Howard Schneider, William Schomberg & Michael Nienaber -
If Round One of the coronavirus relief effort was the economic equivalent of “shock and awe,” new plans being developed by the world’s biggest economies for more assistance to businesses and consumers are taking a narrower and more tactical approach.
Governments around the world went in big, hard and fast in their initial efforts to blunt the economic hit from the global pandemic, drumming up roughly $10 trillion in spending plans through June, according to International Monetary Fund estimates. Central banks levered that up further with rate cuts, bond purchases and a raft of other credit programmes.
But with a resurgence in cases in Europe and the United States, there is an acknowledgment that the recovery is far from complete. Government and central bank officials are now devising more targeted follow-up programmes they hope will help the industries and people still displaced in the global downturn.
With tens of millions remaining unemployed, this second round of government aid will still be counted in the trillions of dollars. Major industries remain under stress from the restrictions imposed last spring to try to halt the coronavirus, and public trust in routine activities like restaurant dining has not been restored.
This time around, officials are betting the virus can be suppressed without reverting to broad lockdowns, ideally allowing a global economic recovery to largely proceed. Their gamble will determine whether the world heads into 2021 poised for recovery and able to take full advantage of any successful vaccine — or climbing from an even deeper hole.
Rising caseloads “put governments in the unenviable position of trying to limit the damage to public health, while avoiding stringent measures to limit economic and social life,” Kevin Loane of Fathom Consulting wrote in a recent note.
“Most leaders will be forced to come down more clearly on the side of mitigation or suppression. Suppression was the choice for almost all in the spring. It is unlikely that it will be again.”
NEED TO ADAPT
In tandem with those efforts to suppress the virus, the global economic response last spring was unprecedented as major central banks and governments approved emergency programmes to funnel cash to those whose jobs were at risk, keep credit cheap, and back a broad set of financial markets and economic sectors with bond purchases and loans.
The IMF’s estimated $10 trillion of global fiscal spending is still perhaps $2 trillion short of the hole the coronavirus has blown in the world economy, with global output seen shrinking 4.9 per cent this year. The IMF will issue updated forecasts and policy advice ahead of its October 12 to 18 fall meetings.
The world’s major central banks are not expected to do much more given the aggressive steps they have already taken, though the US Federal Reserve and the Bank of England are still discussing more bond purchases and, in the BoE’s case, the possibility of using negative interest rates.
That leaves it to fiscal authorities to fill the gaps, crafting assistance for those who still need it on the supposition economies will not be forced back into broad hibernation.
Yet if the thrust of policy last spring was to get money out fast, with few strings attached, the aim now is more tailored.
— Reuters
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