Full text
Global Economic Effects of COVID-19: In
Brief
James K. Jackson, Coordinator
Specialist in International Trade and Finance
Martin A. Weiss
Specialist in International Trade and Finance
Andres B. Schwarzenberg
Analyst in International Trade and Finance
Rebecca M. Nelson
Specialist in International Trade and Finance
Updated March 18, 2020
Congressional Research Service
7-....
www.crs.gov
R46270
Global Economic Effects of COVID-19: In Brief
Contents
Overview ......................................................................................................................................... 1
Estimated Economic Effects............................................................................................................ 4
Policy Response .............................................................................................................................. 6
The United States ...................................................................................................................... 7
Europe ....................................................................................................................................... 9
The United Kingdom............................................................................................................... 10
Japan........................................................................................................................................ 10
China ....................................................................................................................................... 10
Multilateral Response ..................................................................................................................... 11
International Monetary Fund.................................................................................................... 11
World Bank and Regional Development Banks ....................................................................... 11
International Economic Cooperation ...................................................................................... 12
Estimated Effects on Developed and Major Economies ............................................................... 13
Emerging Markets ......................................................................................................................... 13
Other Affected Sectors .................................................................................................................. 15
Conclusions ................................................................................................................................... 17
Select Measures Implemented or Announced by Major Economies in Response to
COVID-19 .................................................................................................................................. 18
Figures
Figure 1. Capital Flows to Emerging Markets in Global Shocks .................................................. 14
Figure 2. Depreciation Against the Dollar Since Jan. 1, 2020....................................................... 15
Tables
Table 1. OECD Economic Outlook Forecast, March 2020 ............................................................. 2
Appendixes
Appendix. ...................................................................................................................................... 18
Contacts
Author Contact Information .......................................................................................................... 24
Global Economic Effects of COVID-19: In Brief
Overview
Since the World Health Organization (WHO) first declared Covid-19 a world health emergency in
January 2020, the virus has been detected in over 150 countries and almost all U.S. states.1 The
infection has sickened more than 200,000 people, with thousands of fatalities.
On March 11, the WHO announced that the outbreak was officially a pandemic, the highest level
of health emergency.2 During that time, it has become clear that the outbreak is negatively
impacting global economic growth.3 The virus is affecting a broad swath of economic activities,
from tourism, medical supplies and other global value chains, consumer electronics, and financial
markets to energy, food, and a range of social activities, to name a few. Without a clear
understanding of when the health and economic effects may peak economic forecasts must
necessarily be considered preliminary. Efforts to reduce social interaction to contain the spread of
the virus are disrupting the daily lives of most Americans.
On March 2, 2020, the Organization for Economic Cooperation and Development (OECD)
released its revised economic outlook and suggested that global economic growth could decline
by 0.5% in 2020 to 2.4% if the economic effects of the virus peak in the first quarter of 20204 (see
Table 1). If the effects of the virus do not peak in the first quarter, which now seems unlikely, the
OECD estimates that global economic growth in 2020 could be reduced by half, or 1.5%.
Concerns over economic and financial risks have pushed investors to search out safe-haven
investments such as the benchmark U.S. Treasury 10-year security, which experienced a historic
drop in yield to below 1% on March 3, 2020 (the price and yield of a bond are inversely related).5
The yield dropped again to historic levels on March 6, 2020, and March 9, 2020, as investors
moved out of stocks and into bonds due to concerns over declines in major stock indices and
expectations that the Federal Reserve would lower interest rates for a second time in March
2020.6 In overnight trading on March 8, 2020, and again on March 11, 2020, March 13, 2020, and
March 15, 2020, U.S. stock market indices moved sharply, triggering automatic circuit breakers
designed to halt trading if the indices rise or fall by more than 5% when markets are closed.7
Financial markets from the United States to Asia and Europe are volatile as investors are
concerned that the virus is creating a global issue with few metrics to indicate how prolonged and
expansive the economic effects may be.8 Similar to the 2008-2009 global financial crisis, central
1 Mapping the Spread of the Coronavirus in the U.S. and Worldwide, Washington Post Staff, The Washington Post,
March 4, 2020. https://www.washingtonpost.com/world/2020/01/22/mapping-spread-new-coronavirus/?arc404=true.
2 Bill Chappell, “Coronavirus: COVID-19 Is Now Officially A Pandemic, WHO Says,” National Public Radio, March
11, 2020, https://www.npr.org/sections/goatsandsoda/2020/03/11/814474930/coronavirus-covid-19-is-now-officially-a-
pandemic-who-says.
3 Mapping the Spread of the Coronavirus.
4 OECD Interim Economic Assessment: Coronavirus: The World Economy at Risk, Organization for Economic
Cooperation and Development. March 2, 2020. http://www.oecd.org/economic-outlook/#resources.
5 Levisohn, Ben, The 10-Year Treasury Yield Fell Below 1% for the First Time Ever. What That Means, Barrons,
March 3, 2020. https://www.barrons.com/articles/the-10-year-treasury-yield-fell-below-1-for-the-first-time-ever-what-
that-means-51583267310.
6 Smith, Colby, Richard Henderson, Philip Georgiadis, and Hudson Lockett, Stocks Tumble and Government Bonds
Hit Highs on Virus Fears, The Financial Times, March 6, 2020. https://www.ft.com/content/9f94d6f8-5f51-11ea-b0ab-
339c2307bcd4.
7 Georgiadis, Philip, Adam Samson, and Hudson Lockett, Stocks Plummet as Oil Crash Shakes Financial Markets, The
Financial Times, March 9, 2020. https://www.ft.com/content/8273a32a-61e4-11ea-a6cd-df28cc3c6a68.
8 Samson, Adam and Hudson Lockett, Stocks Fall Again in Worst Week Since 2008 Crisis, The Financial Times,
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Global Economic Effects of COVID-19: In Brief
banks are finding themselves put in the position of being the lender of last resort. During the
financial crisis, central banks intervened to restart credit and spending. In the current
environment, however, central banks are attempting to address financial market volatility that
reflects the underlying economic uncertainty caused by the viral outbreak. The virus is also
affecting global politics as world leaders are cancelling international meetings9 and some nations
reportedly are stoking conspiracy theories that shift blame to other countries.10
The challenge for policymakers is to implement targeted policies that address what are expected
to be short-term problems without creating distortions in economies that can outlast the impact of
the virus itself. Policymakers are being overwhelmed by the quickly changing nature of the crisis
that has compounded a health issue with what could become a global trade and economic crisis
whose potential effects on the global economy are rapidly growing. In addition, many
policymakers are constrained in their response to the crisis, with little flexibility for monetary and
fiscal support, given the broad-based synchronized slowdown in global economic growth,
especially in manufacturing and trade, which had developed prior to the viral outbreak.
Table 1. OECD Economic Outlook Forecast, March 2020
Percent change in Real GDP Growth
2019 2020 2021
Difference Difference
November November
from from
projections projections
November November
World 2.9 2.4 -0.5 3.3 0.3
G20 3.1 2.7 -0.5 3.5 0.2
Australia 1.7 1.8 -0.5 2.6 0.3
Canada 1.6 1.3 -0.3 1.9 0.2
Euro area 1.2 0.8 -0.3 1.2 0.0
Germany 0.6 0.3 -0.1 0.9 0.0
France 1.3 0.9 -0.3 1.4 0.2
Italy 0.2 0.0 -0.4 0.5 0.0
Japan 0.7 0.2 -0.4 0.7 0.0
Korea 2.0 2.0 -0.3 2.3 0.0
Mexico -0.1 0.7 -0.5 1.4 -0.2
Turkey 0.9 2.7 -0.3 3.3 0.1
United
1.4 0.8 -0.2 0.8 -0.4
Kingdom
United States 2.3 1.9 -0.1 2.1 0.1
Argentina -2.7 -2.0 -0.3 0.7 0.0
February 28. https://www.ft.com/content/4b23a140-59d3-11ea-a528-dd0f971febbc.
9 Taylor, Adam, Teo Armus, and Rick Noak, Live updates: Coronavirus Turmoil Widens as U.S. Death Toll Mounts;
Xi Cancels Japan Trip. The Washington Post, March 5, 2020,
https://www.washingtonpost.com/world/2020/03/05/coronavirus-live-updates/.
10 Shih, Gerry, China is Subtly Stoking Coronavirus Conspiracy Theories That Blame the U.S. for Outbreak, The
Washington Post, March 5, 2020. https://www.washingtonpost.com/world/2020/03/05/coronavirus-live-updates/.
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Brazil 1.1 1.7 0.0 1.8 0.0
China 6.1 4.9 -0.8 6.4 0.9
India 4.9 5.1 -1.1 5.6 -0.8
Indonesia 5.0 4.8 -0.2 5.1 0.0
Russia 1.0 1.2 -0.4 1.3 -0.1
Saudi Arabia 0.0 1.4 0.0 1.9 0.5
South Africa 0.3 0.6 -0.6 1.0 -0.3
Source: OECD Interim Economic Assessment: Coronavirus: The World Economy at Risk, Organization for Economic
Cooperation and Development. March 2, 2020, p. 2.
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Global Economic Effects of COVID-19: In Brief
Comparing the Current Crisis and the 2008 Crisis
Sharp declines in the stock market and broader financial sector turbulence; interest rate cuts and large-scale
Federal Reserve intervention; and discussions of massive government stimulus packages have led some observers
to compare the current market reaction to that experienced a little over a decade ago. There are similarities and
important differences between the current economic crisis and the global financial crisis of 2008/2009. Foremost,
the earlier crisis was rooted in structural weakness in the U.S. financial sector. Following the collapse of the U.S.
housing bubble, it became impossible for firms to identify demand and hold inventories (across many sectors
(construction, retail, etc). This led to massive oversupply and sharp retail losses which extended to other sectors
of the U.S. economy and eventually the global economy. Moreover, financial markets across countries were linked
together by credit default swaps. As the crisis unfolded, large numbers of banks and other financial institutions
were negatively affected, raising questions about capital sufficiency and reserves. The crisis, then quickly engulfed
credit-rating agencies, mortgage lending companies and the real estate industry broadly. Market resolution came
gradually with a range of monetary and fiscal policy measures that were closely coordinated at the global level.
These were focused on putting a floor under the falling markets, stabilizing banks, and shoring up investor
confidence to get spending started again. Starting in September 2007, The Federal Reserve cut interest rates from
over 5% in September 2007 to between 0 and 0.25% before the end of the 2008. Once interest rates approached
zero, the Fed turned to other so-called “unconventional measures” including targeted assistance to financial
institutions, including encouraging Congress to pass the Troubled Asset Relief Program (TARP) and the Term
Asset Backed Security Loan Facility (TALF) to prevent the collapse of the financial sector and boost consumer
spending. Other measures included forced bank capitalizations (or bank nationalizations in other countries), swap
arrangements between the Federal Reserve and the European Central Bank and smaller central banks, and so-
called “quantitative easing” to boost the money supply. On a global level, the United States and other countries
tripled the resources of the IMF (from $250 billion to $750 billion) and coordinated domestic stimulus efforts.
Unlike the 2008 crisis, the current crisis began as a supply shock. As the global economy has become more
interdependent in recent decades, most products are produced as part of a global value chain (GVC), where an
item such as a car or mobile device consists of parts manufactured all over the world, and involving multiple
border crossings before final assembly. The earliest implications of the current crisis came in January as plant
closures in China and other parts of Asia led to interruptions in the supply chain and concerns about dwindling
inventories. As the virus spread from Asia to Europe, the crisis switched from supply concerns to a broader
demand crisis as the measures being introduced to contain the spread of the virus (social distancing, travel
restrictions, cancelling sporting events, closing shops and restaurants, and mandatory quarantine measures)
prevent most forms of economic activity from occurring. Thus, unlike the 2008 crisis response, which involved
liquidity and solvency-related policy measures to get people spending again, the current crisis is related to the
amount of operating capital in the economy. While larger firms may have sufficient capital to wait out a crisis,
many aspects of the economy (such as restaurants or retail operations) operate on very tight margins and would
likely not be able to pay employees after closures lasting more than a few days. Many people will also need to
balance child care and work during quarantine or social distancing measures. During this type of crisis, while
monetary policy measures play a part -- and the Federal Reserve has once again cut rates to near zero -- they
cannot compensate for the physical interaction that the global economy is dependent upon. As a result, fiscal
stimulus will likely play a relatively larger role in this crisis in order to prevent personal and corporate
bankruptcies during the peak crisis period. Efforts to coordinate U.S. and foreign economic policy measures will
also have an important role in mitigating the scale and length of any global economic downtown.
Estimated Economic Effects
The economic situation remains highly fluid. Uncertainty about the length and depth of the virus-
related economic effects are fueling perceptions of risk and volatility in financial markets and
corporate decisionmaking. In addition, uncertainties concerning the virus and the effectiveness of
public policies intended to curtail its spread are adding to market volatility.
The OECD also estimates that increased direct and indirect economic costs through global supply
chains reduced demand for goods and services, and that declines in tourism and business travel
mean that, “the adverse consequences of these developments for other countries (non-OECD) are
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Global Economic Effects of COVID-19: In Brief
significant.”11 Global trade, measured by trade volumes, slowed in the last quarter of 2019 and
was expected to decline further in 2020 as a result of weaker global economic activity associated
with the viral outbreak, which is reducing economic activity in various sectors, including ports
and the shipping industry.12
In addition, the OECD argues that China’s emergence as a global economic actor marks a
significant departure from previous global health episodes. China’s growth in combination with
globalization and the interconnected nature of economies through supply chains and foreign
investment magnify the cost of containing the spread of the virus through quarantines and
restrictions on labor mobility and travel.13 China’s global economic role and globalization more
broadly mean that trade is playing a role in spreading the economic effects of Covid-19 through
three channels: directly through supply chains as reduced economic activity is spread from
intermediate goods producers to finished goods producers; as a result of a drop in economic
activity, which reduces demand for goods in general, including imports; and through reduced
trade with commodity exporters that supply producers, which, in turn, reduces their imports and
negatively affects trade and economic activity of exporters.
Initially, the economic effects of the virus were expected to be a short-term supply issue as
factory output fell because workers were quarantined to reduce the spread of the virus through
social interaction. The drop in economic activity, initially in China, created larger supply issues as
firms experienced delays in supplies in intermediate and finished goods through supply chains.
Concerns have grown, however, that the virus-related supply shock is creating a more prolonged
demand shock as reduced activity by consumers and businesses lead to a lower rate of economic
growth. As demand shocks unfold, businesses experience a decline in activity, reduced profits,
and potentially escalating and binding credit and liquidity constraints. While manufacturing firms
are experiencing supply shocks through their supply chains, reduced consumer activity through
social distancing is affecting the services sector of the economy, which accounts for two-thirds of
U.S. economic output. In this environment, manufacturing and service firms are hoarding cash,
which affects market liquidity. In response central banks have taken measures to provide financial
markets with liquidity.
If the economic effects persist, contagion issues can spread the economic effects widely and
affect an ever-broadening group of firms and households. This potentially can increase liquidity
constraints and credit market tightening in global financial markets as firms hoard cash, with
negative fallout effects on economic growth. In some financial markets, fund managers have
started selling government securities to increase their cash reserves, pushing down government
bond prices. At the same time, financial markets are factoring in an increase in government bond
issuance in the United States and Europe as government debt levels rise to meet spending
obligations during an expected slowdown in economic activity and efforts to fight the effects of
Covid-19. Unlike the 2008 financial crisis, reduced demand by consumers, labor market issues,
and a reduced level of activity among businesses, rather than risky trading by global banks, has
led to corporate credit issues. The market dynamics have led some observers to question if these
events mark the beginning of a full-scale global financial crisis.14
11 Ibid., p. 2.
12 Ibid., p. 4.
13 Goldin, Ian. Coronavirus Shows How Globalization Spreads Contagion of All Kinds, The Financial Times, March 2,
2020. https://www.ft.com/content/70300682-5d33-11ea-ac5e-df00963c20e6.
14 Foroohar, Rana, How Coronavirus Became a Corporate Credit Run, The Financial Times, March 15, 2020.
https://www.ft.com/content/f1ea5096-6531-11ea-a6cd-df28cc3c6a68.
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Liquidity and credit market issues present policymakers with a different set of challenges than
addressing supply-side constraints. As a result, the focus of government policy has expanded
from a health issue to macroeconomic and financial market issues that are being addressed
through a combination of monetary, fiscal, and other policies. Essentially, while businesses are
attempting to address worker and output issues at the firm level, national leaders are attempting to
implement fiscal policies to assist workers and businesses that are facing financial strains, and
central bankers are adjusting monetary policies to address mounting credit market issues. So far,
households have been affected primarily through a loss of income, compared with the 2008-2009
financial crisis in which households experienced a sudden and large loss in the value of their
assets, largely through a decline in the market value of their primary residence.
In many cases, national fiscal policies that might be employed to address demand issues are
already constrained by high government debt levels; similarly, recent monetary policies have
generally been accommodative, which leaves central banks little room for additional cuts in
interest rates. In addition, in the current environment, even traditional policy tools, such as
monetary accommodation, apparently are not being processed by markets in a traditional manner,
with equity market indices displaying heightened, rather than lower, levels of uncertainty
following the Federal Reserve’s cut in interest rates. Such volatility is adding to uncertainties
about what governments can do to address weaknesses in the global economy.
Before the Covid-19 outbreak, the global economy was struggling to regain a broad-based
recovery as a result of the lingering impact of growing trade protectionism, trade disputes among
major trading partners, falling commodity and energy prices, and economic uncertainties in
Europe over the impact of the UK withdrawal from the European Union. Individually, each of
these issues presented a solvable challenge for the global economy. Collectively, however, the
issues weakened the global economy and reduced the available policy flexibility of many
countries, especially among the leading developed economies. In this environment, Covid-19
could have an outsized impact. While the level of economic effects will eventually become
clearer, the response to the virus could have a significant and enduring impact on the way
businesses organize their work forces, global supply chains, and how governments respond to a
global health crisis.15
Policy Response
In response to growing concerns over the global economic impact of the virus, G-7 finance
ministers and central bankers released a statement on March 3, 2020, indicating they will “use all
appropriate policy tools” to sustain economic growth.16 The Finance Ministers also pledged fiscal
support to ensure health systems could sustain efforts to fight the outbreak.17 Following the G-7
statement, the U.S. Federal Reserve (Fed) lowered its federal funds rate by 50 basis points, or
0.5%, to a range of 1.0% to 1.25% due to concerns about the “evolving risks to economic activity
15 Rowland, Christopher and Peter Whoriskey, U.S. Health System is Showing Why it’s Not Ready for a Coronavirus
Pandemic, The Washington Post, March 4, 2020. https://www.washingtonpost.com/business/economy/the-us-health-
system-is-showing-why-its-not-ready-for-a-coronavirus-pandemic/2020/03/04/7c307bb4-5d61-11ea-b29b-
9db42f7803a7_story.html.
16 the G-7 is comprised of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
Statement of G-7 Finance Ministers and Central Bank Governors, March 3, 2020,
https://home.treasury.gov/news/press-releases/sm927, Long, Heather, G-7 Leaders Promise to Help Economy as
Coronavirus Spreads, But They Don’t Announce Any New Action, The Washington Post, March 3, 2020.
https://www.washingtonpost.com/business/2020/03/03/economy-coronavirus-rate-cuts/.
17 Giles, et, al, Finance Ministers Ready to Take Action.
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Global Economic Effects of COVID-19: In Brief
of the coronavirus.”18 At the time, the cut was the largest one-time reduction in the interest rate by
the Fed since the financial crisis of 2008.
The United States
In a sign of growing concern over strains in financial markets, on March 12, 2020, the Federal
Reserve announced it will supply liquidity to the financial system by providing $5 trillion through
a series of funding operations that will add to current monthly funding operations targeted at
increasing reserves in the banking system and reducing stress in short-term funding market and in
trading U.S. Treasury securities. Corporate bond markets halted activity on March 11, 2020, as
companies drew on revolving credit facilities from banks to ensure they had enough cash on hand
to sustain their operations during a prolonged slump in economic activity and potential credit
tightening by banks.
In addition, banks and financial institutions that deal in trading U.S. Treasury securities had
begun to pull back from facilitating trades to protect themselves from market volatility, increasing
costs to traders who profit from the difference between buying Treasury securities and then
selling futures contracts.19 The Federal Reserve reportedly will provide $1 trillion in short-term
lending to banks to sustain lending between banks, because credit markets had begun to freeze
up. In addition, the Federal Reserve opened a financial crisis-era facility to acquire corporate
bonds in the commercial paper (CP) market, which is used by firms to raise cash be selling short-
term debt.20 Banks have become reluctant to acquire the securities over concerns that markets that
trade in CP will be frozen.21 The Fed also indicated that it will provide a series of $500 billion
injections of funds into the repo (repurchase) market, where investors borrow cash in exchange
for high-quality collateral like Treasury securities.22
In an additional step, the Federal Reserve cut interest rates by 100 basis points (1.0%) on March
15, 2020, to a range of 0% to 0.25%, because it determined that “….The coronavirus outbreak has
harmed communities and disrupted economic activity in many countries, including the United
States. Global financial conditions have also been significantly affected.23” The Federal Reserve
announced that it was providing an additional $700 billion in asset purchases (Treasury securities
and mortgage-backed securities), expanding repurchase operations, extending dollar swap lines
with foreign banks (Canada, the UK, Japan and Europe, including the Swiss National Bank), and
opened its discount window to commercial banks and urged banks to use their own capital and
liquidity buffers to ease household and business lending. In its statement, the Federal Reserve
announced that it was prepared to use its “full range of tools to support the flow of credit to
households and businesses….” The coordinated central bank actions were intended to calm global
CRS Insight IN11235, COVID-19: Potential Economic Effects18 Federal Reserve Releases FOMC Statement, March 3,
2020, https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm.
19 Rennison, Joe, and Colby Smith, What is Causing Such Fear in the U.S. Treasuries Market?, The Financial Times,
March 13, 2020. https://www.ft.com/content/efa431c8-6471-11ea-b3f3-fe4680ea68b5.
20 Politi, James, Brendan Greeley, Colby Smith, and Joe Rennison, Fed to Lend Against Stocks and Bonds in Bid to
Stabilize Markets, The Financial Times, March 17, 2020. https://www.ft.com/content/cf485398-689d-11ea-800d-
da70cff6e4d3.
21 Rennison, Joe and Colby Smith, Investors Call for Fed Help in ‘Frozen’ Commercial Paper Market, The Financial
Times, March 16, 2020. https://www.ft.com/content/34213560-677b-11ea-a3c9-1fe6fedcca75.
22 Smith, Colby, and Brendan Greeley, Fed to Pump Trillions of Dollars into Financial Markets, The Financial Times,
March 12, 2020. https://www.ft.com/content/7b231b2c-6483-11ea-a6cd-df28cc3c6a68.
23 Federal Reserve Issues FOMC Statement, March 15, 2020.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm.
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financial markets after a week of greater than usual volatility. On March 17, 2020, the Federal
Reserve opened a new financing facility for the 24 primary dealers in U.S. Treasury securities
that allows them to borrow cash secured against some stocks, municipal debt and higher-rated
corporate bonds.
In terms of a fiscal stimulus, the House passed H.R. 6074 on March 5, 2020, to appropriate $8.3
billion in emergency funding to support efforts to fight Covid-19; President Trump signed the
measure on March 6, 2020. Other countries have indicated they will also provide assistance.
Congress also is considering other possible measures, including contingency plans for agencies to
implement offsite telework for employees, financial assistance to the shale oil industry, paid sick
leave, a reduction in the payroll tax,24 and an extension of the tax filing deadline.25 On March 11,
2020, President Trump announced a restriction on all travel from Europe to the United States for
30 days, directed the Small Business Administration (SBA) to offer low-interest loans to small
businesses, and directed the Treasury Department to defer tax payments penalty-free for affected
businesses.26
On March 13, President Trump declared a state of emergency, freeing up disaster relief funding to
assist state and local governments in addressing the effects of the virus. The President also
announced additional testing for the virus, a website to help individuals identify symptoms of the
virus, increased oil purchases for the Strategic Oil Reserve, and a waiver on interest payments on
student loans.27 The White House and House Democrats announced they had reached agreement
on a package of measures that is intended to provide tens of billions of dollars for paid sick leave,
unemployment insurance, food stamps, and other measures.28
On March 17, 2020, President Trump announced that he intended to ask Congress for an
additional $1.2 trillion in funds to support the economy.29 This amount reportedly would include
loans to support cargo and passenger air carriers and loans and guarantees to other affected
industries, loans to small businesses, and direct payments to individual taxpayers.30 For additional
information about the impact of Covid-19 on the U.S. economy see CRS Insight IN11235,
COVID-19: Potential Economic Effects.31
24 Armus, Theo, Federal, State Officials Attempt to Fight Virus Through Social Distancing, Stimulus Package, The
Washington Post, https://www.washingtonpost.com/world/2020/03/11/coronavirus-live-updates/.
25 Sevastopulo, Demetri, US Treasury Considers Tax Filing Extension to Ease Virus Impact, The Financial Times,
March 11, 2020. https://www.ft.com/content/c65a6e40-639f-11ea-b3f3-fe4680ea68b5.
26 McAuley, James, and Michael Birnbaum, Europe Blindsided by Trump’s Travel Restrictions, With Many Seeing
Political Motive, The Washington Post, March 12, 2020. https://www.washingtonpost.com/world/europe/europe-
blindsided-by-trumps-travel-restrictions-with-many-seeing-political-motive/2020/03/12/42a279d0-6412-11ea-8a8e-
5c5336b32760_story.html.
27 Fritz, Angela and Meryl Kornfield, President Trump Declares a National Emergency, Freeing $50 Billion in
Funding, The Washington Post, March 13, 2020. https://www.washingtonpost.com/world/2020/03/13/coronavirus-
latest-news/.
28 Werner, Erica, Mike DeBonis, Paul Kane, and Jeff Stein, White House, House Democrats Reach Deal on
Coronavirus Economic Relief Package, Pelosi Announces, The Washington Post, March 13, 2020.
https://www.washingtonpost.com/us-policy/2020/03/13/paid-leave-democrats-trump-deal-coronavirus/.
29 Werner, Eric and Jeff Stein, Trump Administration Seeks Roughly $850 Billion in Emergency Stimulus to Confront
Coronavirus Economic Fallout, The Washington Post, March 17, 2020. https://www.washingtonpost.com/us-
policy/2020/03/17/trump-coronavirus-stimulus-package/.
30 Stage Three Proposal, U.S. Department of the Treasury, March 17, 2020.
https://www.washingtonpost.com/context/department-of-treasury-proposal-for-coronavirus-response/6c2d2ed5-a18b-
43d2-8124-28d394fa51ff/?itid=lk_inline_manual_3.
31 CRS Insight IN11235, COVID-19: Potential Economic Effects, by Marc Labonte.
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Europe
To date, European countries have not had the kind of synchronized policy response they
developed during the global financial crisis of 2008-2009. Instead, they have used a combination
of tax holidays for businesses and extensions of certain payments and loan guarantees and
subsidies for workers. The European Commission announced that it was relaxing rules on
government debt to allow countries more flexibility in using fiscal policies. The European Central
Bank (ECB) announced that it was ready to take “appropriate and targeted measures,” if needed.
With interest rates already low, however, it indicated that it could expand its program of providing
loans to EU banks, or buying debt from EU firms, and possibly lowering its deposit rate further
into negative territory in an attempt to shore up the Euro’s exchange rate.32 ECB President-
designate Christine Lagarde called on EU leaders to take more urgent action to avoid the spread
of coronavirus triggering a serious economic slowdown. The European Commission indicated
that it was creating a nearly $30 billion investment fund to address Covid-19 issues.33 On March
12, 2020, the ECB decided to: (1) expand its longer-term refinance operations (LTRO) to provide
low-cost loans to Eurozone banks to increase bank liquidity; (2) extend targeted longer-term
refinance operations (TLTRO) to provide loans at below-market rates to businesses, especially
small and medium-sized businesses, directly affected by Covid-19; (3) provide an additional €120
billion (about $130 billion) for the Bank’s asset purchase program to provide liquidity to firms.34
On March 13, 2020, financial market regulators in the UK, Italy, and Spain intervened in stock
and bond markets to stabilize prices after historic swings in indexes on March 12, 2020.35 In
addition, the ECB announced that it would do more to assist financial markets in distress,
including altering self-imposed rules on purchases of sovereign debt.36 Germany’s Economic
Minister announced on March 13, 2020, that Germany would provide unlimited loans to
businesses experiencing negative economic activity (initially providing $555 billion), tax breaks
for businesses,37 and export credits and guarantees.38 Recent forecasts indicate that the economic
effect of Covid-19 could push the Eurozone into an economic recession in 2020.39
32 US Fed’s Coronavirus Rate Cut is First Move in a Dance With Markets, The Financial Times, March 4, 2020.
https://www.ft.com/content/83c07594-5e3a-11ea-b0ab-339c2307bcd4, Giles, Chris, Martin Arnold, Sam Jones, and
Jamie Smyth, Finance Ministers ‘Ready to Take Action’ on Coronavirus, The Financial Times, March 3, 2020.
https://www.ft.com/content/b86f7d92-5d38-11ea-b0ab-339c2307bcd4.
33 Arnold, Martin and Guy Chazan, Christine Lagarde Calls on EU Leaders to Ramp up Coronavirus Response, The
Financial Times, March 11, 2020. https://www.ft.com/content/44eac1f2-6386-11ea-a6cd-df28cc3c6a68.
34 Monetary Policy Decisions, The European Central Bank, March 12, 2020.
https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.mp200312~8d3aec3ff2.en.htm.
35 Stafford, Philip and Adam Samson, European Regulators Intervene in Bid to Stabilize Stock and Bond Prices, The
Financial Times, March 13, 2020. https://www.ft.com/content/77f57d4c-6509-11ea-a6cd-df28cc3c6a68.
36 Arnold, Martin, ECB Enters Damage-Limitation Mode With Pledge of More Action, The Financial Times, March
13, 2020. https://www.ft.com/content/f1cbd4f8-650f-11ea-b3f3-fe4680ea68b5.
37 Loveday, Morris and Louisa Beck, Germany Announces “Bazooka” Economic Plan to Mitigate Coronavirus Hit, The
Washington Post, March 13, 2020. https://www.washingtonpost.com/world/2020/03/13/coronavirus-latest-news/.
38 Arnold, Martin, Guy Chazan, Victor Mallet, Miles Johnson, and Daniel Dombey, How European economies are
trying to mitigate the coronavirus shock, The Financial Times, March 17, 2020. https://www.ft.com/content/26af5520-
6793-11ea-800d-da70cff6e4d3.
39 Lagarde to Confront Coronavirus Crisis at ECB Policy Meeting, The Financial Times, March 8, 2020.
https://www.ft.com/content/79a280c6-5fb5-11ea-b0ab-339c2307bcd4.
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The United Kingdom
The Bank of England announced on March 11, 2020, that it would adopt a package of four
measures to deal with any economic disruptions associated with Covid-19. The measures include:
an unscheduled cut in the benchmark interest rate by 50 basis points (0.5%) to a historic low of
0.25%; reintroduce the Term Funding scheme for Small and Medium-sized Enterprises (TFSME)
that provides banks with over $110 billion for loans at low interest rates; lower banks’
countercyclical capital buffer to zero percent, which is estimated to support over $200 billion of
bank lending to businesses; and freeze banks’ dividend payments.40 The UK Chancellor of the
Exchequer proposed a national budget on March 11, 2020, that includes nearly $35 billion in
fiscal spending to counter adverse economic effects of the viral crisis and proposes that statutory
sick leave be boosted by about $2.5 billion in funds to small and medium businesses to provide
up to 14 days of sick leave for affected employees. Part of the fiscal spending package includes
open-ended funding for the National Health Service (NHS), $6 billion in emergency funds to the
NHS, $600 million hardship fund to assist vulnerable people, and tax cuts and tax holidays for
small businesses in certain affected sectors.41
Japan
The Bank of Japan, with already-low interest rates, interjected $4.6 billion in liquidity into
Japanese banks to provide short-term loans and twice that amount into exchange traded funds to
aid Japanese businesses. The Japanese government also pledged to provide wage subsidies for
parents forced to take time off due to school closures.42
China
According to a recent CRS In Focus, 43 China’s economic growth could go negative in the first
quarter of 2020 and fall below 5% for the year, with more serious effects if the outbreak
continues. In early February, China’s central bank pumped $57 billion into the banking system,
capped banks’ interest rates on loans for major firms, and extended deadlines for banks to curb
shadow lending. The central bank has been setting the reference rate for China’s currency
stronger than its official close rate to keep it stable. On March 13, 2020, The People’s Bank of
China announced that it would provide $78.8 billion in funding, primarily to small businesses, by
reducing bank’s reserve requirements.44
The International Monetary Fund (IMF) is providing funding to poor and emerging market
economies that are short on financial resources.45 If the economic effects of the virus persist,
40 Romei, Valentina, Coronavirus fallout: Bank of England launches 4 key measures, The Financial Times.
https://www.ft.com/content/4e60c08e-6380-11ea-b3f3-fe4680ea68b5.
41 Payne, Sebastian and Chris Giles, Budget 2020: Sunak Unveils £30bn Stimulus to Counter UK Coronavirus Shock,
The Financial Times. https://www.ft.com/content/f7b27264-6384-11ea-a6cd-df28cc3c6a68.
42 Harding, Robin and Hudson Lockett, BoJ Spurs Asia Markets Rebound With Vow to Fight Coronavirus, The
Financial Times, March 2, 2020. https://www.ft.com/content/9fa91e06-5c3b-11ea-b0ab-339c2307bcd4.
43 For additional information about China’s response, see: CRS In Focus IF11434, COVID-19: U.S.-China Economic
Considerations, by Karen M. Sutter and Michael D. Sutherland.
44 Weinland, Don, China’s Central Bank Launches $79bn Stimulus for Virus-hit Companies, The Financial Times,
March 13, 2020. https://www.ft.com/content/deb56f86-6515-11ea-b3f3-fe4680ea68b5.
45 Politi, James, IMF Sets Aside $50bn for Coronavirus-hit Countries, The Financial Times, March 4, 2020,
https://www.ft.com/content/83c07594-5e3a-11ea-b0ab-339c2307bcd4.
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countries may need to be proactive in coordinating fiscal and monetary policy responses, similar
to actions taken by of the G-20 following the 2008-2009 global financial crisis.
Multilateral Response
International Monetary Fund
The IMF announced that it is making available about $50 billion for the global crisis response.46
For low-income countries, the IMF is providing rapid-disbursing emergency financing of up to
$10 billion (50% of quota of eligible members) that can be accessed without a full-fledged IMF
program. Other IMF members can access emergency financing through the Fund’s Rapid
Financing Instrument (RFI). This facility could provide about $40 billion for emerging markets
facing fiscal pressures from COVID-19. Separate from these resources, the IMF has a
Catastrophe Containment and Relief Trust (CCRT), which provides eligible countries with up-
front grants for relief on IMF debt service falling due. The CCRT was used during the 2014 Ebola
outbreak, but is now underfunded, according to IMF Managing Director Kristolina Georgieva
with just over $200 million available against possible needs of over $1 billion. 47 On March 11,
2020, the United Kingdom announced that it will contribute £150 million (about $170 million) to
the CCRT. To date, the United States has not contributed to the CCRT.48
World Bank and Regional Development Banks
The World Bank announced that it is making up to $12 billion in financing ($8 billion of which is
new) immediately available to help impacted developing countries.49 This support comprises up
to $2.7 billion in new financing from the International Bank for Reconstruction and Development
(IBRD), the World Bank’s market-rate lending facility for middle-income developing countries
and $1.3 billion from the International Development Association (IDA), the World Bank’s
concessional facility for low-income countries. In addition, the Bank is reprioritizing $2 billion of
the Bank’s existing portfolio. The International Finance Corporation (IFC), the Bank’s private-
sector lending arm is making available up to $6 billion. According to the Bank, support will cover
a wide range of activities including strengthening health services and primary health care,
bolstering disease monitoring and reporting, training front line health workers, encouraging
community engagement to maintain public trust, and improving access to treatment for the
poorest patients.
Several years ago, the World Bank introduced pandemic bonds, a novel form of catastrophe
financing.50 The Bank sold two classes of bonds worth $320 million in a program designed to
provide financing to developing countries facing an acute epidemic crisis if certain triggers are
met. Once these conditions are met, bondholders no longer receive interest payments on their
investments, the money is no longer repaid in full, and funds are used to support the particular
46 International Monetary Fund, IMF Makes Available $50 Billion to Help Address Coronaviris, March 4, 2020.
47 International Monetary Fund, United Kingdom Boosts IMF’s Catastrophe Relief Fund with £150 million, March 11,
2020.
48 Ibid.
49 World Bank, World Bank Group Announces Up to $12 Billion Immediate Support for COVID-19 Country Response¸
March 3, 2019.
50 Anna Gross, “Critics take aim at ‘failure’ of bond designed to fight disease,” Financial Times, March 10, 2020,
https://www.ft.com/content/a6239e12-5ec7-11ea-b0ab-339c2307bcd4.
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crisis. In the case of Covid-19, for the bonds to be triggered, the epidemic must be continuing to
grow 12 weeks after the first day of the outbreak. Critics have raised a range of concerns about
the bonds, arguing that the terms are too restrictive and that the length of time needs to be
shortened before triggering the bonds.51 Others stress that the proposal remains valid – shifting
the cost of pandemic assistance from governments to the private sector, especially in light of the
failure of past efforts to rally donor support to establish multilateral pandemic funds.
The Asian Development Bank (ADB) has approved a total of $4 million to help developing
countries in Asia and the Pacific.52 Of the total, $2 million is for improving the immediate
response capacity in Cambodia, China, Laos, Myanmar, Thailand, and Vietnam; $2 million will
be available to all ADB developing member countries in updating and implementing their
pandemic response plans. The ADB also provided a private sector loan of up to $18.6 million to
Wuhan-based Jointown Pharmaceutical Group Co. Ltd. to enhance the distribution and supply of
essential medicines and protective equipment.
International Economic Cooperation
On March 16, 2020, the leaders of the G-7 countries (Canada, France, Germany, Italy, Japan, the
United Kingdom, and the United States) held an emergency summit by teleconference to discuss
and coordinate their policy responses to the economic fallout from the global spread of Covid-19.
In the joint statement released by the G-7 leaders after the emergency teleconference summit, the
leaders stressed they are committed to doing “whatever is necessary to ensure a strong global
response through closer cooperation and enhanced cooperation of efforts.”53 The countries
pledged to coordinate research efforts, increase the availability of medical equipment; mobilize
“the full range” of policy instruments, including monetary and fiscal measures as well as targeted
actions, to support workers, companies, and sectors most affected by the spread of Covid-19; task
the finance ministers to coordinate on a weekly basis, and direct the IMF and the World Bank
Group, as well as other international organizations, to support countries worldwide as part of a
coordinated global response.54
News reports indicate that Saudi Arabia, the 2020 chair of the G-20, intends to call an emergency
G-20 summit in coming days.55 The G-20 is a broader group of economies, including the G-7
countries and several major emerging markets.56 During the global financial crisis, world leaders
decided that henceforth the G-20 would be the premiere forum for international economic
cooperation. Some analysts have been surprised that the G-7 has been in front of the G-20 in
responding to Covid-19, while other analysts have questioned whether the larger size and
diversity of economies in the G-20 can make coordination more difficult.57
51 Ibid.
52 Asian Development Bank, ADB Approves Another $2 Million to Help Asia and the Pacific Tackle Coronavirus,
February 26, 2020.
53 White House, G-7 Leaders’ Statement, March 16, 2020, https://www.whitehouse.gov/briefings-statements/g7-
leaders-statement/.
54 Ibid
55 “Spain Says Saudi Arabia to Cal G-20 to Meet on Coronavirus in Coming Days,” Reuters, March 16, 2020.
56 The G-20 includes the G-7 countries plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia,
Saudi Arabia, South Africa, South Korea, Turkey, and the European Union (EU).
57 For more information about the G-20, see CRS Report R40977, The G-20 and International Economic Cooperation:
Background and Implications for Congress, by Rebecca M. Nelson.
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Analysts are hopeful that the recent G-7 summit, and movement towards a G-20 summit, will
mark a shift towards greater international cooperation at the highest (leader) levels in combatting
the economic fallout from the spread of Covid-19.58 An emergency of G-7 finance ministers on
March 3, 2020, fell short of the aggressive and concrete coordinated action that investors and
economists had been hoping for, and U.S. and European stock markets fell after the meeting.59
More generally, governments have been divided over the appropriate response and in some cases
have acted unilaterally, particularly when closing borders and imposing export restrictions on
medical equipment and medicine. Meanwhile, international organizations including the IMF and
multilateral development banks have tried to forge ahead with economic support given their
current resources
Estimated Effects on Developed and Major
Economies
Among most developed and major developing economies, economic growth at the beginning of
2020 was tepid, but still was estimated to be positive. Countries highly dependent on trade—
Canada, Germany, Italy, Japan, Mexico, and South Korea—and commodity exporters are now
projected to be the most negatively affected by the slowdown in economic activity associated
with the virus.60 In addition, travel bans and quarantines are taking an especially heavy economic
toll on China, South Korea, and Italy, where viral outbreaks have so far been most prevalent. The
OECD notes that production declines in China have spillover effects around the world given
China’s role in producing computers, electronics, pharmaceuticals and transport equipment, and
as a primary source of demand for many commodities.61
In early January 2020, before the coronavirus outbreak, economic growth in developing
economies as a whole was projected by the International Monetary Fund (IMF) to be slightly
more positive than in 2019. This outlook was based on progress being made in U.S.-China trade
talks that were expected to roll back some tariffs and an increase in India’s rate of growth.
Growth rates in Latin America and the Middle East were also projected to be positive in 2020.62
These projections likely will be revised downward due to the slowdown in global trade associated
with Covid-19, lower energy and commodity prices, and other secondary effects that could curtail
growth. Commodity exporting countries, in particular, likely will experience a greater slowdown
in growth than forecasted in earlier projections as a result of a slowdown on trade with China and
lower commodity prices.
Emerging Markets
The combined impact of Covid-19 and an oil price war between Saudi Arabia and Russia are
hitting developing and emerging economies hard. Not all of these countries have the resources or
policy flexibility to respond effectively. According to figures compiled by the Institute for
58 See for example, Jennifer Rankin, “EU Leaders Divided on How to Protect Economies after Coronavirus,” The
Guardian, March 14, 2020.
59 Jack Ewing and Jeanna Smialek, “Economic Powers Vow to Fight Crisis,” New York Times, March 3, 2020.
60 OECD Interim Economic Assessment, p. 7.
61 Ibid, p. 5.
62 Tentative Stabilization, Sluggish Recovery? World Economic Outlook Update, January 20, 2020, The International
Monetary Fund. https://www.imf.org/en/Publications/WEO/Issues/2020/01/20/weo-update-january2020.
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International Finance (IIF), cumulative capital outflows from developing countries since January
2020 are double the level experienced during the 2008/2009 crisis and substantially higher than
recent market events (Figure 1).63
Figure 1. Capital Flows to Emerging Markets in Global Shocks
Source: : Original graphic and data from International Institute for Finance using data from Haver. Edited by
CRS for clarification.
The impact of the price war and lower energy demand associated with a Covid-19-related
economic slowdown is especially hard on oil and gas exporters, some of whose currencies are at
record lows (Figure 2). Oil importers, such as South Africa and Turkey, have also been hit hard;
South Africa’s rand has fallen 18%64 against the dollar since the beginning of 2020 and the
Turkish lira has lost 8.5%.65
Depending on individual levels of foreign exchange reserves and the duration of the capital flow
slowdown, some countries may have sufficient buffers to weather the slowdown, while others
will likely need to make some form of current account adjustment (reduce spending, raise taxes,
etc). Several countries, such as Iran and Venezuela, have already asked the IMF for financial
assistance and others are likely to follow.66 (Venezuela’s request was quickly rebuffed due to
63 These include concerns in 2015 over China’s renminbi devaluation and the so-called “Taper Tantrum” in 2013 when
the Federal Reserve announced that it would slow down the pace of its post global financial crisis asset purchases.
Sergei Lanau and Jonathan Fortun, “Economic Views –The COVID-19 Shock to EM Flows,” Institute for International
Finance, March 17, 2020.
64 Paul Wallace, “Here’s How the Oil Crash is Hitting Emerging Market Currencies,” Bloomberg, March 17, 2020,
https://www.bloomberg.com/news/articles/2020-03-17/here-s-how-the-oil-crash-is-hitting-emerging-market-currencies.
65 Nevzat Devranoglu, “Turkish lira hits weakest level since 2018 currency crisis due to coronavirus,” Nasdaq, March
17, 2020, https://www.nasdaq.com/articles/turkish-lira-hits-weakest-level-since-2018-currency-crisis-due-to-
coronavirus-2020-03-17.
66 COVID-19-hit Iran asks IMF for aid amid US sanctions, Deutsche Walle, March 13, 2020,
https://www.dw.com/en/covid-19-hit-iran-asks-imf-for-aid-amid-us-sanctions/a-52763114. Iran is currently under U.S.
sanctions, which include, among other things, prohibitions on the ability of the United States to vote in favor of lending
IMF or World Bank assistance to Iran. The United States, however, cannot unilaterally block lending to a particular
country. Approving an IMF or World Bank loan requires a majority of the total voting power and the U.S. voting
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Global Economic Effects of COVID-19: In Brief
disagreement among the IMF membership over who is recognized as Venezuela’s legitimate
leader: Nicolás Maduro or Juan Guaidó.67)
Figure 2. Depreciation Against the Dollar Since Jan. 1, 2020
Source: Created by CRS. Data from Bloomberg.
Other Affected Sectors
Public concerns over the spread of the virus have led to self-quarantines, reductions in airline and
cruise liner travel, the closing of such institutions as the Louvre, and the rescheduling of theatrical
releases of movies, including the sequel in the iconic James Bond series (titled, “No Time to
Die”).68 School closures, so far in China, Japan, South Korea, Italy, India, and some U.S, States
are affecting at least 290 million children worldwide, challenging parental leave policies.69 Other
countries are limiting the size of public gatherings.
Some businesses are considering new approaches to managing their workforces and work
methods. These techniques build on, or in some places replace, such standard techniques as self-
quarantines and travel bans. Some firms are adopting an open-leave policy to ensure employees
receive sick pay if they are, or suspect they are, sick. Other firms are adopting paid sick leave
policies to encourage sick employees to stay home and are adopting remote working policies.70
Concerns remain, however, that some U.S. workers will continue going to work when they are
sick, since not all U.S. employers provide paid sick leave. Microsoft and Amazon have instructed
all of their Seattle-based employees to work from home until the end of March 2020.71
power is 16.5% of the total voting power at the IMF and 15.4% at the World Bank. Iran has not borrowed from the IMF
since 1962, but did borrow from the World Bank between 2003 and 2005 over U.S. opposition.
67 Joshua Goodman, “IMF rejects Maduro's bid for emergency loan to fight virus,” StarTribune,
http://www.startribune.com/venezuela-seeks-emergency-5-billion-imf-loan-to-fight-virus/568868442/.
68 Rosenberg, Alyssa, Coronavirus Shut Down Mona Lisa and James Bond. We Can’t Let it Isolate Us, The
Washington Post, March 4, 2020. https://www.washingtonpost.com/opinions/2020/03/04/coronavirus-shut-down-
mona-lisa-james-bond-we-cant-let-it-isolate-us/.
69 Taylor, Adam, Teo Armus, Rick Noak, Coronavirus Turmoil Widens as U.S. Death Toll Mounts; Xi Cancels Japan
Trip, The Washington Post, March 5, 2020.
70 Hill, Andrew and Emma Jacobs, Coronavirus May Create Lasting Workplace Change, The Financial Times,
February 27, 2020. https://www.ft.com/content/5801a710-597c-11ea-abe5-8e03987b7b20.
71 Armus, Teo, Live updates: Coronavirus Turmoil Widens as U.S. Death Toll Mounts; Xi Cancels Japan Trip, The
Washington Post, March 5, 2020, https://www.washingtonpost.com/world/2020/03/05/coronavirus-live-updates/.
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The drop in business and tourist travel is causing a sharp drop in scheduled airline flights by as
much as 10%; airlines are estimating they could lose $113 billion in 2020 (an estimate that could
prove optimistic given the Trump Administration’s announced restrictions on flights from Europe
to the United States),72 while airports in Europe estimate they could lose $4.3 billion in revenue
due to fewer flights.73 Industry experts estimate that many airlines will be in bankruptcy by May
2020 under current conditions as a result of travel restrictions imposed by a growing number of
countries.74 The loss of Chinese tourists is another economic blow to countries in Asia and
elsewhere that have benefitted from the growing market for Chinese tourists and the stimulus
such tourism has provided.
The decline in industrial activity has reduced demand for energy products such as crude oil,
causing prices to drop sharply, which negatively affects energy producers, renewable energy
producers, and electric vehicle manufacturers, but generally is positive for consumers and
businesses. Saudi Arabia is pushing other OPEC (Organization of the Petroleum Exporting
Countries) members collectively to reduce output by 1.5 million barrels a day to raise market
prices. U.S. shale oil producers, who are not represented by OPEC, support the move to raise
prices.75 An unwillingness by Russia to agree to output reductions added to other downward
pressures on oil prices and caused Saudi Arabia to engage in a price war with Russia that has
driven oil prices below $50 per barrel, the estimated break-even point for most oil producing
countries.76 In 2019, low energy prices combined with high debt levels reportedly caused U.S.
energy producers to reduce their spending on capital equipment, reduced their profits and, in
some cases, led to bankruptcies.77 Reportedly, in late 2019 and early 2020, bond and equity
investors, as well as banks, reduced their lending to shale oil producers and other energy
producers that typically use oil and gas reserves as collateral.78
Disruptions to industrial activity in China reportedly are causing delays in shipments of
computers, cell phones, toys, and medical equipment.79 Factory output in China, the United
States, Japan, and South Korea all declined in the first months of 2020.80 Reduced Chinese
72 Taylor, Adam, Airlines Could Suffer up to $113 Billion in Lost Revenue Due to Coronavirus Crisis, IATA Says, The
Washington Post, March 5, 2020. https://www.washingtonpost.com/world/2020/03/05/coronavirus-live-updates/.
73 Airlines Slash Flights to Cut Costs as Coronavirus Hits Travel Demand, The Financial Times.
https://www.ft.com/content/c28b5790-62c6-11ea-a6cd-df28cc3c6a68.
74 Smyth, Jamie Smyth, Andrew Edgecliffe-Johnson, Peggy Hollinger, Myles McCormick, David Keohane, and
Richard Milne, Most Airlines Face Bankruptcy by End of May, Industry Body Warns, The Financial Times, March 16,
2020.
75 Brower, Derek, Cash-Strapped US Shale Producers Pray for OPEC Aid, The Financial Times, March 3, 2020.
https://www.ft.com/content/9161e62c-5cb1-11ea-b0ab-339c2307bcd4.
76 Strauss, Delphine, Why There Are no Winners From the Oil Price Plunge This Time, The Financial Times, March
10, 2020. https://www.ft.com/content/da2b0700-622c-11ea-b3f3-fe4680ea68b5; Mufson, Steve and Will Englund, Oil
Price War Threatens Widespread Collateral Damage. The Washington Post, March 10, 2020.
https://www.washingtonpost.com/climate-environment/oil-price-war-threatens-widespread-collateral-
damage/2020/03/09/3e42c9e2-6207-11ea-acca-80c22bbee96f_story.html.
77 Texas Oil Groups: Panhandling Ahead, The Financial Times, January 20, 2020.
78 Ibid.
79 Hille, Kathrin, Alistair Gray, and Patrick McGee, Coronavirus delays PC and smartphone shipments for weeks, The
Financial Times, March3, 2020. https://www.ft.com/content/72742872-5c31-11ea-b0ab-339c2307bcd4.
80 Newmyer, Tory, The Finance 202: Stocks Stage Major Comeback, but Manufacturing Report Points to Continued
Coronavirus Pain, The Washington Post, March 3, 2020.
https://www.washingtonpost.com/news/powerpost/paloma/the-finance-202/2020/03/03/the-finance-202-stocks-stage-
major-comeback-but-manufacturing-report-points-to-continued-coronavirus-
pain/5e5d84a6602ff10d49ac081f/?itid=hp_hp-cards_hp-card-politics%3Ahomepage%2Fcard-ans.
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agricultural exports, including to Japan, are leading to shortages in some commodities. In
addition, numerous auto producers are facing shortages in parts and other supplies that have been
sourced in China. Reductions in international trade have also affected ocean freight prices. Some
freight companies argue that they could be forced to shutter if prices do not rebound quickly.81
Disruptions in the movements of goods and people reportedly are causing some companies to
reassess how international they want their supply chains to be.82 According to some estimates,
nearly every member of the Fortune 1000 is being affected by disruptions in production in
China.83
Conclusions
The quickly evolving nature of the Covid-19 crisis creates a number of issues that make it
difficult to estimate the full cost to global economic activity. These issues include, but are not
limited to:
How long will the crisis last?
How many workers will be affected both temporarily and permanently?
How many countries will be infected and how much economic activity will be
reduced?
When will the economic effects peak?
How much economic activity will be lost as a result of the viral outbreak?
What are the most effective monetary and fiscal policies at the national and
global level to address the crisis?
What temporary and permanent effects will the crisis have on how businesses
organize their work forces?
Many of the public health measures taken by Italy, Taiwan, South Korea, Hong
Kong, China, etc. have sharply impacted their economies (plant closures, travel
restrictions, etc.). How are the tradeoffs between public health and the economic
impact of policies to contain the spread of the virus being weighed?
81 Lynch, David J., Economic Fallout From China’s Coronavirus Mounts Around the World, The Washington Post,
February 13, 2020. https://www.washingtonpost.com/business/economy/economic-fallout-from-chinas-coronavirus-
mounts-across-the-globe/2020/02/13/7bb69a12-4e8c-11ea-9b5c-eac5b16dafaa_story.html?itid=lk_inline_manual_12
82 Ibid.
83 Ibid.
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Appendix.
Select Measures Implemented or Announced by
Major Economies in Response to COVID-19
United States U.S. Federal Reserve
March 3: Cut the target range for the federal funds rate by 0.5 percentage point.
March 12: Expanded reverse repo operations, adding $1.5 trillion of liquidity to the
banking system.
March 15: Cut the target range for the federal funds rate by a full percentage point to
a range of 0.00% to 0.25% and restarted quantitative easing with the purchase of at
least $500 billion in Treasury securities and $200 billion in mortgage-backed
securities.
U.S. Congress
March 5: Passed, and the President signed, a bill providing $8.3 billion in emergency
funding for federal agencies to respond to the coronavirus outbreak (H.R. 6074:
Coronavirus Preparedness and Response Supplemental Appropriations Act 2020).
March 13: The House of Representatives passed a coronavirus response package
(H.R. 6201: Families First Coronavirus Response Act). The Senate is expected to
follow this week.
Trump Administration
March 13: President Trump declared a state of emergency, allowing the Federal
Government to distribute up to $50 billion in aid to states, cities, and territories.
March 17: The Internal Revenue Service postponed the April 15 tax-payment deadline
for 90 days and will waive interest and penalties. (The extension and waiver is
available only to individuals and corporations that owe $1 million or $10 million or
less, respectively,)
March 17: Administration officials begin negotiations with Members of Congress on a
third stimulus package of $850 billion.
Australia March 12: The government announced a AU$17.6 billion ($11.4 billion) stimulus
package that includes support for business investment, cash flow assistance for small
and medium sized business and employees, and household stimulus payments.
March 16: The Australian Securities and Investments Commission ordered large
equity market participants to reduce their number of executed trades by 25% from
the levels executed on March 13, 2020, until further notice.
Canada Bank of Canada
March 13: Lowered its benchmark overnight rate to 1.25% from 1.75% in response to
the epidemic.
Congressional Research Service 18
Global Economic Effects of COVID-19: In Brief
Canadian Government
March 11: Unveiled CA$1 billion ($750 million) in funding for vaccine research and
health measures.
March 13: Announced CA$10 billion ($7.5 billion) credit package to help businesses,
particularly small and medium-sized enterprises, struggling due to the pandemic.
Chile March 16: The Central Bank of Chile cut its benchmark rate by 75 basis points to 1%
on Monday and announced measures to inject liquidity, including allocating $4 billion
to purchase inflation-linked bank bonds and providing additional credit to banks.
China People’s Bank of China (PBOC)
February 3: Expanded reverse repo operations by $174 billion; added another $71
billion on February 4.
February 16: Cut the one-year medium-term lending facility rate by 10 basis points.
February 20: Cut the one-year and five-year prime rates by 10 and 5 basis points,
respectively.
March 13: Lowered bank reserve requirements, freeing up about $79 billion to be
lent out.
PRC Government
February: Asked banks to extend the terms of business loans and commercial
landlords to reduce rents.
March: Earmarked $15.9 billion to fight the epidemic.
Czech Republic March 16: The Czech National Bank lowered its main two-week repo rate by 50 basis
points to 1.75%, reversing its February rate hike to combat the hit from the virus
outbreak. It also raised the number of repo operations that provide liquidity to banks
to three times a week from once, noting that bids would be met with zero spread to
the repo rate.
Egypt Central Bank of Egypt
March 16: Cut by 300 basis points both the overnight lending rate (from 13.25% to
10.25%) and the overnight deposit rate (from 12.25% to 9.25%) in what it described
as a “preemptive” move to support the economy in the face of the COVID-19
outbreak.
Government of Egypt
March 14: The President indicated that the government will allocate 100 billion
Egyptian pounds ($6.4 billion) to finance a “comprehensive” state plan for combating
the coronavirus outbreak.
European Union European Commission
March 11: Announced a 37 billion euro ($41 billion) “Corona Investment Fund” that
would use “spare” money from the EU budget to help businesses, health-care
systems, and sectors in need; additionally, the EU’s own investment fund will
Congressional Research Service 19
Global Economic Effects of COVID-19: In Brief
guarantee 8 billion euros ($8.9 billion) of loans to 100,000 small- and medium-sized
enterprises and affected companies may be able to delay the payment of their existing
loans.
European Central Bank (ECB)
March 12: Announced that it would provide banks with loans at a rate as low as
minus 0.75%, below the-0.5% deposit rate, increase bond purchases by 120 billion
euros ($135.28 billion) this year (with a focus on corporate debt), and allow euro
zone banks to fall short of some key capital and cash requirements (in order to keep
credit flowing to the economy).
France March 12: The government pledged more generous guarantees on loans made to
small businesses, more cash for firms struggling to hold on to workers, and a
solidarity fund to help companies cushion the blow from the coronavirus outbreak; it
also announced that the government would be ready to increase funds available to
help companies reduce workers’ hours, instead of laying them off.
March 16: The president announced that the government would guarantee 300 billion
euros in bank loans for small and medium-sized businesses.
March 17: The Autorité des Marchés Financiers (AMF), France’s financial-markets
authority, stated that it would forbid short selling of stock in 92 companies during the
March 17 session.
March 17: The government announced that it would spend 45 billion euros ($50
billion) to help small businesses and employees struggling with the coronavirus
outbreak, including through an expanded partial-unemployment package in which the
state pays the salaries of employees who are not needed during the crisis.
Germany March 13: Pledged to provide unlimited liquidity assistance to German companies hit
by the pandemic. (The measure envisages a massive expansion of loans provided by
KfW, the state development bank, and will allow companies to defer billions of euros
in tax payments.) The Bundestag also expanded the Kurzarbeit or short-time work
scheme, under which companies that put their workers on reduced hours can receive
state support. The government also indicated that it would boost investments by €3.1
billion per year between 2021 and 2024.
Hong Kong February 26: The government announced a HK$120 billion ($15.4 billion) relief
package as part of its 2020-2021 budget, including a payment of HK$10,000 ($1,200)
to each permanent resident of the city 18 or older, 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, and an extra month’s
worth of payments to people collecting old-age or disability benefits.
India Reserve Bank of India
March 12: Announced a $2 billion injection into the foreign-exchange market to
support the rupee.
Congressional Research Service 20
Global Economic Effects of COVID-19: In Brief
March 13: Announced a plan to add liquidity through short-term repurchase
operations.
Government of India
March 15: Pledged $10 million towards South Asian Association for Regional
Cooperation (SAARC) “coronavirus emergency fund.”
Italy March 11: The government announced two packages worth 25 billion euros ($28.3
billion): A package worth 12 billion euros will provide extra funding for the health
system as well as a mix of measures to help companies and households, including
freezing tax and loan payments and boosting unemployment benefits to ensure no
jobs were lost. The remainder will be a reserve to pay for any further measures. The
government also indicated that payments on mortgages will be suspended across Italy.
ABI, Italy’s banking lobby, said lenders would offer debt moratoriums to small firms
and households grappling with the economic fallout from the virus.
Japan Bank of Japan
March 16: Announced that it would (1) double its upper limit of annual purchases of
exchange traded funds to 12 trillion yen ($112.46 billion) and of real-estate
investment trusts to 180 billion yen ($1.7 billion) per year, (2) expand its upper limit
of its corporate bond balance and commercial paper balance by 1 trillion yen ($9.5
billion) each, and (3) start a lending program for commercial banks, providing them
with one-year loans in exchange for corporate collateral worth 8 trillion yen ($75.6
billion).
Japanese Government
February 13: Unveiled a set of measures worth 15.3 billion yen ($140 million) to fight
the spread of coronavirus; secured 500 billion yen ($4.7 billion) for emergency
lending and loan guarantees at the Japan Finance Corporation and other institutions
for small businesses hit hard by the virus outbreak.
March 10: Unveiled a second package of measures totaling 430.8 billion yen ($4.1
billion) in spending to cope with the fallout of the coronavirus outbreak (focusing on
support to small and mid-sized firms) and boosted to 1.6 trillion yen ($15.1 billion) its
special financing for small- and mid-size firms hit by the virus, up from 500 billion yen.
Kuwait March 16: The Central Bank of Kuwait cut by 100 basis points its deposit rate to 1.5%
and its overnight, one-week, and one-month repo rates to 1%, 1.25%, and 1.75%,
respectively.
Mexico February 13: The Bank of Mexico cut its key rate by 25 basis points to 7.0%.
New Zealand Government of New Zealand
March 16: Announced a spending package of NZ$12.1 billion ($7.3 billion), equivalent
to 4% of GDP in an attempt to fight the effects of Covid-19 on the economy;
approximately NZ$5 billion will go toward wage subsidies for businesses, NZ$2.8
billion toward income support, NZ$2.8 billion in business tax relief, and NZ$600
million toward the airline industry.
Congressional Research Service 21
Global Economic Effects of COVID-19: In Brief
Reserve Bank of New Zealand
March 16: Cut the official cash rate by 75 basis points to a record low of 0.25%, and
pledged to keep it at this level for at least 12 months.
Norway March 13: The Norges Bank, Norway’s central bank, cut its key interest rate to 1%
from 1.5%, as it seeks to counter the economic impact of the coronavirus pandemic.
It indicated that it would offer funding to banks to help counter the volatility in
financial markets and announced that banks' countercyclical capital buffer would be
reduced from 2.5% to 1%, to help banks continue to lend money.
Philippines March 13: The government instructed the Government Service Insurance System and
the Social Security System "to take advantage of the low stock prices" and "support
the stock market by at least doubling their daily average purchase volumes" from
2019.
March 17: The Philippine Stock Exchange halted all stock, bond and currency trading
until further notice, after President Rodrigo Duterte placed Luzon, the country’s
economic powerhouse, under “enhanced community quarantine”.
Qatar Qatar Central Bank
March 16: Cut the deposit rate by 50 basis points to 1%, lending rate by 100 basis
points to 2.50%, and repurchase rate (repo) by 50 basis points to 1%.
Government of Qatar
March 15: The Emir of Qatar announced several measures to shield the economic
and financial sectors in the country from the impact of the coronavirus, including: (1)
allocating 75 billion Qatari riyals ($20.6 billion) to support and provide financial and
economic incentives in the private sector, (2) directing the Central Bank of Qatar to
provide additional liquidity to banks operating in the country and putting in place the
appropriate mechanism to encourage banks to postpone loan installments and
obligations of the private sector with a grace period of six months, (3) directing the
Qatar Development Bank to postpone the installments for all borrowers for a period
of six months, (4) directing the government to increase its investments in the stock
exchange by 10 billion Qatari riyals ($2.75 billion), (5) exempting food and medical
goods from customs duties for a period of six months, and (6) exempting the various
sectors of the economy from electricity and water fees for a period of 6 months.
Saudi Arabia March 15: The Saudi Arabian Monetary Authority announced that it had prepared a
50 billion riyal ($13.32 billion) package to help small and medium-sized enterprises
cope with the economic impacts of coronavirus; it also lowered by 75 basis points
both its repo rate to 1%, and its reverse repo rate to 0.5%.
Singapore February 18: The government announced around $4.5 billion in financial packages to
help contain the coronavirus outbreak, including $575 million to fight and contain the
disease, mainly through healthcare funding, and 4 billion in economic stimulus
measures to manage its impact on businesses, jobs and households.
Congressional Research Service 22
Global Economic Effects of COVID-19: In Brief
South Korea March 3: Announced a 11.7 trillion won ($9.8 billion) stimulus package that includes
funding for medical institutions and quarantine efforts, assistance to small- to
medium-sized businesses struggling to pay wages to their workers, and subsidies for
child care.
Spain March 12: The government announced additional support for the health system and a
14 billion euro ($15.6 billion) stimulus package for the economy.
Sri Lanka March 16: The Central Bank of Sri Lanka cut the Standing Deposit Facility Rate
(SDFR) and the Standing Lending Facility Rate (SLFR) by 25 basis points to 6.25% and
7.25%, respectively, and the Statutory Reserve Ratio (SRR) on all rupee deposit
liabilities of licensed commercial banks was reduced by 1 percentage point to 4%
March 16: The Colombo Stock Exchange was closed until March 19, as the
government extended the public holiday in a bid to halt the spread of coronavirus in
the country.
Sweden Sveriges Riksbank
March 13: Stated that it would lend up to 500 billion crowns ($51 billion) to Swedish
companies via banks to shore up credit flows as the epidemic wreaks havoc on
financial markets.
March 16: Announced that it would buy securities for up to an additional 300 billion
Swedish crowns ($31 billion) in 2020 to facilitate credit supply and mitigate the
downturn in the economy caused by the coronavirus, reduced the overnight lending
rate to banks to 0.2 percentage point above its repo rate (from 0.75 percentage
point), and indicated that it would be flexible with the collateral banks can use when
they borrow money from the Riksbank, giving lenders more scope to use mortgage
bonds as collateral.
Government of Sweden
March 16: Presented a package worth more than 300 billion Swedish crowns ($31
billion) to support the economy in the face of the coronavirus pandemic. It included
measures such as the central government assuming the full cost for sick leave from
companies through the months of April and May 2020 and for temporary
redundancies due to the crisis, and allowing companies to put off paying tax and VAT
for up to a year (retroactive to the start of 2020).
Taiwan February 25: The government approved a T$60 billion ($2 billion) package to help
cushion the impact of the coronavirus outbreak on its export-reliant economy,
including loans for small businesses, subsidies for hard-hit tour agencies, tax cuts for
tour bus drivers, and vouchers to spend on food in night markets.
March 12: The president announced that an additional T$40 billion ($1.33 billion)
from the Employment Stabilization Fund and the Tourism Development Fund would
be available to stimulate Taiwanese economy.
Congressional Research Service 23
Global Economic Effects of COVID-19: In Brief
United Arab Emirates March 15: The Central Bank of the UAE announced a 100 billion dirham ($27 billion)
(UAE) stimulus package to deal with the economic effects of the coronavirus pandemic; it
cut the rate on one-week certificates of deposit by 75 basis points and will also ease
regulatory limits on loans.
United Kingdom Bank of England
March 11: Cut its benchmark interest rate by half a percentage point, to 0.25%,
revived a program to support lending to small and midsize businesses, and reduced
bank capital requirements to further boost credit.
UK Government
March 11: Announced a stimulus package totaling 30 billion pounds ($39 billion). It
will include 7 billion pounds ($8.6 billion) available to support the labor market, 5
billion pounds ($6.1 billion) to help the health-care system, and 18 billion pounds ($22
billion) to support the UK economy, bringing the total fiscal stimulus to 30 billion
pounds ($39 billion). (Among the specific measures, there will be a tax cut for
retailers, cash grants to small businesses, a mandate to provide sick pay for people
who need to self-isolate, subsidies to cover the costs of sick pay for small businesses,
and expanded access to government benefits for the self-employed and unemployed.)
Vietnam March 16: The State Bank of Vietnam cut by 100 basis points both its refinance rate
(to 5%) and the overnight lending rate in the inter-bank market (to 6%), and by 50
basis points its discount rate (to 3.5%).
Author Contact Information
James K. Jackson, Coordinator Andres B. Schwarzenberg
Specialist in International Trade and Finance Analyst in International Trade and Finance
#redacted#@crs.loc.gov , 7-.... #redacted#@crs.loc.gov , 7-....
Martin A. Weiss Rebecca M. Nelson
Specialist in International Trade and Finance Specialist in International Trade and Finance
#redacted#@crs.loc.gov, 7-.... #redacted#@crs.loc.gov, 7-....
Congressional Research Service R46270 · VERSION 10 · UPDATED 24
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