Here's what governments are doing to stimulate their economies
The COVID-19 novel coronavirus has caused a crisis for the world's economy and markets. With over 137,000 cases confirmed in countries all over the world, the World Health Organization has declared the virus to be a global pandemic, meaning that it will have a sustained global impact.1 2 With many countries' economies already slowing before the pandemic, COVID-19 poses a serious risk of sending many countries into recession and has sent the U.S. stock market, the largest in the world, into a bear market.3
In response to this crisis, governments and central banks all over the world have enacted fiscal and monetary stimulus measures to counteract the disruption caused by the coronavirus. Here is a list of what each country or region is doing (all amounts have been converted to U.S. dollars):
The U.S. Federal Reserve has taken two significant measures to provide monetary stimulus:
On March 3, 2020, it made an unscheduled cut to the fed funds rate. It slashed rates by 0.5%, double the amount of its recent moves, and the largest cut since the 2008 financial crisis.
On March 12, the Fed massively expanded reverse repo operations, adding $1.5 trillion of liquidity to the banking system . This means that the Fed extended the amount of short term loans to banks to keep money markets (markets for very short term loans) stable and allow banks to have more cash on hand.
On March 15, the Federal Reserve cut interest rates by a full percentage point down to a range of 0.00% to 0.25%. This dropped the fed funds rate to the level it was before the rate increases starting in 2015. In addition, the Federal Reserve restarted quantitative easing with the purchase of $500 billion in treasurys and $200 billion in mortgage-backed securities.
On March 16, the Federal Reserve increased reverse repo operations by another $500 billion.
On the fiscal side, Congress has continued to debate what form a stimulus package should take. On March 13, the Democrat-controlled House of Representatives passed a stimulus bill, but the Republican-controlled Senate has yet to act. In addition, on March 13, President Trump announced a state of emergency, allowing the Federal Government to distribute up to $50 billion in aid to states, cities, and territories.
Australia has announced an $11.4 stimulus package on March 12, 2020including:
Payments to small businesses to encourage hiring;
One-time payment to people collecting government benefits such as old-age or veterans benefits;
Business subsidies to businesses in industries such as a tourism, which have been hit hardest by the coronavirus;
China (Hong Kong)
Hong Kong announced a significant fiscal stimulus package as part of its 2020-2021 budget on February 26, 2020.11 Among other things, it includes:
A $1200 cash subsidy to all adult permanent residents;
Paying one month's rent for people living in public housing;
Cutting payroll, income, property, and business taxes;
Low-interest, government-guaranteed loans for businesses;
Extra month's worth of payments to people collecting old-age or disability benefits
China's central bank, the People's Bank of China (PBOC), has implemented several policy measures aimed at providing monetary stimulus:
On February 3, 2020, the PBOC expanded reverse repo operations by $174 billion. This means that the central bank extended the amount of loans to keep money markets (markets for very short term loans) stable and allow banks to have more cash on hand. It added another $71 billion on February 4.
The PBOC also cut the one-year medium-term lending facility rate (the rate at which it lends to banks) by 0.10% on Feb. 16. It followed this up by cutting its one-year and five-year prime rates (the rate at which banks lend to the most credit-worthy corporations) by 0.10% and 0.05%, respectively.
The PBOC lowered bank reserve requirements on March 13, freeing up about $79 billion to be lent out.
China has yet to implement massive fiscal stimulus, as it did in 2008 during the global financial crisis or again in 2015 to fight slowing growth. However, the Chinese government has asked banks to extend the terms of business loans and commercial landlords to reduce rents.
South Korea announced a $9.8 billion stimulus package on March 3, 2020. Among other things, it includes:
Small and medium business subsidies to help companies pay workers;
Job retraining for people who have lost jobs.
On the monetary side, the U.K.'s central bank, the Bank of England, rolled out stimulus measures on March 11, 2020, including:
Lowering interest rates by 0.5%;
Lowering capital requirements for U.K. banks, allowing them to use a reserve they call a "counter-cyclical capital buffer," which is money kept in reserve to increase banks' resistance to global financial shocks.
On the fiscal side, the U.K. finance minister Rishi Sunak announced a budget with nearly $37 billion in fiscal stimulus on March 11. Among other things, it includes:
A tax cut for retailers;
Cash grants to small businesses;
A mandate to provide sick pay for people who need to self-isolate, and a subsidy to cover the costs of sick pay for small businesses;
Expanded access to government benefits for the self-employed and unemployed.
Germany authorized its state bank (a bank run by the government, but not a central bank), KfW, to lend out as much as $610 billion to companies to cushion the effects of the coronavirus.
Italy announced a $28 billion plan on March 11 to be divided over two separate spending packages. Among other things, it includes:
Adding money to a fund guaranteeing loans to small and medium businesses
Money to companies who have been hit especially hard by the virus
Help for workers who are facing layoffs.
Japan has passed two packages of small business loans, one $4.6 billion package in February, and a $15 billion one on March 11. The most recent spending bill also included $4 billion for a number of programs including boosting mask production and stopping the virus from spreading to nursing homes.22
On the monetary side of things, the Bank of Japan announced a significant increase in QE on March 16. It said it would be doubling the rate it which it was purchasing ETFs from $56 billion a year to $112 billion, and also increased purchases of corporate bonds and commercial paper. In addition it announced a new program of 0% interest loans to increase lending to businesses hurt by the virus.23
The Bank of Canada announced a number of measures to provide monetary stimulus:
On March 4 it lowered interest rates by 0.50%.24
On March 12, it announced it was expanding its bond-buying and repo operations.25
It announced an unscheduled interest-rate cut of 0.50% on March 13.26
On March 16, it announced it was broadening what could be used as collateral for repo operations, and also increased purchases of mortgage-backed securities.27
Also on the monetary side of things, the Office of the Superintendent of Financial Institutions (OSFI), Canada's financial regulatory body, lowered bank reserve requirements, allowing banks to lend an additional $214 billion.28
On the fiscal side of things, the Canadian government announced $7.1 billion in loans to businesses to help them cope with the damage the coronavirus is doing to the economy.29
Multi-Country or International
On March 15, 2020, the central banks of Canada, the U.K. Japan, the U.S., Switzerland, and the European Central Bank all agreed to lower the price of U.S. dollar liquidity swap line arrangements.30 These are a type of foreign currency swap, that helps central banks ensure there are dollars available for people and businesses who want to take out loans denominated in dollars, as opposed to the local currency. By decreasing the price of these swaps, it makes it easier and cheaper to borrow money in dollars outside the U.S.
On March 4th, the International Monetary Fund made $50 billion in loans available to deal with the coronavirus, including $10 billion of zero-interest loans to the poorest IMF member countries.31 On March 16, the IMF said it, "stands ready to mobilize its $1 trillion lending capacity to help our membership." In the same statement, the IMF said it has $200 billion in current lines of credit, some of which could be used for this crisis, and that they have "received interest from about 20 countries and will be following up with them in the coming days." It also mentioned that it is aiming to boost its debt relief fund to $1 billion from its current level of $400 million. 32
On March 3, the World Bank announced an initial package of up to $12 billion in loans for countries to help cope with the effects of the coronavirus. $8 billion of the funding is new loans and the remaining $4 billion is redirected from current lines of credit.