Macro policy easing responses to the coronavirus crisis have reached unprecedented levels, with direct fiscal stimulus measures totalling USS5 trillion (7% of 2019 GDP) for the “Fitch 20” countries covered in its Global Economic Outlook.
“The scale of fiscal easing announced to date, which could increase further, is significantly larger than the fiscal response seen after the global financial crisis, when the advanced economies saw a fiscal easing of around 3%-4% of GDP. Massive policy easing will undoubtedly help the pace of the post-crisis economic recovery,” said Marina Stefani, Director at Fitch Ratings.
Central Bank responses have been similarly impressive – with new quantitative easing (QE) asset purchases expected to reach 20% of GDP in the US, 9% in the UK and Canada, and more than 7% in the eurozone – and a wide array of new credit facilities.
The ECB could also further increase its bond-buying programme.
“Responses to the crisis have, however, been strikingly uneven, with developed-market countries within the Fitch 20 set to spend an aggregate US$7.6 trillion (11% of 2019 GDP) in overall fiscal-support measures (including guarantees and quasi-fiscal measures), while emerging-market economies have announced a modest USS1.2 trillion (1.8% of 2019 GDP),” added Stefani.
Responses vary from direct fiscal support to households and businesses to government-granted fiscal guarantees or quasi-fiscal measures borne by public agencies.
Various central banks have adopted monetary easing, asset-purchase programmes, and the launching of new liquidity or refinancing facilities to support the real economy including via the banking sector.
The speed and size of macro policy easing will influence both the intensity of the immediate coronavirus-related macro shock and the pace of the post-crisis economic recovery.
Using a broad definition of fiscal support including direct fiscal-easing measures and guarantees, Germany, Italy and the UK each have announced more than 20% of GDP overall fiscal support, followed closely by France (17.5%).
For the largest four eurozone countries, as well as for the UK, more than 70% of the total fiscal response is composed of government guarantees. Direct fiscal measures in Europe vary from around 3% in Spain and Poland to 4.5% in France and Italy, 5.5% in the UK and 8% in Germany.
The European Commission has proposed a EUR750 billion EU joint fiscal package (6.3% of eurozone GDP) to finance the recovery, but this has yet to be agreed at the EU member state level.
The US also has announced an enormous stimulus package and established a wide range of support instruments. Direct fiscal easing exceeds that announced so far in Europe, at 11.5% of GDP, although the scale of new federal fiscal guarantees has been smaller, at 2.4% of GDP.
Similarly, Japan has announced a large support package and Fitch estimates that actual new discretionary measures, guarantees and quasi-fiscal measures adopted by the government will account for 32.3% of GDP.