2020 Global Outlook

Bold policy action

We believe the required policy response includes drastic public health measures to stem the outbreak. Beyond that, a decisive, pre-emptive and coordinated policy response is needed to stabilize financial markets – and is starting to take shape. The key: policies that forestall any cash-flow crunches, especially among small businesses and households, that could lead to financial stresses and tip the economy into a crisis.

Implication: Coupon income is crucial in an even more yield-starved world.

Fiscal stimulus is coming
Global fiscal impulse from G3 and China, 2002-2020

Global fiscal impulse from G3 and China, 2002-2020
  • Source

    There is no guarantee that any forecasts made will come to pass. Past performance is no guarantee of future results. Source: BlackRock Investment Institute, IMF, OECD and the European Commission, with data from Bloomberg, March 2020. The chart shows the annual change in the cyclically adjusted government primary balance (fiscal balance net of interest payments) weighted by GDP in purchasing power parity terms. The bars show the fiscal impulse from each region relative to the size of the global economy. The 2020 estimates are for discretionary spending and do not include increasing support from various social security programs. Initial estimates are as of the start of the year. Revised estimate is as of March 19.

  • A decisive, pre-emptive and coordinated policy response is required to avoid the disruptions to income streams and financial flows that could cause persistent economic damage.
  • Governments have pledged a sizable fiscal response that will likely rival that seen during the global financial crisis, but in a more compressed time period. See the chart above. The European Union has pledged 1% of GDP, with individual countries signaling larger amounts and financial guarantees ranging from 10% of GDP to unlimited liquidity support. We expect a third, significantly larger, fiscal package to emerge soon in the U.S. – likely reaching more than $1 trillion – although there may be twists and turns as it makes its way through Congress.
  • Simply using the limited monetary policy space left could quickly put the focus on the lack of tools left – and backfire as a result.
  • A joint effort between monetary and fiscal policy is required to avoid a raft of financial failures at the grassroot level due to demand shortfalls, production disruptions or payment delays that can all lead to cash flow squeezes. That is why any solutions will need to involve “going direct” with policy – that is, more directly relieving the cash flow pressures facing households and small businesses. In particular, the UK, Canada and Australia have served as models for coordination between fiscal and monetary policy.
  • For central banks, the critical focus is alleviating the dysfunction of market pricing and tightening of financial conditions. The Federal Reserve has unleashed an array of liquidity and new facilities to unclog the pipes of the financial system. The European Central Bank put together a bolder response after its communication mishap last week, launching a €750 billion bond buying program. European officials may also activate the European Stability Mechanism on relaxed terms to free up even more bond-buying capacity.
  • The Bank of Japan doubled its planned purchases of ETFs and REITs, pledged to buy corporate bonds and commercial paper and set up new lending facilities for SMEs while holding rates steady and maintaining its yield curve control policy.

Bottom line: We believe market volatility is distracting from the sheer amount of promised fiscal stimulus – with more to come.

Meet the authors
Philipp Hildebrand
Vice Chairman
Philipp Hildebrand, Vice Chairman of BlackRock, is a member of the firm's Global Executive Committee. He is also Chairman of the Financial Markets Advisory (FMA
Jean Boivin
Head of BlackRock Investment Institute
Jean Boivin, PhD, Managing Director, is the Head of the BlackRock Investment Institute (BII). The institute leverages BlackRock’s expertise and produces proprietary ...
Elga Bartsch
Head of Macro Research, BlackRock Investment Institute
Elga Bartsch, PhD, Managing Director, heads up economic and markets research at the Blackrock Investment Institute (BII). BII provides connectivity between BlackRock's ...
Mike Pyle
Chief Investment Strategist, BlackRock Investment Institute
Mike Pyle, CFA, Managing Director, is Global Chief Investment Strategist for BlackRock, leading the Investment Strategy function within the BlackRock Investment Institute ...
Scott Thiel
Chief Fixed Income Strategist, BlackRock Investment Institute
Scott Thiel, Managing Director, is Chief Fixed Income Strategist for BlackRock and a member of the BlackRock Investment Institute (BII). He is responsible for developing ...