BlackRock Investment Institute

Macro insights

A stimulus surge to offset coronavirus shock

March 26 – Coronavirus containment measures have slammed the brake on regular economic activity. The focus in developed markets has been on how fiscal and monetary policy can bridge the gap left by falling private sector spending. On the back of the Federal Reserve’s unprecedented actions on Monday, U.S. authorities approved a fiscal package of 10% of GDP. See the chart below, and the BlackRock Bulletin: Historic U.S. policy actions.

Global fiscal stimulus measures as a percentage of GDP

Source: BlackRock Investment Institute, March 2020. Notes, the chart shows actual and expected stimulus measures, and actual loan guarantees, across certain developed market economies.

A significant part of the U.S. stimulus package is the boost to unemployment insurance. The UK has also taken the step to cover 80% of the wage bill of workers in sectors affected by the pandemic. Germany is discussing a fiscal package of around 4.5% of GDP, including measures to make up the pay shortfall from short-time working shifts covering an expected 2.5 million workers—compared with 1.5 million during the 2008-09 financial crisis. Italy is working on another fiscal package of about 25 billion euros, pushing its overall fiscal boost to about 3% of GDP and that of Europe overall to about 2% of GDP. And Japan is now talking about fiscal stimulus along the lines of the U.S. – direct cash payments, SME support – on a similar scale to the U.S. at about 10% of GDP.

The European Central Bank (ECB) said that – unlike its regular purchase program for government bonds – there will be no country limits for its new 750 billion euros of emergency purchases (PEPP) and that it will also buy shorter maturities up to a minimum maturity of just 70 days. This decision, which takes effect today, gives the ECB maximum flexibility in its QE program. A summit of EU leaders today will consider activating the European Stability Mechanism (410 billion euros of funds) and a proposal for the joint issuance of coronabonds.

All these measures are unprecedented in the post-World War Two era – both in size and in the coordination of monetary and fiscal policy. Financial market plumbing is also slowly improving. We will continue to learn about just how deep the near-term impact of the virus will be. The number of cases in the U.S. is still doubling nearly every two days and is now larger than any other country at the same stage. But over a longer-term horizon, risky assets are already very attractive.


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