How the world is coping with Covid-19’s economic fallout?
Given the extraordinary crisis, governments in around the world have taken unprecedented steps and announced stimulus packages to blunt the economic fallout of the coronavirus spread.Updated: Mar 23, 2020 21:10 IST
The rapid spread of coronavirus (Covid-19) disease around the world has severely affected the global economy causing economic distress to companies and as well as individuals. It has caused major disruptions in both supply and demand chain for goods and services around the world.
The pandemic has led to a lockdown in large parts of the world. The lockdown, imperative from a public health perspective, has, in turn, caused a major disruption to the economy with sectors such as tourism, aviation and hospitality being among the worst affected. Major equity markets have lost around quarter of their value since the beginning of the crisis.
Given the extraordinary crisis, governments in around the world have taken unprecedented steps and announced stimulus packages to blunt the economic fallout of the coronavirus spread. These countries have mainly used stimulus to help their economy and are also using cash transfers in some cases to help their people.
As India grapples with the consequences of the economic crisis due to Covid-19, here is a look at steps that major countries have taken in order to deal with the economic fallout of the virus.
The United States
The United States (US) is currently working on its third stimulus package of more than one trillion dollars package to support its industries as well as workers employed in them. As a part of this package, the government is planning to give $1200 per adult and $500 per child in direct money transfer as part of its efforts to help its citizens mitigate the economic impact of the coronavirus crisis. The package includes provisions of over $50 billion for airlines industry as well as enhanced unemployment insurance for workers.
In its earlier coronavirus relief package of around $100 billion approved last week, the US government had included provisions for free testing for Covid-19 and paid emergency leave. This also included unemployment benefits for its laid off workers.
The US central bank (Federal Reserve) has cut down its interest rates twice in March as part of its emergency actions, first by 50 basis points and then by 100 basis points in mid March to nearly zero. 100 basis points equals to one percentage point. The last time US interest rates were reduced to nearly zero was in December 2008 at the peak of the global financial crisis. It has also announced measures to inject $700 billion into the US economy by buying government bonds from the market in order to increase the monetary supply.
The United Kingdom
In thr United Kingdom (UK), the Bank of England (central bank) has slashed the bank rate by 50 basis points to 0.25% to tackle the financial upheaval caused by the Covid-19 outbreak.
The UK government has announced a scheme that would pay grants to companies to cover up to 80% of the salary of workers (up to 2500 pounds per month) to avoid mass layoffs during the current economic crisis caused by coronavirus outbreak. It has also deferred the next quarter of VAT payments of companies to help them survive.
The British government had earlier announced 330 billion pound ($398 billion) package (which is around 15% of its GDP) of government- backed loan and guarantees to support its businesses. Among other things, this package offered support to businesses that are paying sick pay to their employees and also granted funds to smaller businesses up to 25000 pound to aid them in this crisis.
To tackle the economic crisis due to Covid-19, Germany is planning a €150billion ($1600billion) rescue package to support its economy. The government is also setting up a 500-billion-euro bailout fund to take stakes in critical industries, according to various media reports. The German finance minister had earlier said that the government would provide unlimited financial assistance to German companies hit by the pandemic.
The French government has announced a 45 billion euro ($50 billion) aid for small businesses and employees mainly through deferral of tax payments to tackle the economic emergency due to Covid-19. It has also announced to guarantee bank loans up to 300 billion euros to avoid any risk of bankruptcy by small and medium companies.
In China, where it all began, the central bank, the People’s bank of China (PBOC) announced in early February its decision to inject 1.2 trillion yuan ($174 billion) into the markets through open market operations (reverse repo operations) in order to maintain “reasonable and abundant liquidity” in the banking system. To lower the cost of financing, the PBOC has also cut the amount of cash that banks have to set aside as reserves (reserve requirement ratio) from mid March.