank (ECB) announced that it was ready to take “appropriate and targeted measures,” if
needed. France, Italy, Spain and six other Eurozone countries have argued for creating a
“coronabond,” a joint common European debt instrument. Similar attempts to create a common
Eurozone-wide debt instrument have been opposed by Germany and the Netherlands, among
other Eurozone members.221 With interest rates already low, however, it indicated that it would
expand its program of providing loans to EU banks, or buying debt from EU firms, and possibly
lowering its deposit rate further into negative territory in an attempt to shore up the Euro’s
exchange rate.222 ECB President-designate Christine Lagarde called on EU leaders to take more
urgent action to avoid the spread of COVID-19 from triggering a serious economic slowdown.
The European Commission indicated that it was creating a $30 billion investment fund to address
COVID-19 issues.223 In other actions taken in 2020 to address the economic crisis
 On March 12, 2020, the ECB decided to (1) expand its longer-term refinance
operations (LTRO) to provide low-cost loans to Eurozone banks to increase bank
liquidity; (2) extend targeted longer-term refinance operations (TLTRO) to
provide loans at below-market rates to businesses, especially small and medium-
sized businesses, directly affected by COVID-19; (3) provide an additional €120
billion (about $130 billion) for the Bank’s asset purchase program to provide
liquidity to firms that was in addition to €20 billion a month it previously had
committed to purchasing.224
 On March 13, 2020, financial market regulators in the UK, Italy, and Spain
intervened in stock and bond markets to stabilize prices after historic swings in

May 6, 2020. https://www.washingtonpost.com/world/european-union-says-pandemic-recession-will-be-worst-in-its-
history/2020/05/06/e787a70e-8f96-11ea-9322-a29e75effc93_story.html.
220 European Economic Forecast Autumn 2020.
221 Dombey, Daniel Dombey, Guy Chazan, and Jim Brunsden, “Nine Eurozone Countries Issue Call for
‘Coronabonds,’” Financial Times, March 26, 2020. https://www.ft.com/content/258308f6-6e94-11ea-89df-
41bea055720b.
222 “US Fed’s Covid-19 Rate Cut Is First Move in a Dance with Markets,” Financial Times, March 4, 2020.
https://www.ft.com/content/83c07594-5e3a-11ea-b0ab-339c2307bcd4. Giles, Chris, Martin Arnold, Sam Jones, and
Jamie Smyth, “Finance Ministers ‘Ready to Take Action’ on Covid-19,” Financial Times, March 3, 2020.
https://www.ft.com/content/b86f7d92-5d38-11ea-b0ab-339c2307bcd4.
223 Arnold, Martin and Guy Chazan, “Christine Lagarde Calls on EU Leaders to Ramp up Covid-19 Response,”
Financial Times, March 11, 2020. https://www.ft.com/content/44eac1f2-6386-11ea-a6cd-df28cc3c6a68.
224 Monetary Policy Decisions, The European Central Bank, March 12, 2020. https://www.ecb.europa.eu/press/pr/date/
2020/html/ecb.mp200312~8d3aec3ff2.en.htm.
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indexes on March 12, 2020.225 In addition, the ECB announced that it would do
more to assist financial markets in distress, including altering self-imposed rules
on purchases of sovereign debt.226
 Germany’s Economic Minister announced on March 13, 2020, that Germany
would provide unlimited loans to businesses experiencing negative economic
activity (initially providing $555 billion), tax breaks for businesses,227 and export
credits and guarantees.228
 On March 18, the ECB indicated that it would: create a €750 billion (about $800
billion) Pandemic Emergency Purchase Program to purchase public and private
securities; expand the securities it will purchase to include nonfinancial
commercial paper; and ease some collateral standards.229 In announcing the
program, President-designate Lagarde indicated that the ECB would, “do
everything necessary.” In creating the program, the ECB removed or significantly
loosened almost all constraints that applied to previous asset-purchase programs,
including a self-imposed limit of buying no more than one-third of any one
country’s eligible bonds, a move that was expected to benefit Italy.
 The ECB also indicated that it would make available up to €3 trillion in liquidity
through refinancing operations.230 Britain ($400 billion) and France ($50 billion)
also announced plans to increase spending to blunt the economic effects of the
virus. Recent forecasts indicate that the economic effect of COVID-19 could
push the Eurozone into an economic recession in 2020.231
 On March 23, 2020, Germany announced that it would adopt a €750 billion (over
$800 billion) package in economic stimulus funding.
 On April 15, Eurozone finance ministers announced a €500 billion (about $550
billion) emergency spending package to support governments, businesses, and
workers and will provide funds to the European Stability Mechanism, the
European Investment Bank, and for unemployment insurance.232
On May 5, 2020, Germany’s Constitutional Court issued a ruling challenging the legality of a
bond-buying program conducted by the ECB since 2015, the Public Sector Purchase Program
(PSPP). In its ruling, the court directed the German government to request clarification from the

225 Stafford, Philip and Adam Samson, “European Regulators Intervene in Bid to Stabilize Stock and Bond Prices,”
Financial Times, March 13, 2020. https://www.ft.com/content/77f57d4c-6509-11ea-a6cd-df28cc3c6a68.
226 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.
227 Loveday, Morris and Louisa Beck, “Germany Announces ‘Bazooka’ Economic Plan to Mitigate Covid-19 Hit,”
Washington Post, March 13, 2020. https://www.washingtonpost.com/world/2020/03/13/Covid-19-latest-news/.
228 Arnold, Martin, Guy Chazan, Victor Mallet, Miles Johnson, and Daniel Dombey, “How European Economies Are
Trying to Mitigate the Covid-19 Shock,” Financial Times, March 17, 2020. https://www.ft.com/content/26af5520-
6793-11ea-800d-da70cff6e4d3.
229 ECB Announces €759 Billion Pandemic Emergency Purchase Program, the European Central Bank, March 18,
2020. https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200318_1~3949d6f266.en.html.
230 Lagarde, Christine, “The ECB Will Do Everything Necessary to Counter the Virus,” Financial Times, March 20,
2020. https://www.ft.com/content/281d600c-69f8-11ea-a6ac-9122541af204.
231 “Lagarde to Confront Covid-19 Crisis at ECB Policy Meeting,” Financial Times, March 8, 2020.
https://www.ft.com/content/79a280c6-5fb5-11ea-b0ab-339c2307bcd4.
232 Fleming, Sam and Mehreen Khan, “Eurozone Countries Strike Emergency Deal on Coronavirus Rescue,” Financial
Times, April 9, 2020. https://www.ft.com/content/b984101a-42b8-40db-9a92-6786aec2ba5c.
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ECB about various aspects of the PSPP program that the court argued might exceed the ECB’s
legal mandate. The German government did not immediately respond to the ruling, but many
analysts contended the ruling—and the challenge to the authority of the ECB and the European
Court of Justice—could have far-reaching implications for future ECB activities. This potentially
included challenges to the ECB’s Pandemic Emergency Purchase Program (PEPP) initiated in
March. The PEPP is a temporary program that authorized the ECB to acquire up to €750 billion
(about $820 billion) in private and public sector securities to address the economic effects of the
pandemic crisis.
The German court’s ruling heightened tensions between the court and the European Court of
Justice. Following the 2008-2009 financial crisis and the subsequent Eurozone financial crisis, the
ECB launched four asset purchase programs in 2014 to provide assistance to financially strapped
Eurozone governments and to sustain financial liquidity in Eurozone banks. Those programs
included the Corporate Sector Purchase Program (CSPP), the Public Sector Purchase Program
(PSPP), the Asset-Backed Securities Purchase Program (ABSPP), and the Third Covered Bond
Purchase Program (CBPP3). The programs operated from 2014 to 2018; the PSPP was restarted
in November 2019. As of May 8, 2020, the PSPP program held €2.2 trillion (about $2.5 trillion)
with another €600 billion (about $700 billion) held under other asset purchase programs.233
Various groups in Germany challenged the legality of the ECB bond-buying programs before the
German Constitutional Court by arguing the programs exceeded the ECB’s legal mandate. In
turn, the German court referred the case to the European Court of Justice, which ruled in
December 2019 that the ECB’s actions were fully within the ECB’s authority.
In the German Constitutional Court’s May 5, 2020 ruling, the German judges characterized the
ECJ’s ruling as “incomprehensible,” and directly challenged the ECB and the European Court of
Justice and the primacy of the European Court of Justice ruling over national law. The German
justices argued the ECB had exceeded its authority by not fully evaluating the economic costs and
benefits of previous bond-buying activities, including the impact on national budgets, property
values, stock markets, life insurance and other economic effects. The German court also argued
that the ECB’s lack of a strategy for reducing its holdings of sovereign debt of Eurozone
members increased risks for national governments that back up the ECB, and it challenged the
ECB’s strategy for reducing its holdings of sovereign debt. By the end of June, however, the
standoff appeared to be reaching a resolution. The ECB reportedly agreed to provide the German
court with the Bank’s analysis of the economic and fiscal policy impact of the ECB bond-buying
programs. The ECB reportedly will also provide the unpublished full minutes of the central
bank’s governing council monetary policy meetings, including the ECB’s discussions in March
2015 of its purchases of sovereign bonds.234
On March 26, 2021, Germany’s highest court stopped a law that would have ratified the PEPP
bond-buying program. The program required ratification by each of the EU member’s national
parliaments. The legislation was adopted by both of Germany’s houses of Parliament and was
expected to be signed by German president, Frank-Walter Steinmeier when the court
intervened.235
On May 18, German Chancellor Angela Merkel and French President Emmanuel Macron
proposed a €500 billion (about $620 billion) EU recovery fund in an effort to gain a coordinated

233 European Central Bank. https://www.ecb.europa.eu/mopo/implement/pepp/html/pepp-qa.en.html.
234 Arnold, Martin, Berlin and ECB Signal End to Legal Impasse Over Bond-Buying, Financial Times, June 25, 2020.
https://www.ft.com/content/5f000a25-3d54-4610-8579-cab9b21759ee.
235 Chazan, Guy, Germany’s Highest Court Blocks Ratification of EU Recovery Fund, Financial Times, March 26,
2021. https://www.ft.com/content/74841ea6-4fbf-4c7a-b015-66ba191ffc9b.
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EU fiscal response to the pandemic.236 Reportedly, the funds would have been raised by the
European Commission and used to fund EU spending through grants to individual members to
ease the economic strain in some of the southern EU members that have been the most negatively
affected. Austria, the Netherland, Denmark, and Sweden indicated they would only support
proposals that provided funds to members through loans that would be required to be repaid.
On May 27, ECB President Lagarde indicated the ECB projected a drop in the EU economy of
8% to 12% in 2020, twice as severe as the recession following the 2008 financial crisis, and
called for a €500 billion (about $620 billion) stimulus package.237 In addition, European
Commission President Ursula von der Leyen proposed a €750 billion (about $820 billion) EU
recovery fund, termed the “Next Generation Fund,” that would provide €500 billion ($550
billion) in grants in a Recovery and Resilience Facility and €250 billion ($270 billion) in loans.
The proposal would take the unprecedented step of allowing the EU to issues bonds
independently from the other EU central banks.238 Questions remained over the source and
distribution of the funds. The program may have limited appeal given various restrictions:
reportedly, the funds must be used to achieve certain EU goals, including increasing
competitiveness, shifting away from declining heavy industry, supporting a green economy, and
building the digital economy.239 Proposals for raising funds include issuing 30-year bonds and
raising taxes on large technology firms, such as Google and Facebook. In addition to the recovery
fund, von der Leyen proposed a revised EC seven-year budget, the Multiannual Financial
Framework (MFF), of €1.1trillion for 2021 to 2027.
On May 28, several key political groups within the EU Parliament voiced their support for new
rules that would allow the EU to retaliate in such trade areas as services and intellectual property
protection without waiting for a WTO ruling. Some Parliamentarians reportedly argued that such
expanded authority, termed a “trade bazooka,” was necessary to respond to trade disputes,
because the United States had blocked the appointment of judges to the WTO’s appellate body.240
European leaders, reportedly interested in finalizing an investment agreement with China,
announced they would not follow President Trump in applying trade restrictions on China for
positioning itself to limit Hong Kong’s autonomy granted by the “one country two systems”
principle after the end of British rule in 1997.241
The European Central Bank announced on June 4 that it would double to $1.5 trillion its
Pandemic Emergency Purchase Program to stimulate the European economy; it also extended the
program to at least June 2021.242 At the same time, the German government announced a package
of fiscal measures, including tax cuts, aid to small businesses, cash payments to parents, and other

236 Fleming, Sam, Victor Mallet, and Guy Chazan, Germany and France Unite in Call for €500 Billion Europe
Recovery Fund, Financial Times, May 18, 2020. https://www.ft.com/content/c23ebc5e-cbf3-4ad8-85aa-032b574d0562.
237 Arnold, Martin, Coronavirus Hit to Eurozone Economy Set to Dwarf Financial Crisis, Financial Times, May 27,
2020. https://www.ft.com/content/a01424e8-089d-4618-babe-72f88184ac57.
238 Birnbaum, Michael, and Loveday Morris, E.U. Proposes $825 Billion Coronavirus Rescue Plan Giving Brussels
Power to Raise Money for First Time, Washington Post, May 27, 2020. https://www.washingtonpost.com/world/
europe/angela-merkel-economic-rescue/2020/05/27/9d21b998-9f7c-11ea-be06-af5514ee0385_story.html.
239 Brunsden, Jim and Sam Fleming, How Would Ursula von der Leyen’s Coronavirus Recovery Fund Work?,
Financial Times, May 27, 2020. https://www.ft.com/content/ebaa7dcd-b6f7-418f-802b-7a8dbc9668f1.
240 Vela, Jakob Hanke, Trade Bazooka Gets Backing From Main Political Groups in EU Parliament, Politico Pro, May
28, 2020; Draft Report, 2019/10273(COD), European Parliament, Committee on International Trade, May 6, 2020.
241 Lau, Stuart Lau, Jakob Hanke Vela, Jacopo Barigazzi, and Finbarr Bermingham, EU Won't Follow Trump Into a
Trade War Over Hong Kong, Politico Pro, May 28, 2020.
242 Arnold, Martin, ECB Boosts Bond-Buying Stimulus Package by €600, Financial Times, June 4, 2020.
https://www.ft.com/content/c59ab92d-e614-4284-a028-46ee3bcf92f9.
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measures totaling €135 billion (about $150 billion). Austria, Denmark, the Netherland, and
Sweden resisted payouts in grants instead of loans that require repayment. The German plan
would have given households $336 per child, reduced value added taxes on daily items, and
reduced households’ utility bills. The plan also included about $6 billion for the social security
system, $11 billion to assist cities cover housing and other costs, about $2 billion for cultural
institutions and nonprofit groups and incentives for purchases of electric vehicles.243
On June 25, Germany’s Minister for Economic Affairs and Energy announced that the German
government would provide more than €300 million (about $330 million), to acquire a 25% stake
in a privately owned German drug company that is conducting trials on a possible COVID-19
vaccine. Reportedly, the U.S. Government had attempted to acquire part of the company to secure
supplies of a potential vaccine. Germany placed legal restrictions on foreign investments in
critical industries such as energy and telecoms, but the German Parliament amended Germany’s
Foreign Trade Act, set to become law in 2020, that broadened the scope of transactions that must
be approved by the Federal government to include “critical” technologies, including robotics,
biotech, and quantum computing.244
On July 17, the European Commission met to approve the proposed €750 billion support fund to
assist European countries address the economic effects of the pandemic. Initially, the Commission
was unable to agree on various aspects of the program, but talks continued over the weekend and
resumed on July 20. European leaders announced on July 21 they had approved a €750 billion
(about $859 billion) pandemic relief package and a multi-year EU budget, referred to as the
Multiannual Financial Framework (MFF), with a combined value of over €2 trillion. The
pandemic plan was developed to direct funding to post-pandemic economic recovery efforts with
the European Commission set to borrow an unprecedented amount of funds on European capital
markets.245 The €750 billion relief fund reportedly included the proposed Recovery and
Resilience Facility of €672.5 billion, which included €360 billion in loans and €312.5 billion in
grants and half a dozen other initiatives to assist economically weakened member states. The
relief fund was coupled with rebates on EU budget contributions for so-called “frugal” states, or
EU members with stronger fiscal balances. Austria, the Netherlands, Denmark, and Sweden
reportedly would receive such budget rebates.246
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.247 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.248At the same time, 16 European countries, including Germany,

243 Ewing, Jack, and Melissa Eddy, ‘Europe Finally Got the Message’: Leaders Act Together on Message, The New
York Times, June 4, 2020. https://www.nytimes.com/2020/06/04/business/europe-coronavirus-economic-support.html?
action=click&module=Top%20Stories&pgtype=Homepage.
244 Miller, Joe, Germany Flexes its Muscles on Foreign Investment, Financial Times, June 25, 2020.
https://www.ft.com/content/54f92ca5-5380-466b-95f8-3e98b40ebc82.
245 Special Meeting of the European Council-Conclusions, EUCP 10/20, July 21, 2020.
246 Fleming, Sam, Mehreen Khan and Jim Brunsden, EU Leaders Strike Deal on €750bn Recovery Fund After
Marathon Summit, Financial Times, July 21, 2020. https://www.ft.com/content/713be467-ed19-4663-95ff-
66f775af55cc.
247 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.
248 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.
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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.249 On September 3, 2020, French Prime Minister Jean Castex
announced that France would implement a €100 billion (about $130 billion) spending plan to
speed the economy’s recovery from the economic effects of the COVID-19 pandemic.
Reportedly, the plan included funding for green energy (including hydrogen energy),
transportation (state railways), and industrial innovation.250
The United Kingdom
The United Kingdom has taken a number of steps to support economic activity that were
expected to limit the damage to the UK economy. The Bank of England (BOE) forecasted in May
2020 that the UK economy would contract by 30% in the first half of 2020, but then rebound
sharply in the second half of the year, exhibiting a “V” shaped recovery. During the initial stages
of the economic crisis, the Bank of England announced a number of policy initiatives including
 On March 11, the BOE adopted a package of four measures to deal with any
economic disruptions associated with COVID-19. The measures included an
unscheduled cut in the benchmark interest rate by 50 basis points (0.5%) to a
historic low of 0.25%; the reintroduction of the Term Funding Scheme for Small
and Medium-sized Enterprises (TFSME) that provides banks with over $110
billion for loans at low interest rates; a lowering of banks’ countercyclical capital
buffer from 1% to zero, which is estimated to support over $200 billion of bank
lending to businesses; and a freeze in banks’ dividend payments.251
 On March 15, the BOE reinstituted U.S. dollar swap lines with the Federal
Reserve.
 On March 17, the BOE and the UK treasury introduced the COVID Corporate
Financing Facility (CCFF) to provide assistance to UK firms to bridge through
Covid-19-related disruptions to their cash flow.
 On March 19, during a Special Monetary Policy Meeting, the Bank of England
reduced its main interest rate to 0.1%, increased the size of its TFSME fund, and
increased the stock of asset purchases by £200 billion to a total of £645 billion
financed by issuing UK government bonds and some additional nonfinancial
investment-grade corporate bonds.252
 On March 20, the BOE participated in an internationally coordinated central bank
expansion of liquidity through U.S. standing dollar liquidity swap line
arrangements.
 On March, the BOE activated the Contingent Term Repo Facility (CTRF).

249 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.
250 Mallet, Victor, France Launches €100 Billion Coronavirus Recovery Plan, Financial Times, September 3, 2020.
https://www.ft.com/content/0921c871-17b5-4e2e-bdea-aab78c2d0090.
251 Romei, Valentina, “Covid-19 Fallout: Bank of England Launches 4 Key Measures,” Financial Times.
https://www.ft.com/content/4e60c08e-6380-11ea-b3f3-fe4680ea68b5.
252 Johnson, Miles, Chris Giles, Martin Arnold, and James Politi, “Italy’s PM Urges Brussels to Unleash €500bn
Rescue Fund,” Financial Times, March 18, 2020. https://www.ft.com/content/5b8205ac-6a06-11ea-800d-
da70cff6e4d3.
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 On April 6, announced the activation of the TFSME ahead of schedule.
 On April 23, the Bank of England indicated it would quadruple its borrowing
over the second quarter of 2020, reflecting a contraction in the UK economy,
lower tax revenues, and increased financial demands to support fiscal policy
measures.253
In terms of fiscal policy, UK Chancellor of the Exchequer Rishi Sunak proposed a national
budget on March 11, 2020, that included nearly $3.5 billion in fiscal spending to counter adverse
economic effects of the pandemic and increased in statutory sick leave by about $2.5 billion in
funds to small and medium businesses to provide up to 14 days of sick leave for affected
employees. The plan provided affected workers up to 80% of their salary, or up to £2,500 a month
(about $2,800) if they were laid off. Some estimates indicated that UK spending to support its
economy would rise to about $60 billion in 2020.254 Identified as the Coronavirus Job Retention
Scheme (CJRS), the program was backdated to start on March 1 and had been expected to run
through May, but was extended to expire the end of June 2020. Prime Minister Johnson also
announced that all pubs, cafés, restaurants, theatres, cinemas, nightclubs, gyms and leisure centers
would be closed.255 Part of the fiscal spending package included open-ended funding for the
National Health Service (NHS), $6 billion in emergency funds to the NHS, $600 million hardship
fund to assist vulnerable people, and tax cuts and tax holidays for small businesses in certain
affected sectors.256
On July 8, Chancellor Sunak proposed additional fiscal measures to support the UK economy.257
The measures included raising threshold tax levels on home purchases, reducing taxes for the
hospitality industry, and a “job retention bonus” of £1.000 (around $1,200) per worker to
companies that bring employees out of furlough, estimated at around 9 million workers, and a
subsidy of £2.000 for firms that hire new apprentices. In addition, the proposed plan includes a
50% discount on meals and nonalcoholic drinks eaten at restaurants and cafes during August,
with some restrictions.
After falling in the first and second quarters of 2020, growth accelerated in the 3rd and 4th
quarters, as indicated in Table 18. Despite this growth, the UK economy at the end of 2020
remained 8.4% below the level where it was at the end of 2019. For 2020 as a whole, the rate of
growth of the UK economic contracted by 9.8%. As was typical of other developed economies,
the Q2 decline was driven by lower levels of activity by households (-20.8%), business
investment (gross fixed capital formation) (-20.7%)-primarily manufacturing, and construction
(35%) and declines in both exports and imports, constituting the largest quarterly decline since
1955.258 In contrast, the Q3 and Q4 expansion occurred in services, industrial production, and
construction.

253 Giles, Chris, and Tommy Stubbington, UK Treasury to Quadruple Borrowing to £180bn Over Next Quarter,
Financial Times, April 23, 2020. https://www.ft.com/content/8886e002-c260-4daa-8b7b-509b3f7e6edb.
254 Parker, George, 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.
255 Ibid.
256 Payne, Sebastian and Chris Giles, “Budget 2020: Sunak Unveils £30bn Stimulus to Counter UK Covid-19 Shock,”
Financial Times. https://www.ft.com/content/f7b27264-6384-11ea-a6cd-df28cc3c6a68.
257 Pickard, Jim and Chris Giles, Sunak’s Summer Statement: UK Government to Pay Companies to Bring Workers
Back From Furlough, Financial Times, July 7, 2020. https://www.ft.com/content/ad1688ee-3d8d-4e52-9b16-
a3632eed8be9.
258 GDP Quarterly National Accounts, UK: October to December 2020, Office for National Statistics, March 31, 2021.
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On September 30, 2021, the UK Government announced that UK GDP in the second first quarter
of 2021 grew by 5.5%, after contracting by 1.4% in the first quarter of 2021, based on market
prices, as indicated in Figure 23.259 The Bank of England indicated in August 2021 that it would
maintain its base interest rate at 0.1% and begin reducing its bond purchases.260
Figure 23. UK Quarter Over Quarter Percentage Change in GDP
5.5%
-1.4%

Source: GDP Quarterly National Accounts, UK: April to June 2021, Office for National Statistics, September 30,
2021. Created by CRS.
Table 18. UK Quarterly GDP Aggregates 2019-2021
Percentage change from preceding period

Gross Fixed
Capital
GDP
Households
Formation
Government
Exports
Imports
2019
1.4%
1.1%
1.5%
4.0%
2.7%
1.9%
Q1
0.6
0.0
2.1
1.4
-1.2
6.5
Q2
0.1
0.6
-1.1
2.3
-0.8
-9.0
Q3
0.5
0.1
1.3
-0.9
5.3
1.5
Q4
0.0
-0.3
-1.6
0.0
3.8
-3.1
2020
-9.8
-10.6
-8.8
-6.5
-15.8
-11.8
Q1
-2.8
-2.6
-1.2
-1.8
-18.8
-5.3
Q2
-19.5
-20.8
-20.7
-17.3
-5.1
-20.2
Q3
16.9
19.7
19.0
15.8
-2.6
20.9
Q4
1.3
-1.7
4.4
6.7
9.0
14.3

259 Giles, Chris and Valentina Romei, BoE Economist Warns Against Pessimism After Record Drop in GDP, Financial
Times, September 30, 2020. https://www.ft.com/content/fed4fe06-8c6a-4272-b0b3-a0759805eb64.
260 Milliken, David, Francesco Canepa, and William Schomberg, Bank of England Sets Out Plans to Wean UK
Economy Off Stimulus, Reuters, August 5, 2021.
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Gross Fixed
Capital
GDP
Households
Formation
Government
Exports
Imports
2021

Q1
-1.6
-4.6
-1.7
1.5
-10.2
-16.4
Q2
4.8
7.3
-0.5
6.1
9.6
10.0
Source: GDP First Quarterly Estimate, UK; April to June 2021 Office for National Statistics, August 12, 2021.
Note: Chained volume measures.
The UK-EU trade arrangement, the Trade and Cooperation Agreement, which became effective
on December 24, 2020, was projected to raise some barriers on UK-EU trade and increase
administrative costs, which could reduce UK trade and GDP by 10.5% and 3.25%, respectively,
over the long run, compared with earlier forecasts. Trade during first quarter 2021 was also
projected to be dampened as a consequence of UK firms adjusting to the new trade rules.261 As
lockdowns and restrictions were lessened or removed in the second quarter of 2021, UK exports
and imports posted positive gains of 9.6% and 10.0%, respectively. Consumer spending also
rebounded from the decline in the first quarter in response to renewed social restrictions and
buoyed by the extra 5% of savings households accumulated during 2020.
As indicated in Table 19, the growth catch-up period is projected to last through 2022, before
slowing in 2023. The Bank of England also conducted stress tests on UK banks in 2020 and
concluded the banks had sufficient capital buffers to absorb the losses that could arise under the
Bank’s main projections.262 The Bank also concluded that UK businesses had successfully raised
the funds they needed to satisfy their cash-flow requirements. In addition, the government
extended three financing facilities for businesses—the Bounce Back Loan Scheme (BBLS), the
Coronavirus Business Interruption Loan Scheme and the Coronavirus Large Business Interruption
Loan Scheme -through to the end of January 2021.263 The forecast also projected an increase in
unemployment and business insolvencies in 2021.
Table 19. UK Forecast of Major Aggregate National Accounts, 2020-2023
Percentage change from the preceding period

Averages
Projection

2010-2019
2021
2022
2023
GDP
1.75%
5.00%
7.25%
1.25%
Households
1.75
4.25
11.75
1.00
Business
3.75
4.00
12.00
4.50
Exports
3.25
-3.00
5.25
4.25
Imports
3.50
5.25
12.75
3.50
Source: GDP Quarterly National Accounts, UK: October to December 2020, Office of National Statistics, March 31,
2021.
On March 3, 2021, Chancellor of the Exchequer Sunak proposed a £65 billion financial assistance
package spread out over two-years to assist UK businesses and households recover from the

261 Ibid., p. 4.
262 Financial Stability Report, Bank of England, December 2020, p. ii.
263 Ibid., p. 3.
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economic effects of the pandemic. The Chancellor argued the spending was necessary, because
the UK economy was projected to not fully recover for at least five years. With a continuation of
state supported measures into the summer, the total cost to the UK economy of addressing the
pandemic-related economic recession was estimated at £407 billion over two years. The spending
initiative was expected to be followed by large increases in corporate and individual taxes starting
in 2023.264 Given the announced planned tax increases in subsequent years, some economists
could argue the spending initiative could fall short of the estimated stimulative effects. 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.265 By early July, Prime Minister Johnson
announced that England (exclusive of Scotland, Wales, and Northern Ireland) would 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.266
Japan
As a countermeasure to the pandemic-related economic crisis, the Bank of Japan, injected $4.6
billion in liquidity into Japanese banks in March 2020 to provide short-term loans for purchases
of corporate bonds and commercial paper and twice that amount into exchange traded funds to
aid Japanese businesses. The Japanese government also pledged to provide wage subsidies for
parents forced to take time off due to school closures.267 In March, Japan also adopted an
emergency fiscal package of about $1.1 trillion, roughly equivalent to 10% of Japan’s annual
gross domestic product (GDP). On April 27, 2020, the Bank of Japan announced it would
purchase unlimited amounts of government bonds and quadruple its purchases of corporate debt
to keep interest rates low and stimulate the Japanese economy.268
In May 2020, the Japanese Cabinet proposed a second supplemental appropriation measure that
included $296 billion in spending and a total value of about $1.1 trillion in loans and guarantees,
funded through new bonds. This and a previous set of spending measures reportedly were
comparable to 40% of Japan’s GDP and included grants for businesses to pay rents through the
Development Bank of Japan and funds to small and medium-sized businesses through the
Regional Economy Vitalization Corporation of Japan, payments to assist furloughed workers, and
a reserve fund to provide capital injections to struggling firms through the Japan Investment
Corporation.269
In terms of monetary policy, the Bank of Japan (BOJ) maintained its low interest rates policy
of -0.1%, even as it increased its coronavirus lending facility from $700 billion to $1 trillion and

264 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.
265 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.
266 Cunningham, Erin, Britain’s Daily Infections Could Reach 100,000 This Summer, Health Secretary Says, The
Washington Post, July 6, 2021.
267 Harding, Robin and Hudson Lockett, “BoJ Spurs Asia Markets Rebound with Vow to Fight Covid-19,” Financial
Times, March 2, 2020. https://www.ft.com/content/9fa91e06-5c3b-11ea-b0ab-339c2307bcd4.
268 Harding, Robin, Bank of Japan Steps up Coronavirus Stimulus With Bond-buying Pledge, Financial Times, April
27, 2020. https://www.ft.com/content/7ba5c507-df9e-4107-87eb-73afa2c13e91.
269 Harding, Robin, Japan’s Cabinet Approves Extra $1.1 Trillion Budget to Counter Recession, Financial Times, May
27, 2020. https://www.ft.com/content/ce7f3564-c997-339c-ad3d-c6d092fb7f1e.
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stated it would continue purchasing commercial paper, corporate bonds, and exchange traded
funds at the rate of ¥12 trillion a year.270 The COVID-19 lending facility assisted banks in
providing zero interest rate loans to businesses. In a separate program, the BOJ provided about
¥110 trillion to buy commercial paper and corporate bonds and provided dollars through swap
arrangements with the U.S. Federal Reserve. Japan reported on August 17 that its economy had
contracted by 7.8% in the second quarter of 2020, compared with the previous quarter, or at an
annual a rate of 27.8%. This drop in economic activity was precipitated by a drop in exports of
18.5% from the preceding quarter (56.0% at an annual rate) and a decline in personal
consumption of 8.6% (30.1% at an annual rate).271
On July 19, 2021, the Bank of Japan issued a revised forecast that indicated Japan’s GDP had
contracted by 4.6% in Japan’s fiscal year ending March 2021, as indicated in Table 20. The
economy was projected to grow by 3.5% to 4.0% in 2021 and by 2.6% to 2.9% the following
year. However, the Bank remained “highly uncertain” and its forecast faced large downside risks
that the impact of the pandemic would begin to wane in 2021 as a result of an increase in
vaccinations.272 The Bank also indicated that its forecast was based on the assumption that events
outside Japan, particularly growth in trade as other economies began reviving, and as domestic
consumer spending and business investment strengthened. As indicated, the Bank estimated the
Japanese economy would grow by 0.3% in the second quarter of 2021, compared with a decline
of 0.9% in the first quarter.
Table 20. Japan Main Economic Accounts, 2020 and 2021
Percentage change over previous period

2020
2021

2019
2020
Q1
Q2
Q3
Q4
Q1
Q2
GDP
0.6%
-3.8%
-0.6%
-7.9%
5.3%
2.8%
-0.9%
0.3%
Household
0.2
-5.2
-0.8
-8.3
5.1
2.3
-1.0
0.8
consumption
Government
2.2
2.3
-0.3
0.7
2.8
1.8
-1.7
0.5
spending
Gross fixed capital
1.7
-4.1
0.2
-3.2
-2.0
2.9
-0.9
1.1
formation
Exports (goods and
-4.4
-13.9
-4.7
-17.5
7.3
11.7
2.4
2.9
services)
Imports (goods and
-2.7
-14.0
-3.0
-0.7
-8.2
4.8
4.0
5.1
services)
Source: Bank of Japan, Outlook for Economic Activity and Prices, July 19, 2021.
In other actions, 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.273 On April 23, 2021, Japan announced new two-week lockdown protocols for Tokyo,

270 Harding, Bank of Japan Pledges $1 trillion in Coronavirus Lending.
271 Quarterly Estimates of GDP for April–June 2020 (First Preliminary Estimates), Cabinet Office, August 17, 2020.
272 Outlook for Economic Activity and Prices, Bank of Japan, July 19, 2021.
273 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.
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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.274 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, which began on July 23, after Japan declared a state of emergency amid a rise in
diagnosed COVID-19 cases.275 Previously, Japan had indicated it would limit attendees to a
maximum of 10,000 Japanese residents per event. It is unclear if the new ban included sponsors
and sporting federation officials.276
China
According to a recent CRS In Focus,277 China emerged in June 2020 as the first major country to
announce a return to economic growth since the outbreak of the COVID-19 pandemic. The
government reported 3.2% gross domestic product (GDP) growth in the second quarter and 4.9%
GDP growth in the third quarter of 2020. China is still grappling with the economic effects of the
COVID-19 pandemic, however, including sluggish domestic consumption, slow recovery in its
top export markets, and reliance on government spending and exports to boost initial growth.
China also is facing growing restrictions on its overseas commercial activities and access to
foreign technology and pressures for firms to diversify China-based supply chains. Against this
backdrop, China’s leadership is deliberating the country’s economic direction and national
industrial plans for the next 5 to 15 years.
To boost economic growth, China has provided an estimated $506 billion in stimulus since
February 2020 and increased the government’s budget deficit target to a record high of 3.6% of
GDP, up from 2.8% in 2019. China reduced the value-added tax (VAT) rate and introduced VAT
exemptions for certain goods and services. China’s central bank extended monetary support with
interest rate cuts, eased loan terms, and injected liquidity into banks. Shifting from efforts to
reduce debt, the government announced the issuance of $142.9 billion of special treasury bonds
for the first time since 2007; increased the quota for local government special bonds (a source of
infrastructure funding); and fast-tracked issuance of corporate bonds to cover pandemic costs but
with potential broader uses. The IMF estimates that the fiscal measures and financing plans
announced amounted to 4.1% of the China’s GDP, as of July 2020. The government says it seeks
to control credit risk but the need for additional fiscal and monetary support to boost growth may
undermine this goal.

274 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.
275 Dooley, Ben, Spectators Will Be Barred at Tokyo Olympics Amid New Covid Emergency, The New York Times,
July 8, 2021. https://www.nytimes.com/2021/07/08/world/asia/tokyo-state-of-emergency-olympics.html.
276 Wade, Stephen, Tokyo Olympics to Allow Local Fans-But With Strict Limits, AP, June 21, 2021.
277 CRS In Focus IF11667, China’s Economy: Current Trends and Issues, by Karen M. Sutter and Michael D.
Sutherland.
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Multilateral Response278
International Monetary Fund
Created in the aftermath of World War II, the IMF’s fundamental mission is to promote
international monetary stability. To advance this goal, one of the key functions of the IMF is
providing emergency loans to countries facing economic crises. The COVID-19 pandemic has
resulted in an unprecedented demand for IMF financial assistance. More than 100 of the IMF’s
189 member countries have requested IMF programs,279 and IMF Managing Director Kristalina
Georgieva stated the IMF stands ready to deploy the entirety of its current lending capacity—
approximately $1 trillion—in response to the pandemic and resulting economic crises.280 The
IMF has already approved several COVID-related programs, including for Bolivia, Chad, the
Democratic Republic of Congo, Kyrgyz Republic, Nigeria, Niger, Rwanda, Madagascar,
Mozambique, Pakistan, and Togo, among others, and additional programs are expected.281
In addition to loans, the IMF has taken a number of other policy steps to bolster its COVID-19
response. The IMF is tapping its Catastrophe Containment and Relief Trust (CCRT), a donor
country trust fund at the IMF, to cover six months of debt payments owed by 29 low-income
countries to the IMF. The IMF also created a new a new Short-term Liquidity Line.282 It is a
revolving and renewable backstop for member countries with very strong economic policies in
need of short-term and moderate financial support, and intends to support a country’s liquidity
buffers. The IMF also adopted proposals to accelerate Board consideration of member financing
requests for emergency financing and doubled (to about $100 billion) access to IMF emergency
assistance. The International Monetary Fund (IMF) is providing funding to poor and emerging
market economies that are short on financial resources.283 If the economic effects of the virus
persist, countries may need to be proactive in coordinating fiscal and monetary policy responses,
similar to actions taken by of the G-20 following the 2008-2009 global financial crisis.
In August 2021, the IMF announced it was supporting low and middle-income countries in their
response to the pandemic crisis through a $650 billion allocation in special drawing rights
(SDRs)—reportedly the largest increase on record. The SDR allocation is intended to supplement
the existing financial reserves to reduce their need to turn to domestic or external sources of
funds. About $275 billion of the funds is intended to be allocated to emerging and developing
economies, with the rest intended for larger developed economies.284
For FY2021, the Administration had requested authorization for about $38 billion for a
supplemental fund at the IMF (the New Arrangements to Borrow [NAB]). In March 2020,

278 For more information, see CRS Report R46342, COVID-19: Role of the International Financial Institutions, by
Rebecca M. Nelson and Martin A. Weiss.
279 Remarks by IMF Managing Director Kristalina Georgieva During the G20 Finance Ministers and Central Bank
Governors Meeting, International Monetary Fund, April 15, 2020.
280 IMF Managing Director Kristalina Georgieva’s Statement Following a G20 Ministerial Call on the Coronavirus
Emergency, March 23, 2020. Some policy experts estimate the IMF’s current maximum lending capacity is about $787
billion.
281 IMF Lending Tracker, https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker.
282 “IMF Adds Liquidity Line to Strengthen COVID-19 Response,” International Monetary Fund, April 15, 2020.
283 Politi, James, “IMF Sets Aside $50bn for Covid-19-Hit Countries,” Financial Times, March 4, 2020,
https://www.ft.com/content/83c07594-5e3a-11ea-b0ab-339c2307bcd4.
284 Jonathan Wheatley in London and Colby Smith, IMF Allocates $650bn to Boost Pandemic-hit Economies,
Financial Times, August 2, 2021.
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Congress enacted this authorization in the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act, P.L. 116-136) as a way to bolster IMF resources available to support countries
during the pandemic. There is ongoing debate about whether member countries should contribute
additional resources to the IMF, whether the IMF should raise funds by selling a portion of its
gold holdings, and whether the IMF should enact policies to buffer member state reserves,
through a process called an SDR allocation.
Despite the IMF’s various announcements and pledges of support for heavily indebted countries,
through October 2021, it had played a small role in alleviating the economic impact of the
pandemic.285 In addition, the G20 in cooperation with the Paris Club286initiated efforts to provide
assistance through a Common Framework for Debt Treatments to support countries with
unsustainable levels of debt. Due to opposition by China over various issues, through October
2021, the initiative had not progressed. In late October, the Biden Administration was pressing the
G20 to speed up its response.287 As a percentage share of GDP, Multilateral Developments Banks
provided commitments of funds that were much smaller than that of highly developed economy;
nevertheless, the Banks reportedly increased their financial commitments by 39% to about $145
billion, with the World Bank providing about half of that mount.288
World Bank and Regional Development Banks
The World Bank, which finances economic development projects in middle- and low-income
countries, among other activities, is mobilizing its resources to support developing countries
during the COVID-19 pandemic.289 As of June 1, 2020, the World Bank had approved, or was in
the process of approving, 150 COVID-19 projects, totaling $15 billion, in 99 countries.290
Examples of approved projects include $47 million for the Democratic Republic of Congo to
support containment strategies, train medical staff, and provide equipment for diagnostic testing
to ensure rapid case detection; $11.3 million for Tajikistan to expand intensive care capacity; $20
million for Haiti to support diagnostic testing, rapid response teams, and outbreak containment;
and $1 billion for India to support screening, contract tracing, and laboratory diagnostics, procure
personal protective equipment, and set up new isolation wards, among other projects.291
The World Bank Group estimated it could deploy as much as $160 billion to respond to the
COVID-19 pandemic, more than double the amount it committed in FY2019. In April 2020, the
World Bank also announced its plans to establish a new multi-donor trust fund to help countries
prepare for disease outbreaks, the Health Emergency Preparedness and Response Multi-Donor

285 How Has the IMF Fared During the Pandemic? Economist, April 3, 2021, https://www.economist.com/finance-and-
economics/2021/04/03/how-has-the-imf-fared-during-the-pandemic?.
286 The Paris Club is an informal group of official creditors whose role is to find coordinated and sustainable solutions
to the payment difficulties experienced by debtor countries.

287 U.S. Pushing to Speed up G20 Common Debt Restructuring Process, Reuters, October 21, 2021,
https://www.reuters.com/world/us/us-pushing-speed-up-g20-common-debt-restructuring-process-2021-10-27/.
288 Lee, Nancy and Rakan Aboneaaj, MDBs to the Rescue? The Evidence on COVID-19 Response, Center for Global
Development, May 2021, https://www.cgdev.org/publication/mdbs-rescue-evidence-covid-19-response.
289 Remarks by World Bank Group President David Malpass on G20 Finance Ministers Conference Call on COVID-19,
March 23, 2020.
290 https://maps.worldbank.org/. Accessed on June 1, 2020.
291 World Bank, “World Bank Group Launches First Operations for COVID-19 (Coronavirus) Emergency Health
Support, Strengthening Developing Country Response,” Press Release, April 2, 2020.
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Fund (HEPRF).292 The new fund is to complement, and augment, the $160 billion of financing
provided by the World Bank.
In addition to the World Bank, which has a near-global membership and operates in many sectors
in developing countries worldwide, a number of smaller and more specialized multilateral
development banks (MDBs) are also mobilizing resources in response to the COVID-19
pandemic. The United States is a member of a number of regionally focused MDBs, including the
African Development Bank, the Asian Development Bank, the European Bank for Reconstruction
and Development, and the Inter-American Development Bank, as well as the functionally focused
International Fund for Agricultural Development. The United States does not belong to some
MDBs, including the Chinese-led Asian Infrastructure Investment Bank and the New
Development Bank created by the BRICS countries (Brazil, Russia, India, China, and South
Africa), the European Investment Bank, or the Islamic Development Bank.
In response to COVID-19, MDBs are reprogramming existing projects, establishing and funding
with existing resources lending facilities dedicated to the COVID-19 response, and streamlining
approval procedures. According to the President of the World Bank, other multilateral
development banks have committed roughly $80 billion over the next 15 months to respond to
COVID-19.293 Together with the World Bank’s commitment of $160 billion, $240 billion in
financing is to be made available to developing countries from the MDBs during this time
period.294
To support the MDB response to COVID-19, Congress accelerated authorizations requested by
the Administration for FY2021 for two lending facilities at the World Bank and two lending
facilities at the African Development Bank in the CARES Act (P.L. 116-136). Given the
unprecedented demand for MDB resources, discussions are underway about whether the MDBs
should pursue fiduciary reforms that would allow them to expand their lending based on existing
resources, particularly lending against donor country guarantees to the institutions (called
“callable” capital).
International Economic Cooperation
On March 16, 2020, the leaders of the G-7 countries (Canada, France, Germany, Italy, Japan, the
United Kingdom, and the United States) held an emergency summit by teleconference to discuss
and coordinate their policy responses to the economic fallout from the global spread of COVID-
19. In the joint statement released by the G-7 leaders after the emergency teleconference summit,
the leaders stressed they are committed to doing “whatever is necessary to ensure a strong global
response through closer cooperation and enhanced cooperation of efforts.”295 The countries
pledged to coordinate research efforts, increase the availability of medical equipment; mobilize
“the full range” of policy instruments, including monetary and fiscal measures as well as targeted
actions, to support workers, companies, and sectors most affected by the spread of COVID-19;
task the finance ministers to coordinate on a weekly basis, and direct the IMF and the World Bank

292 World Bank, “World Bank Group to Launch New Multi-donor Trust Fund to help Countries Prepare for Disease
Outbreaks,” Press Release, April 17, 2020.
293 David Malpass, “Remarks to G20 Finance Ministers,” World Bank, April 15, 2020.
294 World Bank Group President David Malpass: Remarks to G20 Finance Ministers, April 15, 2020.
295 White House, G-7 Leaders’ Statement, March 16, 2020, https://www.whitehouse.gov/briefings-statements/g7-
leaders-statement/.
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Group, as well as other international organizations, to support countries worldwide as part of a
coordinated global response.296
Saudi Arabia, the 2020 chair of the G-20, called an emergency G-20 summit on March 25 to
discuss a response to the pandemic.297 The G-20 is a broader group of economies, including the
G-7 countries and several major emerging markets.298 During the global financial crisis, world
leaders decided that henceforth the G-20 would be the premiere forum for international economic
cooperation. Some analysts have been surprised that the G-7 has been in front of the G-20 in
responding to COVID-19, while other analysts have questioned whether the larger size and
diversity of economies in the G-20 can make coordination more difficult.299
Analysts are hopeful that the recent G-7 summit, and a G-20 summit, will mark a shift towards
greater international cooperation at the highest (leader) levels in combatting the economic fallout
from the spread of COVID-19.300 An emergency meeting of G-7 finance ministers on March 3,
2020, fell short of the aggressive and concrete coordinated action that investors and economists
had been hoping for, and U.S. and European stock markets fell after the meeting.301 More
generally, governments have been divided over the appropriate response and in some cases have
acted unilaterally, particularly when closing borders and imposing export restrictions on medical
equipment and medicine. Some experts argue that a large, early, and coordinated response is
needed to address the economic fallout from COVID-19, but several concerns loom about the G-
20’s ability to deliver.302 Their concerns focus on the Trump Administration’s prioritization of an
“America First” foreign policy over one committed to multilateralism; the 2020 chair of the G-20,
Saudi Arabia, is embroiled in its own domestic political issues and oil price war; and U.S.-China
tensions make G-20 consensus more difficult.
Meanwhile, international organizations including the IMF and multilateral development banks,
have tried to forge ahead with economic support given their current resources. Additionally, the
Financial Stability Board (FSB), an international body including the United States that monitors
the global financial system and makes regulations to ensure stability, released a statement on
March 20, 2020, that its members are actively cooperating to maintain financial stability during
market stress related to COVID-19.303 The FSB is encouraging governments to use flexibility
within existing international standards to provide continued access to funding for market
participants and for businesses and households facing temporary difficulties from COVID-19,
while noting that many FSB members have already taken action to release available capital and
liquidity buffers.

296 Ibid.
297 “Spain Says Saudi Arabia to Cal G-20 to Meet on Covid-19 in Coming Days,” Reuters, March 16, 2020.
298 The G-20 includes the G-7 countries plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia,
Saudi Arabia, South Africa, South Korea, Turkey, and the European Union (EU).
299 For more information about the G-20, see CRS Report R40977, International Economic Policy Coordination at the
G-7 and the G-20, by Rebecca M. Nelson.
300 See for example, Jennifer Rankin, “EU Leaders Divided on How to Protect Economies after Covid-19,” The
Guardian, March 14, 2020.
301 Jack Ewing and Jeanna Smialek, “Economic Powers Vow to Fight Crisis,” New York Times, March 3, 2020.
302 Matthew Goodman and Mark Sobel, “Time to Pull the G-20 Fire Bell,” Center for Strategic and International
Studies, March 18, 2020.
303 “FSB Coordinates Financial Sector Work to Buttress the Economy in Response to Covid-19,” Financial Stability
Board, Press Release 6/2020, March 20, 2020.
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Estimated Effects on Other Economies
Travel bans and quarantines have had a heavy economic toll on a broad range of countries. The
OECD notes that production declines in China have had spillover effects around the world given
China’s role in producing computers, electronics, pharmaceuticals and transport equipment, and
as a primary source of demand for many commodities.304 Across Asia, some forecasters argue that
recent data indicate that Japan, South Korea, Thailand, the Philippines, Indonesia, Malaysia, and
Vietnam could experience an economic recession in 2020.305
In early January 2020, before the COVID-19 outbreak, economic growth in developing
economies as a whole was projected by the International Monetary Fund (IMF) to be slightly
more positive than in 2019. This outlook was based on progress being made in U.S.-China trade
talks that were expected to roll back some tariffs and an increase in India’s rate of growth.
Growth rates in Latin America and the Middle East were also projected to be positive in 2020.306
These projections likely will be revised downward due to the slowdown in global trade associated
with COVID-19, lower energy and commodity prices, an increase in the foreign exchange value
of the dollar, and other secondary effects that could curtail growth. Commodity exporting
countries, in particular, likely will experience a greater slowdown in growth than forecasted in
earlier projections as a result of a slowdown on trade with China and lower commodity prices.
Asian Development Bank 2021 Forecast
According to the Asian Development Bank’s (ADB) July 2021 report, developing Asia GDP is
projected to grow by 7.2% in 2021, after falling by 0.1% in 2020, reportedly the first decline in
economic activity in the region in six decades, reflecting the slowdown in global trade and
national quarantines.307 Similar to other groups, the ADB’s forecasts indicate progressively more
positive rates of growth over the September 2020 to July 2021 period for most areas of Asia, led
by a rebound in growth of 7% in India.
ADB sub-regional forecasts indicate that South Asia, particularly India is projected grow at the
fastest rate in 2022. East Asia is similarly projected to experience an overall positive rate of
growth in 2022, reflecting the dominating influence of the Chinese economy, which is projected
to grow by 8% in 2021 and 5% in 2022, as indicated in Figure 24. Hong Kong, which
experienced a slowing rate of growth in 2020 due to domestic political turmoil and trade issues
between the United States and China, was projected to experience a 6.2% rate of growth in 2021
and a 3.5% rate in 2022.
South Asia, which includes India, is projected to experience a decline in its annual GDP growth
rate of 5.5% in 2020, but a positive rate of growth in 2021 of 8.9% and 7.0% in 2022, driven in
part by a turn-around in India’s growth rate from -7.3 in 2020 to a positive 10.0% in 2021 and
7.5% in 2022. Countries in the region have implemented different measures to contain the spread
of the virus, reflecting differences in the extent of viral infections. Across governments within the
region, total fiscal support totaled $3.6 trillion by the end of August 2020, divided between
income support measures and measures intended to support liquidity. Similar to other regions and

304 Ibid., p. 5.
305 Arnold, Martin Arnold and Valentina Romei, “European Factory Output Plummets as Covid-19 Shutdown Bites,”
Financial Times, April 1, 2020. https://www.ft.com/content/8646c0ee-8fba-4e4c-a047-cf445ff41cf6.
306 Tentative Stabilization, Sluggish Recovery? World Economic Outlook Update, January 20, 2020, The International
Monetary Fund. https://www.imf.org/en/Publications/WEO/Issues/2020/01/20/weo-update-january2020.
307 Asian Development Outlook Supplement, Asian Development Bank, July 2021.
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countries, growth prospects in developing Asia depend on the length and depth of the health crisis
and the protracted nature of trade tensions between the United States and China.
Figure 24. Asian Development Bank 2020 and 2021 GDP Forecasts
In percentage change

Source: Asian Development Outlook Supplement, Asian Development Bank, July 2021. Created by CRS.
International Economic Cooperation
Initial efforts at coordinating the economic response to the COVID-19 pandemic across countries
were uneven. Governments were divided over the appropriate response and in some cases acted
unilaterally, particularly when closing borders and imposing export restrictions on medical
equipment and medicine. An emergency meeting of G-7 (Canada, France, Germany, Italy, Japan,
the United Kingdom, and the United States) finance ministers on March 3, 2020, fell short of the
aggressive and concrete coordinated action that investors and economists had hoped for, and U.S.
and European stock markets fell sharply after the meeting.308 However, on March 16, 2020, the
leaders of the G-7 countries held an emergency summit by teleconference to discuss and
coordinate their policy responses to the economic fallout from the global spread of COVID-19.
In a joint statement released by the G-7 leaders after the emergency teleconference summit, the
leaders stressed they were committed to doing “whatever is necessary to ensure a strong global
response through closer cooperation and enhanced cooperation of efforts.”309 The countries
pledged to coordinate research efforts, increase the availability of medical equipment; mobilize
“the full range” of policy instruments, including monetary and fiscal measures as well as targeted
actions, to support workers, companies, and sectors most affected by the spread of COVID-19;
tasked the finance ministers to coordinate on a weekly basis, and directed the IMF and the World
Bank Group, as well as other international organizations, to support countries worldwide as part
of a coordinated global response.310 G-7 coordination was problematic however, including

308 Jack Ewing and Jeanna Smialek, “Economic Powers Vow to Fight Crisis,” New York Times, March 3, 2020.
309 White House, G-7 Leaders’ Statement, March 16, 2020, https://www.whitehouse.gov/briefings-statements/g7-
leaders-statement/.
310 Ibid.
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disagreement among G-7 foreign affairs ministers about how to refer to the virus (coronavirus or
the “Wuhan virus”) and concerns about collaboration on vaccine research.311 The United States
chaired the G-7 in 2020, but the June summit at Camp David was canceled due to concerns about
COVID-19.
The G-20, which has a broader membership of major advanced and emerging-market economies
representing 85% of world GDP, was slower to respond to the pandemic.312 Even though G-20
coordination was widely viewed as critical in the response to the global financial crisis of 2008-
2009, several factors may have complicated G-20 coordination in the pandemic context: the
Trump Administration’s prioritization of an “America First” foreign policy over one committed to
multilateralism; the 2020 chair of the G-20, Saudi Arabia, was embroiled in its own domestic
political issues and oil price war; and U.S.-China tensions make G-20 consensus more difficult.313
The G-20 held a summit by teleconference on March 26, 2020, but the resulting communique was
criticized for failing to include concrete action items beyond what national governments were
already doing.314 However, G-20 coordination appeared to be gaining momentum, most notably
with the G-20 agreement on debt relief for low-income countries (see “Looming Debt Crises and
Debt Relief Efforts”).
Meanwhile, international organizations including the IMF and multilateral development banks,
tried to forge ahead with economic support given their current resources. Additionally, the
Financial Stability Board (FSB), an international body including the United States that monitors
the global financial system and makes regulations to ensure stability, released a statement on
March 20, 2020, that its members were actively cooperating to maintain financial stability during
market stress related to COVID-19.315 The FSB encouraged governments to use flexibility within
existing international standards to provide continued access to funding for market participants and
for businesses and households facing temporary difficulties from COVID-19, while noting that
many FSB members had taken action to release available capital and liquidity buffers.
Looming Debt Crises and Debt Relief Efforts
COVID-19 could trigger a wave of defaults around the world.316 In Q3 2019—before the
outbreak of COVID-19—global debt levels reached an all-time high of nearly $253 trillion, about
320% of global GDP.317 About 70% of global debt is held by advanced economies and about 30%
is held by emerging markets. Globally, most debt is held by nonfinancial corporations (29%),
governments (27%) and financial corporations (24%), followed by households (19%). Debt in

311 “Pompeo, G-7 Foreign Ministers Spar over ‘Wuhan Virus’,” Politico, March 25, 2020; Katrin Bennhold and David
E. Sanger, “U.S. Offered ‘Large Sum’ to German Company for Access to Coronavirus Vaccine Research, German
Officials Say,” New York Times, March 15, 2020.
312 The G-20 includes the G-7 countries plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia,
Saudi Arabia, South Africa, South Korea, Turkey, and the European Union (EU).
313 Matthew Goodman and Mark Sobel, “Time to Pull the G-20 Fire Bell,” Center for Strategic and International
Studies, March 18, 2020.
314 Matthew Goodman, Stephanie Segal, and Mark Sobel, “Assessing the G20 Virtual Summit,” Center for Strategic
and International Studies, March 27, 2020.
315 “FSB Coordinates Financial Sector Work to Buttress the Economy in Response to Covid-19,” Financial Stability
Board, Press Release 6/2020, March 20, 2020.
316 John Plender, “The Seeds of the Next Debt Crisis,” Financial Times, March 4, 2020.
317 Emre Tiftik, Khadija Mahmood, Jadranka Poljak, and Sonja Gibbs, “Global Debt Monitor: Sustainability Matters,”
Institute for International Finance, January 13, 2020.This includes debt held by governments, financial institutions,
nonfinancial institutions, and households.
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emerging markets has nearly doubled since 2010, primarily driven by borrowing from state-
owned enterprises.
High debt levels make borrowers vulnerable to shocks that disrupt revenue and inflows of new
financing. The disruption in economic activity associated with COVID-19 is a wide-scale
exogenous shock that will make it significantly more difficult for many private borrowers
(corporations and households) and public borrowers (governments) around the world to repay
their debts. COVID-19 has hit the revenue of corporations in a range of industries: factories have
ceased production, brick-and-mortar retail stores and restaurants have closed, commodity prices
plunged (Bloomberg commodity price index—a basket of oil, metals, and food prices—initially
dropping by 27% to its lowest level since 1986), and overseas and in some cases domestic travel
was curtailed.318 Some governments, including Argentina and Lebanon, were already
experiencing debt pressures, which were exacerbated by the pandemic. Other countries faced new
debt pressures created by the pandemic, while some countries, such as Abu Dhabi and Egypt,
completed successful sovereign bond sales since the outbreak of the pandemic.319
Households faced a rapid increase in unemployment and, in many developing countries, a decline
in remittances. With fewer resources, corporations and households faced default on their debts,
absent government intervention. Such defaults could result in a decline in bank assets, making it
difficult for banks to extend new loans during the crisis or, more severely, create solvency
problems for banks. Meanwhile, many governments increased spending to combat the pandemic,
and could face sharp reductions in revenue, putting pressure on public finances and raising the
likelihood of sovereign (government) defaults. Debt dynamics are particularly problematic in
emerging economies, where debt obligations are denominated in foreign currencies (usually U.S.
dollars). Many emerging market currencies depreciated since the outbreak of the pandemic,
raising the value of their debts in terms of local currency.
Governments will face difficult choices if there is a widespread wave of defaults. Most
governments signaled a commitment to or already implemented policies to support those
economically impacted by the pandemic. These governments face decisions about the type of
assistance to provide (loans versus direct payments), the amount of assistance to provide, how to
allocate rescue funds, and what conditions if any to attach to funds. Governments have
undertaken extraordinary fiscal and monetary measures to combat the crisis. However,
developing countries that are constrained by limited financial resources and where health systems
can quickly become overloaded, making them particularly vulnerable.
In terms of defaults by governments (sovereign defaults), emergency assistance is generally
provided by the IMF, and sometimes paired with additional rescue funds from other governments
on a bilateral basis. The IMF and other potential donor countries will need to consider whether
the IMF has adequate resources to respond to the crisis, how to allocate funding if the demand for
funding exceeds the amount available, what conditions should be attached to rescue funding, and
whether IMF programs should be paired with a restructuring of the government’s debt (“burden
sharing” with private investors).
International efforts are underway to help the most vulnerable developing countries grapple with
debt pressures. In mid-April 2020, the IMF tapped its Catastrophe Containment and Relief Trust
(CRRT), funded by donor countries, to provide grants to cover the debt payments of 25 poor and
vulnerable countries to the IMF for six months. The IMF hopes that additional donor
contributions will allow this debt service relief to be extended for two years. Additionally, the G-

318 “Covid-19 Worsens Debt Crisis in Poor Countries,” Jubilee Debt Campaign, March 22, 2020.
319 Trieu Pham, “EM Sovereign Debt Issuance: Encouraging Signs but Not Yet Back to Business as Usual,” ING, May
26, 2020.
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20 finance ministers agreed to suspend debt service payments for the world’s poorest countries
through the end of 2020. The Institute for International Finance (IIF), which represents 450
banks, hedge funds, and other global financial funds, also announced that private creditors will
join the debt relief effort on a voluntary basis. This debt standstill will free up more than $20
billion for these countries to spend on improving their health systems and fighting the
pandemic.320 Private sector commitments were critical for official creditors, so that developing
countries could redirect funds to improving health systems rather than repaying private creditors.
However, the debt standstill is complicated. There is debate among creditor governments about
what debts should be included in the standstill, and how it can be enforced. On May 1, the IIF in a
letter laid out some of the obstacles facing private sector participation in the debt still, including
reliance on “voluntary” participation, each participating creditor will need to make its own
assessments, the standstill could require a lengthy contract-by-contract approach, and the
participating borrowing countries may face risks, such as rating downgrades and inability to
borrow from financial markets (often referred to as “loss of market access”). Some economists
have characterized the letter as a list of reasons private creditors may cite as justification for their
refusal to participate in the debt standstill.321 Reportedly, some African countries are opting to
negotiate debt relief individually with China and other creditor nations because of concerns they
will be blocked from financial markets if they participate in the G-20 debt standstill.322
Other Affected Sectors
Since early 2000, concerns over the spread of the virus led to self-quarantines, reductions in
airline and cruise liner travel, the closing of such institutions as the Louvre, and challenges to
existing parental leave policies.323 Work from home arrangements reportedly caused some
businesses to consider new approaches to managing their workforces and work methods. These
techniques build on, or in some places replace, such standard techniques as self-quarantines and
travel bans. Some firms adopted an open-leave policy to ensure employees receive sick pay if
they are, or suspect they are, infected. Other firms adopted paid sick leave policies to encourage
sick employees to stay home and adopting remote working policies.324 Microsoft and Amazon
initially instructed all of their Seattle-based employees to work from home until the end of March
2020, but Microsoft indicated in October it would allow a large share of its employees to work
from home permanently.325

320 Davide Barbuscia, Marwa Rashad, and Andrea Shalal, “G20 Countries Agree Debt Freeze for World’s Poorest
Countries,” Reuters, April 15, 2020
321 Patrick Bolton, Lee Buchheit, Pierre-Olivier Gourinchas, et. al, “Sovereign Debt Standstills: An Update” VoxEU,
May 28, 2020.
322 Jevans Nyabiage, “All Eyes on China as Africa Spurns G20 Debt Relief Plan,” South China Morning Post, May 26,
2020.
323 Taylor, Adam, Teo Armus, Rick Noak, “Covid-19 Turmoil Widens as U.S. Death Toll Mounts; Xi Cancels Japan
Trip,” Washington Post, March 5, 2020; Strauss, Valerie, “1.5 Billion Children Around Globe Affected by School
Closure. What Countries Are Doing to Keep Kids Learning During Pandemic,” Washington Post, March 27, 2020.
https://www.washingtonpost.com/education/2020/03/26/nearly-14-billion-children-around-globe-are-out-school-heres-
what-countries-are-doing-keep-kids-learning-during-pandemic/.
324 Hill, Andrew and Emma Jacobs, “Covid-19 May Create Lasting Workplace Change,” Financial Times, February 27,
2020. https://www.ft.com/content/5801a710-597c-11ea-abe5-8e03987b7b20.
325 Armus, Teo, “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/.
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The drop in business and tourist travel caused a sharp drop in scheduled airline flights by as much
as 10%; airlines estimated they lost $113 billion in 2020, an estimate that could prove optimistic
given various restrictions on flights between Europe to the United States and the growing list of
countries that similarly restricted flights.326 Airports in Europe estimated they lost $4.3 billion in
revenue in 2020 due to fewer flights.327 The loss of Chinese tourists was another economic blow
to countries in Asia and elsewhere that benefitted from the growing market for Chinese tourists
and the stimulus such tourism provided.
The decline in industrial activity in 2020 reduced demand for energy products such as crude oil
and caused prices to drop sharply, which negatively affected energy producers, renewable energy
producers, and electric vehicle manufacturers, but generally was positive for consumers and
businesses. In March 2020, Saudi Arabia pushed other OPEC (Organization of the Petroleum
Exporting Countries) members collectively to reduce output by 1.5 million barrels a day to raise
market prices. U.S. shale oil producers, who are not represented by OPEC, supported the move to
raise prices.328 An unwillingness by Russia to agree to output reductions added to other downward
pressures on oil prices and caused Saudi Arabia to engage in a price war with Russia that drove
oil prices below $25 per barrel at times, half the estimated $50 per barrel break-even point for
most oil producing countries.329 Rising oil supplies and falling demand combined to create an
estimated surplus of 25 million barrels a day and overwhelmed storage capacity at times and
challenged the viability of U.S. shale oil production.330 In 2019, low energy prices combined with
high debt levels reportedly caused U.S. energy producers to reduce their spending on capital
equipment, reduced their profits and, in some cases, led to bankruptcies.331 Reportedly, in late
2019 and early 2020, bond and equity investors, as well as banks, reduced their lending to shale
oil producers and other energy producers that typically use oil and gas reserves as collateral.332 As
economic activity began recovering in 2021 and demand for energy increased, energy prices rose
to surpass the levels reached prior to the onset of the pandemic and put pressure on OPEC
producers to increase output.
Disruptions to industrial activity in China reportedly caused delays in shipments of computers,
cell phones, toys, and medical equipment.333 Factory output in China, the United States, Japan,
and South Korea all declined in the first months of 2020.334 Reduced Chinese agricultural exports,

326 Taylor, Adam, “Airlines Could Suffer up to $113 Billion in Lost Revenue Due to Covid-19 Crisis, IATA Says,”
Washington Post, March 5, 2020. https://www.washingtonpost.com/world/2020/03/05/Covid-19-live-updates/.
327 “Airlines Slash Flights to Cut Costs as Covid-19 Hits Travel Demand,” Financial Times. https://www.ft.com/
content/c28b5790-62c6-11ea-a6cd-df28cc3c6a68.
328 Brower, Derek, “Cash-Strapped US Shale Producers Pray for OPEC Aid,” Financial Times, March 3, 2020.
https://www.ft.com/content/9161e62c-5cb1-11ea-b0ab-339c2307bcd4.
329 Strauss, Delphine, “Why There Are No Winners from the Oil Price Plunge This Time,” Financial Times, March 10,
2020. https://www.ft.com/content/da2b0700-622c-11ea-b3f3-fe4680ea68b5; Mufson, Steve and Will Englund, “Oil
Price War Threatens Widespread Collateral Damage,” Washington Post, March 10, 2020.
https://www.washingtonpost.com/climate-environment/oil-price-war-threatens-widespread-collateral-damage/2020/03/
09/3e42c9e2-6207-11ea-acca-80c22bbee96f_story.html.
330 Sheppard, David and Derek Brower, “U.S. Crude Oil Price Drops Below $20,” Financial Times, March 29, 2020.
https://www.ft.com/content/bc938195-82d3-43eb-b031-740028451382.
331 “Texas Oil Groups: Panhandling Ahead,” The Financial Times, January 20, 2020.
332 Ibid.
333 Hille, Kathrin, Alistair Gray, and Patrick McGee, “Covid-19 Delays PC and Smartphone Shipments for Weeks,”
Financial Times, March3, 2020. https://www.ft.com/content/72742872-5c31-11ea-b0ab-339c2307bcd4.
334 Newmyer, Tory, “The Finance 202: Stocks Stage Major Comeback, but Manufacturing Report Points to Continued
Covid-19 Pain,” Washington Post, March 3, 2020. https://www.washingtonpost.com/news/powerpost/paloma/the-
finance-202/2020/03/03/the-finance-202-stocks-stage-major-comeback-but-manufacturing-report-points-to-continued-
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including to Japan, created shortages in some commodities. In addition, numerous auto producers
faced shortages in parts and other supplies, including semiconductor chips that have been sourced
in China, leading to calls by some producers for subsidies to restart production in the United
States. Reductions in international trade affected ocean freight prices, causing some freight
companies to face the prospect of shuttering businesses.335 Disruptions in the movements of
goods and people reportedly caused some companies to reassess how international they want their
supply chains to be.336 According to some estimates, nearly every member of the Fortune 1000
was affected by disruptions in production in China.337
Issues for Congress
According to numerous indicators, significant parts of the global economy appear to have
weathered the worst of the economic recession that resulted from the unprecedented COVID-19-
related social distancing and business lockdowns in early 2020. However, rolling epidemic
hotspots and the emergence of new and virulent mutations of the COVID-19 virus continue to
add to the overall economic and human costs of the pandemic and to uncertainties about the
timing of a sustained recovery. Over the course of the pandemic, governments adopted policies to
curtail the virus’s spread that inadvertently caused an economic recession and temporarily altered
the daily patterns of peoples’ lives. After a year and a half, it remains unclear how quickly and to
what extent people will return to their pre-pandemic patterns.
For Members of Congress, the pandemic-related economic and social costs could influence public
policy debates long after the crisis itself has passed. While various policy debates may emerge
from seemingly unlikely sources, some areas could include the following.
 During the pandemic, segments of the labor force shifted from work on-site to
work at home. After a prolonged period of working off-site, some workers
question the need to return to pre-pandemic labor arrangements. Should new
labor arrangements and work patterns become embedded in the economy, it
potentially raises questions about the impact on housing, traffic patterns,
including public transportation, labor force participation rates, and child care
arrangements. What role should Congress play in assessing and addressing such
potential changes to the economy?
 The pandemic exposed weaknesses in supply chains and the production of certain
types of equipment, including personal protective equipment that previously had
not featured prominently in national security priorities. Arguably, the pandemic
raised the profile of public health as a national security issue. It also highlighted
the importance of improving domestic health care-related supply chains and
potentially relocating parts of the health care supply chain from abroad. This shift
in emphasis presents Congress with questions about the manner and extent to
which government policy should alter existing production and supplier
arrangements. In particular, Congress could consider the costs and benefits of
adopting policies that attempt to reallocate resources within the economy toward
developing domestic production of goods currently being imported, possibly at

Covid-19-pain/5e5d84a6602ff10d49ac081f/?itid=hp_hp-cards_hp-card-politics%3Ahomepage%2Fcard-ans.
335 Lynch, David J., “Economic Fallout from China’s Covid-19 Mounts Around the World,” Washington Post,
February 13, 2020. https://www.washingtonpost.com/business/economy/economic-fallout-from-chinas-Covid-19-
mounts-across-the-globe/2020/02/13/7bb69a12-4e8c-11ea-9b5c-eac5b16dafaa_story.html?itid=lk_inline_manual_12
336 Ibid.
337 Ibid.
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the expense of other domestic economic activities. Alternatively, Congress could
reinforce U.S. support for global trade arrangements and agreements, while also
supporting the global presence of U.S. firms and encouraging U.S. firms to
utilize a greater diversity of foreign suppliers.
 The pandemic emphasized the interconnected nature of the global economy.
Typically, these global connections facilitate a seamless flow of goods and
services to the broadest number of people. However, during the pandemic-related
recession, these global supply channels were disrupted, exposing their
vulnerabilities. In turn, these disruptions raised questions concerning the role and
importance of certain industrial activities amid shifting concepts of national
security and the extent to which domestic economic policy should attempt to
sustain or subsidize certain industrial activities. Congress could consider whether
and to what extent it should engage in a direct role in reallocating resources in
the economy.
 The pandemic had a disproportionate impact on various industrial sectors of the
economy and on workers in those sectors. These included certain segments of the
labor force, including women, minority populations, and workers in less skilled
jobs. The depth and duration of the recession challenged the effectiveness of
customary worker assistance programs. Congress may consider reviewing these
programs to determine what if any changes may be necessary to align the
programs more closely with the needs of workers experiencing similar periods of
extended dislocations.
 Global trade activity fell sharply as a result of the global economic recession,
which added to the depth and extent of the economic disruption. The impact on
global trade raised questions concerning what actions, if any, Congress could
take through U.S. trade policy that might strengthen the role of international trade
and consultative bodies such as the WTO, the IMF, and the OECD, in facilitating
a return to pre-crisis levels of activity during similar international crises.
 The economic recession placed increased demands on developed and developing
economies to abandon traditional deficit spending guidelines to stimulate their
economies. While the fiscal spending likely lessened the impact of the crisis, it
sharply increased the debt burden of developing countries, in particular, that
could well outlast the health-related crisis. This debt burden could constrain the
ability of developing economies to provide additional fiscal stimulus should the
health crisis persist, which could delay a global economic recovery with spillover
effects on developed economies. Developing economies could face rising costs
for refinancing their accumulated debts if developed economies begin tapering
off low-interest rate monetary policies. Congress could consider examining the
performance and the adequacy of resources of international financial institutions
in addressing the financial and debt servicing needs of developing economies.
 During the initial stages of the economic crisis, global financial markets were
severely disrupted, requiring central banks to take unprecedented actions.
Following the 2008-2009 global financial crisis, central banks and other financial
market participants adopted wide-ranging reforms to strengthen the ability of
financial institutions to withstand an economic crisis. The pandemic-related
global economic crisis presents Congress with an opportunity to assess the
effectiveness of these reforms and to determine if they were adequate in
preparing financial market participants to withstand a sever disruption to the
global economy or whether additional reforms are necessary.
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Author Information

James K. Jackson, Coordinator
Rebecca M. Nelson
Specialist in International Trade and Finance
Specialist in International Trade and Finance

Martin A. Weiss
Karen M. Sutter
Specialist in International Trade and Finance
Specialist in Asian Trade and Finance

Andres B. Schwarzenberg
Michael D. Sutherland
Analyst in International Trade and Finance
Analyst in International Trade and Finance

Acknowledgments
The authors would like to thank and acknowledge the expert assistance provided by Amber Wilhelm,
Visual Information Specialist, CRS, in the preparation of this report.

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
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Congressional Research Service
R46270 · VERSION 81 · UPDATED
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