Full text
Global Economic Effects of COVID-19
Updated July 24, 2020
Congressional Research Service
https://crsreports.congress.gov
R46270
SUMMARY
R46270
Global Economic Effects of COVID-19
July 24, 2020
Since the COVID-19 outbreak was first diagnosed, it has spread to over 200 countries and all
U.S. states. The pandemic is negatively affecting global economic growth beyond anything James K. Jackson,
experienced in nearly a century. Estimates so far indicate the virus could trim global economic Coordinator
growth by 3.0% to 6.0% in 2020, with a partial recovery in 2021, assuming there is not a second Specialist in International
wave of infections. The economic fallout from the pandemic raises the risks of a global economic Trade and Finance
recession with levels of unemployment not experienced since the Great Depression of the 1930s.
The human costs in terms of lives lost will permanently affect global economic growth in
Martin A. Weiss
addition to the cost of rising levels of poverty, lives upended, careers derailed, and increased
Specialist in International
social unrest. Global trade could also fall by 13% to 32%, depending on the depth and extent of Trade and Finance
the global economic downturn, exacting an especially heavy economic toll on trade-dependent
developing and emerging economies. The full impact will not be known until the effects of the
pandemic peak. This report provides an overview of the global economic costs to date and the Andres B. Schwarzenberg
response by governments and international institutions to address these effects. Analyst in International
Trade and Finance
Rebecca M. Nelson
Specialist in International
Trade and Finance
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Global Economic Effects of COVID-19
Contents
Overview ......................................................................................................................................... 1
Economic Policy Responses ............................................................................................................ 4
Economic Forecasts ....................................................................................................................... 12
Global Growth......................................................................................................................... 12
The OECD Forecast .......................................................................................................... 13
The IMF Forecast.............................................................................................................. 18
The World Bank Forecast ................................................................................................. 20
Global Trade ............................................................................................................................ 21
Economic Policy Challenges ......................................................................................................... 23
Major Economic Developments .................................................................................................... 25
Financial Markets .................................................................................................................... 26
International Role of the Dollar .............................................................................................. 27
March 2020 ............................................................................................................................. 30
April 2020 ............................................................................................................................... 36
May 2020 ................................................................................................................................ 39
June 2020 ................................................................................................................................ 41
July 2020 ................................................................................................................................. 43
Policy Responses ........................................................................................................................... 44
The United States .................................................................................................................... 45
Monetary Policy ................................................................................................................ 48
Fiscal Policy ...................................................................................................................... 50
Europe ..................................................................................................................................... 57
The United Kingdom............................................................................................................... 63
Japan........................................................................................................................................ 65
China ....................................................................................................................................... 65
Multilateral Response .................................................................................................................... 66
International Monetary Fund................................................................................................... 66
World Bank and Regional Development Banks ............................................................................ 67
International Economic Cooperation ...................................................................................... 68
Estimated Effects on Developed and Major Economies ............................................................... 69
Emerging Markets ......................................................................................................................... 70
International Economic Cooperation ............................................................................................. 71
Looming Debt Crises and Debt Relief Efforts .............................................................................. 73
Other Affected Sectors .................................................................................................................. 75
Conclusions ................................................................................................................................... 76
Figures
Figure 1. IMF Projected Government Fiscal Balances Relative to GDP ........................................ 8
Figure 2. Unemployment Rates Among Major OECD Countries ................................................. 14
Figure 3. Major Economic Forecasts............................................................................................. 15
Figure 4. IMF Forecast, Gross Domestic Product, Percentage Change ........................................ 20
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Global Economic Effects of COVID-19
Figure 5. Dow Jones Industrial Average Index .............................................................................. 27
Figure 6. U.S. Dollar Trade-Weighted Broad Index, Goods and Services .................................... 28
Figure 7. International Role of the Dollar ..................................................................................... 29
Figure 8. Brent Crude Oil Price per Barrel in Dollars ................................................................... 34
Figure 9. U.S. GDP, Percentage Change From Preceding Quarter, 1st Quarter 2020 .................... 46
Figure 10. U.S. Exports and Imports of Goods and Services 2020 ............................................... 46
Figure 11. Change in U.S. Employment by Major Industrial Sector ............................................. 47
Figure 12. U.S. Personal Income, Consumption, and Saving ....................................................... 54
Figure 13. Capital Flows to Emerging Markets in Global Shocks ................................................ 70
Figure 14. Depreciation Against the Dollar Since January 1, 2020............................................... 71
Tables
Table 1. Seasonally Adjusted Weekly Unemployment Insurance Claims ....................................... 3
Table 2. Elements of Announced Fiscal Measures to Address COVID-19 ..................................... 6
Table 3. Selected Central Bank and Prudential Measures to Address COVID-19 ........................ 10
Table 4. Major Economic Forecasts, Differing Assessments ........................................................ 13
Table 5. OECD, IMF and World Bank Economic Forecasts ......................................................... 15
Table 6. WTO April Forecast: Merchandise Trade Volume and Real GDP 2018-2021 ................ 22
Table 7. Dow Jones Industrial Average Market Changes by Month ............................................. 26
Table 8. Economic Projections of Federal Reserve, June 2020 ..................................................... 55
Table 9. European Commission Economic Forecast ..................................................................... 58
Appendixes
Appendix. Table A-1. Select Measures Implemented and Announced by Major
Economies in Response to COVID-19 ....................................................................................... 78
Contacts
Author Information...................................................................................................................... 106
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Global Economic Effects of COVID-19
Overview
The World Health Organization (WHO) first declared COVID-19 a world health emergency in
January 2020. Since then, the emergency has evolved into a global public health and economic
crisis that has affected the $90 trillion global economy beyond anything experienced in nearly a
century. Governments are attempting to balance often-competing policy objectives between
addressing the public health crisis and economic considerations that include, but are not limited to
these:
Confronting ballooning budget deficits weighed against increasing spending to
support unemployed workers and social safety nets.
Providing financial support for national health systems that are under pressure to
develop vaccines while also funding efforts to care for and safeguard citizens.
Implementing monetary and fiscal policies that support credit markets and
sustain economic activity, while also assisting businesses under financial distress.
Implementing fiscal policies to stimulate economic activity, while consumers in
developed economies sharply increase their savings as households face limited
spending opportunities, or a form of involuntary saving, and concerns over their
jobs, incomes, and the course of their economies, or precautionary saving.
Intervention by central banks and monetary authorities generally in sovereign
debt and corporate bond markets to stabilize markets and insure liquidity are
raising concerns among some analysts that this activity is compromising the
ability of the markets to perform their traditional functions of pricing risk and
allocating capital.
Fiscal and monetary policies that have been adopted to date to address the
immediate impact of the health crisis compared with the mix of such policies
between assisting households, firms, or state and local governments that may be
needed going forward should the health and economic crises persist.
Policymakers and financial and commodity market participants generally have been hopeful of a
global economic recovery starting in the third quarter of 2020, assuming there is not a second
wave of infections. Some forecasts, however, raise the prospects that the pandemic could
negatively affect global economic growth more extensively and for a longer period of time with a
slow, drawn-out recovery. Without a quick resolution of the health crisis, the economic crisis may
persist longer than most forecasters have assumed and require policymakers to weigh the most
effective mix of additional fiscal and monetary policies that may be required without the benefit
of a relevant precedent to follow. Additional measures may have to balance the competing
requirements of households, firms, and state and local governments. Various U.S. States reversed
course in late June to impose or reimpose social distancing guidelines and close down businesses
that had begun opening as a result of a rise in new confirmed cases of COVID-19, raising the
prospect of a delayed recovery.
In addition, a July forecast by the European Commission forecasts a larger drop in GDP in 2020
among European economies than it had forecasted in its spring report, with a less vibrant
recovery in 2021. Differences in policy approaches between countries are threatening to inflict
longer-term damage to the global economy by impairing international political, trade, and
economic relations, particularly between countries that promote nationalism and those that argue
for a coordinated international response to the pandemic. Policy differences are also straining
relations between developed and developing economies and between northern and southern
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members of the Eurozone, challenging alliances and conventional concepts of national security,
and raising questions about the future of global leadership.
In some countries, the pandemic has elevated the importance of public health as a national
security issue and as a national economic priority on a par with traditional national security
concerns such as terrorism, cyberattacks, and proliferation of weapons of mass destruction.1 The
pandemic-related economic and human costs could have long-term repercussions for economies
through the tragic loss of life and job losses that derail careers and permanently shutter
businesses. Fiscal and monetary measures implemented to prevent a financial crisis and sustain
economic activity may also inadvertently be adding to income and wealth disparities. Within
some countries, the economic fallout is widening racial and socio-economic cleavages and
increasing social unrest. In speaking about these costs for Americans, Federal Reserve Chairman
Powell said on May 19, 2020,
Since the pandemic arrived in force just two months ago, more than 20 million people have
lost their jobs, reversing nearly 10 years of job gains. This precipitous drop in economic
activity has caused a level of pain that is hard to capture in words, as lives are upended
amid great uncertainty about the future.2
The virus was first diagnosed in Wuhan, China, but has been detected in over 200 countries and
all U.S. states.3 In early March 2020, the focal point of infections shifted from China to Europe,
especially Italy, but by April, the focus had shifted to the United States, where the number of
infections was accelerating. The infection has sickened more than 14 million people, about one-
fourth in the United States, with nearly 600,000 fatalities. At one point, more than 80 countries
had closed their borders to arrivals from countries with infections, ordered businesses to close,
instructed their populations to self-quarantine, and closed schools to an estimated 1.5 billion
children.4
Over the 18-week period from mid-March to mid-July 2020, 52.7 million Americans filed for
unemployment insurance.5 On a seasonally adjusted basis, the number of insured unemployed
workers was 16.2 million in late-July, down from a peak of 25 million in mid-May, as indicated in
Table 1. The total number of people claiming benefits in all programs in the week ending July 4,
totaled 31.8 million, up from 1.7 million in the comparable week in 2019. The insured
unemployment rate was 11.1%, also down from the peak reached in early May. On May 8, 2020,
the Bureau of Labor Statistics (BLS) reported that 20 million Americans lost their jobs in April
2020, pushing the total number of unemployed Americans to 23 million,6 out of a total civilian
1 Harris, Shane and Missy Ryan, To Prepare for the Next Pandemic, the U.S. Needs to Change its National Security
Priorities, Experts Say, The Washington Post, June 16, 2020. https://www.washingtonpost.com/national-security/to-
prepare-for-the-next-pandemic-the-us-needs-to-change-its-national-security-priorities-experts-say/2020/06/16/
b99807c0-aa9a-11ea-9063-e69bd6520940_story.html.
2 Powell, Jerome H. Coronavirus and CARES Act, Testimony before the Committee on Banking, Housing and Urban
Affairs, U.S. Senate, May 19, 2020.
3 “Mapping the Spread of the COVID-19 in the U.S. and Worldwide,” Washington Post Staff, Washington Post, March
4, 2020. https://www.washingtonpost.com/world/2020/01/22/mapping-spread-new-COVID-19/?arc404=true.
4 “The Day the World Stopped: How Governments Are Still Struggling to Get Ahead of the COVID-19,” The
Economist, March 17, 2020. https://www.economist.com/international/2020/03/17/governments-are-still-struggling-to-
get-ahead-of-the-COVID-19.
5 Unemployment Insurance Weekly Claims, Department of Labor, July 23, 2020. https://www.dol.gov/; Romm, Tony
and Jeff Stein, 2.4 Million Americans Filed Jobless Claims Last Week, Bringing Nine Week Total to 38.6 Million, The
Washington Post, May 21, 2020. https://www.washingtonpost.com/business/2020/05/21/unemployment-claims-
coronavirus/
6 This total does not include 10.9 million workers who were working part time not by choice and 9.9 million
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labor force of 158 million. The increase pushed the national unemployment rate to 14.7% (with
some caveats), the highest since the Great Depression of the 1930s.7 On June 6, BLS reported that
nonfarm employment increased by 2.5 million in May, reducing the total number of unemployed
Americans to 21 million8 and pushing the unemployment rate down to 13.5%, again with some
caveats.9 On July 2, the BLS also released data on the employment situation in June, indicating
that non-farm payroll rose by 4.8 million, lowering the unemployment rate to 11.5%.10
Table 1. Seasonally Adjusted Weekly Unemployment Insurance Claims
In thousands
Insured
Change from Insured Unemployment
Week Ending Initial Claims Prior Week Unemployment Rate Total Claims
21-Mar-20 3,307 3,025 3,059 2.1% 3,307
28-Mar-20 6,867 3,560 7,446 5.1 10,174
4-Apr-20 6,615 -252 11,914 8.2 16,789
11-Apr-20 5,237 -1,378 15,819 10.9 22,026
18-Apr-20 4,442 -795 18,011 12.4 26,468
25-Apr-20 3,867 -575 22,377 15.4 30,335
2-May-20 3,176 -691 22,548 15.5 33,511
9-May-20 2,687 -489 24,912 17.1 36,198
16-May-20 2,446 -241 20,841 14.3 38,644
23-May-20 2,123 -323 21,268 14.6 40,767
30-May-20 1,897 -226 20,606 14.1 42,664
6-Jun-20 1,566 -331 20,544 14.1 44,230
13-Jun-20 1,540 -26 19,231 13.2 45,770
20-Jun-20 1,482 -58 19,290 13.2 47,252
27-Jun-20 1,408 -74 17,760 12.2 48,660
4-Jul-20 1,310 -98 17,304 11.8 49,970
11-Jul-20 1,307 -3 16,197 11.1 51,270
18-Jul-20 1,416 109 52,693
individuals who were seeking employment.
7 The Employment Situation-April 2020, Bureau of Labor Statistics, May 8, 2020. https://www.bls.gov/.
8 This total does not include 10.6 million workers who were working part time not by choice and 9.4 million
individuals who were seeking employment.
9 The Employment Situation-May 2020, Bureau of Labor Statistics, June 5, 2020, https://www.bls.gov/. BLS indicated
that some individuals were misclassified in April and May. Instead of being classified as unemployed, they were
misclassified as employed, but absent from work due to coronavirus-related business closures. If such individuals had
been classified as unemployed, the unemployment rate would have been 5 percentage points higher in April.
10 The Employment Situation-June 2020, Bureau of Labor Statistics, July 2, 2020. https://www.bls.gov/. The
unemployment number does not include 9 million workers who were working part time not by choice and 9 million
individuals seeking employment. In addition, BLS indicated that some workers had been misclassified as employed,
but should have been classified as unemployed, which would have raised the rate of unemployment by one percentage
point.
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Source: Department of Labor, CRS calculations.
Preliminary data also indicate that U.S. GDP fell by 5.0% in the first quarter of 2020, the largest
quarterly decline in GDP since the fourth quarter of 2008 during the global financial crisis.11 In its
May 27 Beige Book analysis, the Federal Reserve (Fed) reported that economic activity had
fallen sharply in each of the 12 Federal Reserve districts.12
In Europe, governments are attempting a phased reopening of businesses, but over 30 million
people in Germany, France, the UK, Spain, and Italy have applied for state support of their
wages, while first quarter 2020 data indicate the Eurozone economy contracted by 3.8% at an
annual rate, the largest quarterly decline since the series began in 1995.13 Industrial production
across the Eurozone as a whole fell by 17% in April, raising the annual decline to 28%,
surpassing the contraction experienced during the global financial crisis.14 The European
Commission’s July 8, 2020, forecast projected that EU economic growth in 2020 could contract
by 8.3% and only partially recover in 2021.15 After protracted talks, European leaders agreed on
July 21 to a new €750 billion (about $859 billion) pandemic economic assistance package to
support European economies.
On May 27, 2020, European Central Bank (ECB) President Christine Lagarde warned that the
Eurozone economy could contact by 8% to 12% in 2020, a level of damage to the Eurozone
economy that Lagarde characterized as being unsurpassed in peacetime.16 Foreign investors have
pulled an estimated $26 billion out of developing Asian economies not including more than $16
billion out of India, increasing concerns about a major economic recession in Asia. Some
estimates indicate that 29 million people in Latin America could fall into poverty, reversing a
decade of efforts to narrow income inequality. Some analysts are also concerned that Africa, after
escaping the initial spread of infections, is now facing a sharp increase in rates of infection
outside South Africa, Egypt, Nigeria, Algeria, and Ghana, where most of the infections have
occurred to date.17
Economic Policy Responses
After a delayed response, central banks and monetary authorities in developed and emerging
market economies have engaged in an ongoing series of interventions in financial markets and
national governments have adopted an array of fiscal policy initiatives to stimulate their
11 Gross Domestic Product, First Quarter 2020 (Second Estimate), Bureau of Economic Analysis, May 28, 2020.
https://www.bea.gov/data/gdp/gross-domestic-product.
12 The Beige Book, Federal Reserve System, May 27, 2020. https://www.federalreserve.gov/monetarypolicy/beige-
book-default.htm.
13 Stott, Michael, Coronavirus Set to Push 29m Latin Americans Into Poverty, Financial Times, April 24, 2020.
https://www.ft.com/content/3bf48b80-8fba-410c-9bb8-31e33fffc3b8; Hall, Benjamin, Coronavirus Pandemic
Threatens Livelihoods of 59m European Workers, Financial Times, April 19, 2020, https://www.ft.com/content/
36239c82-84ae-4cc9-89bc-8e71e53d6649, Romei, Valentina and Martin Arnold, Eurozone Economy Shrinks by
Fastest Rate on Record, Financial Times, April 30, 2020, https://www.ft.com/content/dd6cfafa-a56d-48f3-a9fd-
aa71d17d49a8.
14 Arnold, Martin, Eurozone Industrial Production Falls by Record 17.1% in April, Financial Times, June 12, 2020.
https://www.ft.com/content/e3301cd6-27ce-35f0-829a-c6613849b378,
15 European Economic Forecast Summer 2020, European Commission, July 8, 2020.
16 Arnold, Martin, Coronavirus Hit to Eurozone Economy Set to Dwarf Financial Crisis, Financial Times, May 27,
2020. https://www.ft.com/content/a01424e8-089d-4618-babe-72f88184ac57.
17 Pilling, David, The Pandemic is Getting Worse: Africa Prepares for Surge in Infections, Financial Times, July 20,
2020. https://www.ft.com/content/1b3274ce-de3b-411d-8544-a024e64c3542.
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economies. The Bank for International Settlements (BIS) has characterized the pandemic as fully
global in nature, eliciting a fiscal, monetary, and prudential response that has surpassed that of the
global financial crisis of 2008-2009. In addition, the BIS argues that the evolving nature of the
health crisis is causing the financial crisis to evolve as well, changing from a liquidity crisis in the
initial stages to a solvency crisis that could worsen if the economic recovery is delayed. As a
result of the potential damage to the global economy arising from the pandemic, the BIS stated
that future economic historians may describe the pandemic as, “the defining moment of the 21st
century.”18 As indicated in Table 2, central governments have adopted fiscal measures to provide
support to the health sector, households, and firms, although the size and scope of the programs
vary by country.19 These measures broadly include: tax cuts and tax deferrals, wage and income
supplements to individuals, including expanding unemployment insurance; and tax cuts, tax
deferrals, and other payments to businesses. The U.S. Congress also has approved historic fiscal
spending packages. In other countries, governments abandoned traditional borrowing caps to
increase fiscal spending in order to sustain economic growth. In some emerging economies,
governments reportedly adopted special programs to provide financial assistance to “informal”
workers, or workers outside traditional labor markets such as family businesses.20 (For additional
countries and measures, see Appendix A of this report.) International organizations also took
steps to provide loans and other financial assistance to countries in need. These and other actions
have been labeled “unprecedented,” a term that has been used frequently to describe the
pandemic and the policy responses.
18 Annual Economic Report 2020, Bank for International Settlements, June 2020, p. ix.
19 Ibid.
20 Ibid, p. 25.
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Table 2. Elements of Announced Fiscal Measures to Address COVID-19
Advanced Economies Emerging Market Economies
Measures US JP DE FR IT ES GB BR CN ID IN KR MX RU ZA
Measures supporting the health sector
x x x x x x x x x x x x x x x
Measures supporting households
Targeted transfers a x x x x x x x x x x x x x x
Other labor income x x x x x x x x x x x x x x
support b
Wage subsidies x x x x x x x x x x x x x
Tax cuts x x x x x x x x x x x
Tax deferral x x x x x x x x x x
Measures supporting firms
Tax deferral x x x x x x x x x x x x x x x
Liquidity support c x x x x x x x x x x x x x x x
Tax cuts x x x x x x x x x x x x
Targeted transfers x x x x x x x x x
Source: Annual Economic Report 2020, Bank for International Settlements, June 2020, p. 24, based on data collected by the International Monetary Fund and the
Organization for Economic Cooperation and Development.
Notes: a. Includes cash and in-kind transfers to affected households. b. Extended unemployment and sick leave benefits. c. Non-budgetary measures such as equity
injections, asset purchases, loans and debt assumptions or government guarantees and contingent liabilities, US: United States; JP: Japan; DE: Germany; FR: France; IT:
Italy; ES: Spain; GB: Great Britain; BR: Brazil; CN: China; ID: Indonesia; IN: India; KR: South Korea; MX: Mexico; RU: Russia; ZA: South Africa.
CRS-6
Global Economic Effects of COVID-19
As one measure of the global fiscal and monetary responses, the International Monetary Fund
(IMF) estimated that government spending and revenue measures to sustain economic activity
adopted through mid-June 2020 amounted to $5.4 trillion and that loans, equity injections and
guarantees totaled an additional $5.4 trillion, or a total of $11 trillion.21 The IMF also updated its
estimate of the increase in borrowing by governments globally to rise from 3.9% of global gross
domestic product (GDP) in 2019 to 13.9% in 2020, as indicated in Figure 1. Other estimates
indicate that central banks have committed $17 trillion to support their economies to counter
pandemic-related economic effects.22
Among developed economies, the fiscal balance to GDP ratio is projected to rise from 3.3% in
2019 to 16.6% in 2020; the ratio for the United States is projected to rise from 6.3% to 23.8%,
respectively, the highest ratio for any country or region.23 According to the IMF, France,
Germany, Italy, Japan, and the United Kingdom have each announced public sector support
measures that total more than 10% of their annual GDP.24 For developing economies, the fiscal
balance to GDP ratio is projected to rise from 4.9% to 10.6%, significantly increasing their debt
burden and raising prospects of defaults or debt rescheduling.25 According to some estimates, the
most fiscally vulnerable countries are Argentina, Venezuela, Lebanon, Jordan, Iran, Zambia,
Zimbabwe, and South Africa.26 The IMF concluded that among developing countries high debt
levels could become “unmanageable” and test the resilience of banks in some countries.27
The IMF also argued there is a growing disconnect between the pricing of risk in financial
markets and projected economic prospects, because investors apparently expect a quick recovery
based on continued and unprecedented central bank intervention. However, a perceived or real
shift in central bank intervention in financial markets could negatively affect investors’ concept of
risk and, in turn, negatively affect asset markets and the economic recovery.28 In addition to
central banks’ actions, the IMF concludes that a number of pre-existing vulnerabilities could
affect the timing and the rate of the economic recovery. These vulnerabilities include: corporate
and household debt levels in developed and some emerging economies that could become
unmanageable in a prolonged recession; a rising number of insolvencies that could test the
resilience of the banking sector; additional stresses that could affect nonbank financial
institutions; and the prospect of some developing economies facing high external financing
requirements.29
21 World Economic Outlook Update, International Monetary Fund, June 24, 2020. p. 16.
22 Wigglesworth, Robin, Long Live Jay Powell, the New Monarch of the Bond Market, Financial Times, June 23,
2020. https://www.ft.com/content/5db9d0f1-3742-49f0-a6cd-16c471875b5e.
23 World Economic Outlook Update, p. 20.
24 Global Financial Stability Report Update. International Monetary Fund, June 2020, p. 2.
25 Ibid., p. 6.
26 Wheatley, Jonathan, Tommy Stubbington, Michael Stott, Andrew England, and Joseph Cotterill, Debt Relief: Which
Countries Are Most Vulnerable? Financial Times, May 6, 2020. https://www.ft.com/content/31ac88a1-9131-4531-
99be-7bfd8394e8b9.
27 Global Financial Stability Report Update, p. 2.
28 Ibid, p. 4.
29 Ibid, p. 6-7.
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Figure 1. IMF Projected Government Fiscal Balances Relative to GDP
In percentage shares of Gross Domestic Product
Source: World Economic Outlook Update. International Monetary Fund, June 24, 2020, p. 20. Created by CRS.
Notes: Data for 2020 are estimates.
Among central banks, the Federal Reserve has taken extraordinary steps not experienced since the
2008-2009 global financial crisis to address the growing economic effects of COVID-19.
Simultaneously, as indicated in Table 3, central banks and monetary authorities have adopted an
array of measures to address the potential economic effects of the pandemic, including lowering
interest rates and reserve requirements, announcing new lending and financing facilities, asset
purchases, foreign exchange swaps, prudential measures, and relaxed capital buffers and, in some
cases, countercyclical capital buffers,30 adopted after the 2008-2009 financial crisis, potentially
freeing up an estimated $5 trillion in funds.31
Central banks not only filled the role of lender of last resort through large purchases of
government debt, but also the buyers or lenders of last resort for private sector securities, in many
cases engaging in activities that previously had been considered off-limits. As a result of these
activities, the BIS argues that central banks effectively managed the initial liquidity crisis, the
first of three phases often identified with financial crises. The second and third phases, insolvency
and recovery, are still being navigated and could become more challenging should the pandemic-
related economic crisis be prolonged. Capital buffers were raised after the financial crisis to assist
banks in absorbing losses and staying solvent during financial crises. In some cases, governments
have directed banks to freeze dividend payments and halt pay bonuses. The Financial Stability
Board (FSB) argued in its July 15, 2020 report to the G-20 Finance Ministers and Governors that
the actions taken to date to support the functioning of the global financial system have effectively
30 Countercyclical capital buffers require banks to increase their capital buffers during periods of rapid growth in assets
(when they are making a lot of loans), to ensure they have sufficient capital to absorb losses during a recession.
Countercyclical Capital Buffers, Bank for International Settlements, April 3, 2020. https://www.bis.org/bcbs/ccyb/.
31 Arnold, Martin, “Regulators Free up $500bn Capital for Lenders to Fight Virus Storm,” Financial Times, April 7,
2020. https://www.ft.com/content/9a677506-a44e-4f69-b852-4f34018bc45f.
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worked to contain the financial and economic impact of the pandemic, but the crisis is not yet
over and it is not possible to assess whether the actions have achieved their intended results.32
On March 11, the WHO announced that the viral outbreak was officially a pandemic, the highest
level of health emergency.33 A growing list of economic indicators makes it clear that the outbreak
is negatively affecting global economic growth on a scale not experienced since at least the global
financial crisis of 2008-2009.34 Various forecasts estimate that global trade and GDP will decline
sharply, at least through the first half of 2020. The global pandemic is affecting a broad swath of
international economic and trade activities, from services generally to tourism and hospitality,
medical supplies and other global value chains, consumer electronics, and financial markets to
energy, transportation, food, and a range of social activities, to name a few. The health and
economic crises could have a particularly negative impact on the economies of developing
countries that are constrained by limited financial resources and where health systems could
quickly become overloaded.
Without a clear understanding of when the global health and economic effects may peak and a
greater understanding of the impact on economies, forecasts must necessarily be considered
preliminary. Similarly, estimates of when any recovery might begin and the speed of the recovery
are speculative. Forecasts have been updated several times during the first half of 2020 to
incorporate additional data, often reflecting worsening global and national economic growth
estimates. Efforts to reduce social interaction to contain the spread of the virus are disrupting the
daily lives of most Americans and adding to the economic costs. Increasing rates of
unemployment are raising the prospects of widespread social unrest and demonstrations in
developed economies where lost incomes and health insurance are threatening living standards
and in developing economies where populations reportedly are growing concerned over access to
basic necessities and the prospects of rising levels of poverty.35 U.N. Secretary General Antonio
Guterres argued in a video conference before the U.N. Security Council on April 10, 2020, that
[T]he pandemic also poses a significant threat to the maintenance of international peace
and security—potentially leading to an increase in social unrest and violence that would
greatly undermine our ability to fight the disease. 36
32 COVID-19 Pandemic: Financial Stability Implications and Policy Measures Taken: Report Submitted to the G-20
Finance Ministers and Governors, Financial Stability Board, July 15, 2020.
33 Bill Chappell, “COVID-19: 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/COVID-19-COVID-19-is-now-officially-
a-pandemic-who-says.
34 Mapping the Spread of the COVID-19.
35 Sly, Liz, Stirrings of Unrest Around the World Could Portend Turmoil as Economies Collapse, The Washington
Post, April 19, 2020; Ingraham, Christopher, Coronavirus Recession Could Plunge Tens of Millions Into Poverty, New
Report Warns, The Washington Post, April 20, 2020. https://www.washingtonpost.com/business/2020/04/20/
coronavirus-recession-could-plunge-tens-millions-into-poverty-new-report-warns/.
36 Secretary-General’s Remarks to the Security Council on the COVID-19 Pandemic, United Nations, April 9, 2020.
https://www.un.org/sg/en/content/sg/statement/2020-04-09/secretary-generals-remarks-the-security-council-the-covid-
19-pandemic-delivered.
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Table 3. Selected Central Bank and Prudential Measures to Address COVID-19
Advanced economies Emerging market economies
Type of tool Measures US EA JP GB CA AU CH BR CN ID IN KR MX TH ZA
Interest rate Policy rate cut x x x x x x x x x x x x
Lending Gen. liquidity x x x x x x x x x x x x x x x
liquidity provision a
Specialized x x x x x x x x x x x x
lending
Asset Government x x x x x x x x x x x
purchases/ bonds
sales
Commercial x x x x x x
paper
Corporate x x x x x x x
bonds
Other private x x x
securities b
FX swap/ USD swap line x x x x x x x x x
intervention
FX x x x x x x
intervention
Prudential Capital x x x x x x x x x x x x x x
rules and requirements
regulations
Liquidity x x x x x x x x x x x x x x x
requirements
Payout x x x x x x x x x x x x
restrictions
Market x x x x x x x x x x x x x x
functioning c
Source: Annual Economic Report 2020, Bank for International Settlements, June 2020, p. 23.
CRS-10
Notes: a. Repo and reverse repo operations, standing facilities, modified discount window and lower reserve requirement ratio. b. Asset- and mortgage-backed
securities, covered bonds and exchange-traded funds. c. Shortselling bans and circuit breakers. US: United States; EA: Euro Area; JP: Japan; GB: Great Britain; CA:
Canada; AU: Australia; CH: Switzerland; BR: Brazil; CN: China; ID: Indonesia; IN: India; KR: South Korea; MX: Mexico; TH: Thailand; ZA: South Africa.
CRS-11
Global Economic Effects of COVID-19
Economic Forecasts
Global Growth
The economic situation, remains highly fluid globally and for most countries and regions.
Uncertainty about the length and depth of the health crisis-related economic effects are fueling
perceptions of risk and volatility in financial markets and corporate decision-making. In addition,
uncertainties concerning the global pandemic and the effectiveness of public policies intended to
contain its spread and prevent a second wave of infections are adding to market volatility. In a
growing number of cases, corporations are postponing investment decisions, laying off workers
who previously had been furloughed, and in some cases filing for bankruptcy. Compounding the
economic situation has been a historic drop in the price of crude oil. While prices have recovered
somewhat from the low of nearly $20 per barrel in April, they continue to hover around $40 to
$45 per barrel, reflecting the decline in global economic activity, while also contributing to the
decline of the global economy through various channels. On April 29, 2020, Federal Reserve
Chairman Jerome Powell stated that the Federal Reserve would use its “full range of tools” to
support economic activity as the U.S. economic growth rate dropped by 5.0% at an annual rate in
the first quarter of 2020. In assessing the state of the U.S. economy, the Federal Open Market
Committee released a statement indicating that, “The ongoing public health crisis will weigh
heavily on economic activity, employment, and inflation in the near term, and poses considerable
risks to the economic outlook over the medium term.”37
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 national
leaders, especially among the leading developed economies. In this environment, COVID-19
could have an outsized impact. While the level of economic effects is becoming clearer, the
response to the pandemic could have a significant and enduring impact on the way businesses
organize their work forces, on global supply chains, and how governments respond to a global
health crisis.38 As a result of the rapidly spreading virus and its compounding effects on global
and national rates of economic growth, forecasting the impact of the virus has been especially
challenging.
As indicated in Table 4, the International Monetary Fund (IMF), the Organization for Economic
Cooperation and Development (OECD), and The World Bank all revised their forecasts
downward between late 2019 and mid-20, reflecting the rapidly deteriorating state of the global
economy and a marked decline in projected rates of growth. Between October 2019 and June
2020, for instance, the IMF lowered its global economic growth forecast from a positive 3.4% to
a negative 4.9%. Similarly, the OECD lowered its forecast from 2.9% in November 2019
to -6.0% to -7.6% in June 2020, depending on a single or double wave of infections. Between
37 Federal Reserve Issues FOMC Statement, Board of Governors of the Federal Reserve System, April 29, 2020.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200429a.htm.
38 Rowland, Christopher and Peter Whoriskey, “U.S. Health System is Showing Why It’s Not Ready for a COVID-19
Pandemic,” Washington Post, March 4, 2020. https://www.washingtonpost.com/business/economy/the-us-health-
system-is-showing-why-its-not-ready-for-a-COVID-19-pandemic/2020/03/04/7c307bb4-5d61-11ea-b29b-
9db42f7803a7_story.html.
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January 2020 and June 2020, the World Bank also lowered its forecast of global growth from
2.9% to a negative 5.2%. In most forecasts, advanced economies are projected to experience the
steepest declines in economic growth from 2019 to mid-June 2020.
Table 4. Major Economic Forecasts, Differing Assessments
Percentage changes at annual rates
World Advanced economies Developing economies United States
2020 2021 2020 2021 2020 2021 2020 2021
IMF October 2019 3.4% 3.6% 1.7% 1.6% 4.6% 4.8% -5.9% 4.7%
IMF April 2020 –3.0 5.8 –6.1 4.5 –1.0 6.6 –5.9 4.7
IMF June 2020 -4.9 5.4 -8.0 4.8 -3.0 5.9 -8.0 4.5
OECD Nov 2019 2.9 3.0 1.6 1.7 4.0 4.0 2.0 2.0
OECD March 2020 2.4 3.3 0.8 1.2 NA NA 1.9 2.1
OECD June 2020 single -6.0 5.2 -7.5 4.8 -4.6 5.6 -7.3 4.1
OECD June 2020 double -7.6 2.8 -9.3 2.2 -6.1 3.2 -8.5 1.9
World Bank January 2020 2.5 2.6 1.4 1.5 4.1 4.3 1.8 1.7
World Bank June 2020 -5.2 4.2 -7.0 3.9 -2.5 4.6 -6.1 4.0
Source: World Economic Outlook, various issues, International Monetary Fund; OECD Economic Outlook, various
issues, Organization for Economic Cooperation and Development; Global Economic Prospects, various issues,
World Bank.
The OECD Forecast
The Organization for Economic Cooperation and Development (OECD) on June 10, 2020,
released an updated forecast that projects global economic growth will decline by 6.0% to 7.6%
in 2020, depending on whether there is a second wave of infections. This forecast reflects the
OECD’s a high level of uncertainty about the course of the global economy over the remainder of
2020, because the pandemic is “a global public health crisis without precedent in living memory.”
The OECD also concluded that, “The global economy is now experiencing the deepest recession
since the Great Depression of the 1930s.” In addition, the OECD argued that the pandemic is
fragmenting the global economy through a growing number of trade and investment restrictions
and diverging policy approaches that are being implemented on a country-by-country basis.
As a result of uncertainty concerning the course of the global economy over the remainder of
2020, the OECD produced two “equally likely scenarios:” one that assumes the current
containment measures are successful in curtailing infections, and another that assumes there is a
second wave of rapid contagion.39 Under both scenarios, the OECD estimates that the global
economic recovery will be slow and gradual.40 The OECD also estimates that the average
unemployment rate among OECD countries is projected to rise to 9.2% under a single wave
scenario and 10.0% under the second wave scenario. Through the first quarter of 2020, however,
most OECD countries had not experienced significant increases in rates of unemployment, in part
due to national income and wage maintenance programs, as indicated in Figure 2. The main
39 OECD Economic Outlook, Organization for Economic Cooperation and Development. June 10, 2020; p. 12.
http://www.oecd.org/economic-outlook/#resources.
40 Ibid., p. 23.
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exceptions were the United States and Canada, where unemployment rates spiked starting at the
end of the first quarter and into the second quarter of 2020. In a major difference between U.S.
and EU data, in the EU, workers absent from work due to temporary lay-off are counted as
employed, whereas, in the United States, they are counted as unemployed.
Figure 2. Unemployment Rates Among Major OECD Countries
In percent
Source: OECD Quarterly Employment Situation, 1st Quarter 2020, Organization for Economic Cooperation and
Development, July 16, 2020. Created by CRS.
Global trade is projected to contract by 9.5% or 11.4% in 2020 under the single or second wave
scenarios, respectively. The OECD projections in Table 5 reflect the single wave scenario.41
According to this scenario, global economic growth is projected to fall by 6.0% in 2020, but rise
by 5.2% in 2021. In contrast, the OECD’s second wave scenario projects a global economic
contraction of 7.6% in 2020 and a growth rate of 2.8% in 2021, delaying a return to full recovery
until 2022, as indicated in Figure 3.
The OECD forecast also indicates that economic growth among developed economies will be
particularly weak in Europe, where the growth rate is projected to fall by 9.0% and 11.5% in
2020, reflecting the one and two-wave scenarios, respectively. Similarly, U.S. economic growth is
projected to contract in 2020 by 7.3%, but rebound by 4.1% in 2021. Under the second wave
scenario, however, U.S. economic growth is projected to fall by 8.5% in 2020, but rise by 1.9% in
2021. The UK is projected to experience a contraction in GDP growth in 2020 of 11.5%, or 14%
under the second wave scenario, the largest estimated annual decline in economic growth of any
OECD country in 2020.
41 Ibid., p. 13.
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Figure 3. Major Economic Forecasts
Sources: OECD Economic Outlook, Organization for Economic Cooperation and Development. June 10, 2020;
World Economic Outlook Update, International Monetary Fund, June 24, 2020; Global Economic Prospects, World
Bank Group, June 2020, Created by CRS.
Note: The OECD has estimated rates of growth as a result of two scenarios, indicated as OECD1 and OECD2.
The first scenario assumes there is a single wave of infections from COVID-19, while the second scenario
estimates the effect of a two-wave scenario.
Table 5. OECD, IMF and World Bank Economic Forecasts
Percentage change in Real GDP Growth
World
OECD June IMF June Bank June
2020 2020 2020
Projections Projections Projections
2019 2020 2021 2019 2020 2021 2019 2020 2021
World 2.7% -6.0% 5.2% World 2.9% –4.9 5.4 World 2.4% -5.2% 4.2%
Adv. Adv. Adv.
Economies 1.7 -7.5 4.8 Economies 1.7 –8.0 4.8 Economies 1.6 -7.0 3.9
United United
Australia 1.8 -5.0 4.1 States 2.3 –8.0 4.5 States 2.3 -6.1 4.0
Canada 1.7 -8.0 3.9 Euro Area 1.2 –10.2 6.0 Euro Area 1.2 -9.1 4.5
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World
OECD June IMF June Bank June
2020 2020 2020
Projections Projections Projections
2019 2020 2021 2019 2020 2021 2019 2020 2021
Euro area 1.3 -9.1 6.5 Germany 0.6 –7.8 5.4 Japan 0.7 -6.1 2.5
Germany 0.6 -6.6 5.8 France 1.3 –12.5 7.3 Emerging 3.5 -2.5 4.6
France 1.5 -11.4 7.4 Italy 0.3 –12.8 6.3 E. Asia 5.9 0.5 6.6
Italy 0.3 -11.3 7.7 Spain 2.0 –12.8 6.3 China 6.1 1.0 6.9
Japan 0.7 -6.0 2.1 Japan 0.7 –5.8 2.4 Indonesia 5.0 0.0 4.8
United
Korea 2.0 -1.2 3.1 Kingdom 1.4 –10.2 6.3 Thailand 2.4 -5.0 4.1
Mexico -0.1 -7.5 3.0 Canada 1.6 –8.4 4.9 Cen. Asia 2.2 -4.7 3.6
Turkey 0.9 -4.8 4.3 China 6.1 1.0 8.2 Russia 1.3 -6.0 2.7
United
Kingdom 1.4 -11.5 9.0 India 4.2 –4.5 6.0 Turkey 0.9 -3.8 5.0
United
States 2.3 -7.3 4.1 Russia 1.3 –6.6 4.1 Poland 4.1 -4.2 2.8
Latin
Argentina -2.2 -8.3 4.1 America 0.1 –9.4 3.7 Brazil 1.1 -8.0 2.2
Brazil 1.1 -7.4 4.2 Brazil 1.1 –9.1 3.6 Mexico -0.3 -7.5 3.0
China 6.1 -2.6 6.8 Mexico –0.1 –10.5 3.3 Argentina -2.2 -7.3 2.1
India 4.2 -3.7 7.9 Mid. East 1.2 –4.7 3.3 Mid. East -0.2 -4.2 2.3
Saudi Saudi
Indonesia 5.0 -2.8 5.2 Arabia 0.3 –6.8 3.1 Arabia 0.3 -3.8 2.5
S. Africa 0.2 -7.5 2.5 Africa 3.1 –3.2 3.4 Iran -8.2 -5.3 2.1
Nigeria 2.2 –5.4 2.6 Egypt 5.6 3.0 2.1
S. Africa 0.2 –8.0 3.5 S. Asia 4.7 -2.7 2.8
World
Trade
Volume 0.9 –11.9 8.0 India 4.2 -3.2 3.1
Oil prices
($) –10.2 –41.1 3.8 Pakistan 1.9 -2.6 -0.2
Bangladesh 8.2 1.6 1.0
Africa 2.2 -2.8 3.1
Nigeria 2.2 -3.2 1.7
S. Africa 0.2 -7.1 2.9
Angola -0.9 -4.0 3.1
Sources: OECD Economic Outlook, Organization for Economic Cooperation and Development. June 10, 2020; p.
12.; World Economic Outlook Update, International Monetary Fund, June 24, 2020, p. ix; Global Economic Prospects,
World Bank Group, June 2020, p. 4.
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Note: The OECD forecast includes a single-wave scenario and a double-wave scenario in which the pandemic
remains under control and recedes and another in which there is a second wave of the pandemic, The OECD
forecast numbers is this table reflect the single-wave scenario.
Among developing and emerging economies, the economic downturn is projected to most
negatively affect countries that rely on commodity exports to support annual economic growth. In
addition to lower prices for commodity exports and reduced global demand for exports,
developing countries are projected to be negatively affected by reduced remittances, weaker
currencies and tighter financial conditions.
The OECD also concluded that
Real per capita income in 2020 is projected to decline by 8% and 9.5%,
respectively, depending on a one- or two-wave contagion, with substantial
declines in all economies. Even with an economic recovery in 2021, real per
capita income is projected to rise to only that of 2013.
Unemployment is projected to rise to its highest level in more than 25 years,
while the average unemployment rate is projected to rise to 9.2% and 10%,
respectively under a single or second-wave scenario and fall by only one
percentage point through 2021. The OECD concludes that, “scarring effects from
job losses are likely to be felt particularly by younger workers and lower-skilled
workers, with attendant risks of many people becoming trapped in joblessness for
an extended period.”
Net productive investment (business and government) was weak prior to the
pandemic, falling behind the average rate of investment during the previous
decade. Investment was forecast to contract by half as a percent of real GDP,
falling from 4.7% to 2.3% and 2.0%, respectively for the one-wave and two-
wave scenarios and increasing the risk of entrenched weak economic growth.
Investment is also expected to be negatively affected by bankruptcies and
insolvencies among corporations and financial institutions.42
The OECD estimated in its March 2020 forecast that increased direct and indirect economic costs
through global supply chains, reduced demand for goods and services, and declines in tourism
and business travel mean that, “the adverse consequences of these developments for other
countries (non-OECD) are significant.”43 Global trade, measured by trade volumes, slowed in the
last quarter of 2019 and had been expected to decline further in 2020, as a result of weaker global
economic activity associated with the pandemic, which is negatively affecting economic activity
in various sectors, including airlines, hospitality, ports, and the shipping industry.44
According to the OECD’s forecast
The greatest impact of the containment restrictions will be on retail and
wholesale trade, and in professional and real estate services, although there are
notable differences between countries.
42 Ibid., p. 31.
43 OECD Interim Economic Assessment: COVID-19: The World Economy at Risk, Organization for Economic
Cooperation and Development. March 2, 2020, p. 2.
44 Ibid., p. 4.
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Business closures could reduce economic output in advanced and major
emerging economies by 15% or more; other emerging economies could
experience a decline in output of 25%.
Countries dependent on tourism could be affected more severely, while countries
with large agricultural and mining sectors could experience less severe effects.
Economic effects likely will vary across countries reflecting differences in the
timing and degree of containment measures.45
In addition, the OECD argued that China’s emergence as a global economic actor marked a
significant departure from previous global health episodes. China’s growth, in combination with
globalization and the interconnected nature of economies through capital flows, supply chains,
and foreign investment, magnify the cost of containing the spread of the virus through
quarantines and restrictions on labor mobility and travel.46 China’s global economic role and
globalization mean that trade has played a role in spreading the economic effects of COVID-19.
More broadly, the economic effects of the pandemic were spread through three trade channels: (1)
directly through supply chains as reduced economic activity spread from intermediate goods
producers to finished goods producers; (2) as a result of a drop overall in economic activity,
which reduced demand for goods in general, including imports; and (3) through reduced trade
with commodity exporters that supplied producers, which, in turn, reduced their imports and
negatively affected trade and economic activity of exporters.
The IMF Forecast
Labeling the projected decline in global economic activity as the “Great Lockdown,” the IMF
released an updated forecast on June 24, 2020. The IMF concluded that the global economy
would experience its “worst recession since the Great Depression, surpassing that seen during the
global financial crisis a decade ago.”47 In addition, the IMF estimated in its baseline projection
that the global economy could decline by 4.9% in 2020, down from its April projection of a
negative 3.0%, before growing by 5.4% in 2021; global trade was projected to fall in 2020 by
11.9% and oil prices were projected to fall by 41%, also shown in Table 5.48 In contrast, the
OECD’s single-wave scenario projects a global economic contraction of 7.6% in 2020 and a
growth rate of 2.8% in 2021, delaying a return to full recovery until 2022
The forecast reflects a larger impact on the U.S. economy in the first half of 2020 than had been
assumed in the IMF’s April forecast and a slower recovery in the second half of 2020. Also, the
IMF forecast reflects an estimated larger decline in consumption than previously assumed as
consumers curtail spending to increase their savings and the effects on economic activity of social
distancing. The IMF also stated that many countries were facing a multi-layered crisis that
included a health crisis, a domestic economic crisis, falling external demand, capital outflows,
and a collapse in commodity prices. In combination, these various effects were interacting in
ways that made forecasting difficult. As a result, the IMF indicated that the forecast depends on a
number of factors, including
The length of the pandemic and required lockdowns.
45 Evaluating the Initial Impact of COVID Containment Measures on Activity, Organization for Economic Cooperation
and Development, March 27, 2020.
46 Goldin, Ian, “COVID-19 Shows How Globalization Spreads Contagion of All Kinds,” Financial Times, March 2,
2020. https://www.ft.com/content/70300682-5d33-11ea-ac5e-df00963c20e6.
47 World Economic Outlook Update, International Monetary Fund, June 24, 2020.
48 The IMF database indicates that global GDP fell by 0.075% in 2009 during the height of the global financial crisis.
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Voluntary social distancing, which affects consumer spending.
The ability of displaced workers to secure employment, possibly in different
sectors.
The long-term impact of firm closures and unemployed workers leaving the
workforce, compounding the ability of the economy to recover.
The impact of changes to strengthen workplace safety—such as staggered work
shifts, enhanced hygiene and cleaning between shifts, new workplace practices
relating to proximity of personnel on production lines—which incur business
costs.
Global supply chain reconfigurations that affect productivity as companies try to
enhance their resilience to supply disruptions.
The extent of cross-border spillovers from weaker external demand as well as
funding shortfalls.
A resolution of the current disconnect between rising asset values, as reflected in
market indices, and forecasts of a synchronized downturn in global economic
activity.
Advanced economies as a group were forecast to experience an economic contraction in 2020 of
8.0% of GDP, with the U.S. economy also projected by the IMF to decline by 8.0%, about four
times the rate of decline experienced in 2009 during the financial crisis, as indicated in Figure 4.
The rate of economic growth in the Euro area was projected to decline by 10.2% of GDP. Most
developing and emerging economies were projected to experience a decline in the rate of
economic growth of 3.0%, reflecting tightening global financial conditions and falling global
trade and commodity prices. In contrast, China, and Indonesia were projected to experience
small, but positive rates of economic growth in 2020, while India’s rate of growth was projected
to decline by 4.5%. The IMF also argued that recovery of the global economy could be weaker
than projected as a result of lingering uncertainty about possible contagion, lack of confidence,
and permanent closure of businesses and shifts in the behavior of firms and households.49
49 World Economic Outlook, p. 9.
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Figure 4. IMF Forecast, Gross Domestic Product, Percentage Change
Source: World Economic Outlook Update, International Monetary Fund, June 24, 2020. Created by CRS.
As a result of the various challenges, the IMF qualified its forecast by arguing that
A partial recovery is projected for 2021, with above trend growth rates, but the level of
GDP will remain below the pre-virus trend, with considerable uncertainty about the
strength of the rebound. Much worse growth outcomes are possible and maybe even likely.
This would follow if the pandemic and containment measures last longer, emerging and
developing economies are even more severely hit, tight financial conditions persist, or if
widespread scarring effects emerge due to firm closures and extended unemployment. 50
The World Bank Forecast
On June 8, the World Bank released its forecast for global economic growth that estimated the
economic recession in 2020 would be the deepest since World War II. It also estimated that the
global economic recession would affect 90% of the world’s economies, a percentage that is
greater than what was experienced during the Great Depression.51 The World Bank’s baseline
estimate indicates that global economic growth could decline by 5.2% in 2020 and only partially
recover in 2021 with a 4.2% rate of growth, assuming that the global economy can begin
recovering in the second half of 2020.52 In contrast, the IMF forecasted a 4.9% rate of decline in
2020 and a recovery of growth to 5.4% in 2021. Similar to the OECD and the IMF forecasts, the
World Bank argues that the economic impact of the global recession will fall most heavily on
developing and emerging economies that rely on global trade, tourism, or remittances from
abroad, and those that depend on commodity exports. In addition, the World Bank forecasted that
most emerging and developing economies could experience rates of growth in 2020 that are the
lowest overall since the 1960s, with 90% of such economies expected to experience contractions
in per capita incomes and many millions of people falling back into poverty. The World Bank also
forecasts that economic growth in advanced economies will decline by 7.0% in 2020 and recover
50 Ibid., p. v.
51 Global Economic Prospects, World Bank Group, June 8, 2020, p. 15.
52 Ibid., p. 5.
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to 3.8% in 2021. The United States, the Euro area and Japan are all estimated to experience a
slower rate of growth in 2020 and rise at a smaller rate in 2021 than the IMF forecast.
The global economic recession is projected to affect all regions in a type of synchronous
downturn, with some regions faring worse than others. Differences in the magnitude of regional
growth rates are attributed to the “scale of the domestic outbreak, vulnerability of the economy to
spillovers from global economic and financial stress the severity of pre-existing challenges such
as widespread poverty, and the degree to which debt levels constrain the fiscal response.”53
According to the Bank’s baseline scenario, the projected economic recovery is expected to be
slow, reflecting shifts in consumption and work patterns as consumers attempt to rebuild savings
and businesses strengthen balance sheets. The World Bank also issued a downside and an upside
scenario in which government lockdown policies are required to remain in effect for a longer or a
shorter period of time, respectively. The downside scenario projects a contraction in global
economic growth of 8% in 2020, as lockdown procedures are assumed to last an additional three
months, followed by a sluggish recovery. In contrast, the upside scenario projects a decline in
economic activity in 2020 of 4%, based on the assumption that economic activity rebounds
quickly in the third quarter of 2020.54
The Bank also concludes that global value chains (GVCs) have been important conduits through
which macroeconomic developments associated with the pandemic have been transmitted across
national borders. The economic effects of the pandemic have been spread through trade linkages
but also amplified through quarantines, production shutdowns and border closures.55 Estimates by
the World Bank indicate that national policies adopted to blunt the spread of the virus affect the
global economy through four shocks: a decline in employment due to factory closures and social
distancing, a trade shock as a result of an increase in the cost of traded goods, a tourism shock
through a sharp contraction in international tourism, and a services shock. The magnitude of the
shocks varies by country depending on various factors, including the composition of output,
reliance on trade, and the level of GVC integration.
Global Trade
According to a June 23 forecast update, the World Trade Organization (WTO) estimated that
global trade volumes could fall by 18.5% in 2020 and then recover in 2021.56 This forecast
reflects a downward revision from the WTO’s April 8, 2020, more optimistic forecast that global
trade volumes could decline between 13% and 32% in 2020 as a result of the economic impact of
COVID-19, as indicated in Table 6. The WTO also reported in its June 29 report on G-20 trade
measures that during the mid-October 2019 to mid-May 2020 period, countries had made
“significant” progress in facilitating imports, including products related to COVID-19.57
According to the report, various governments initially responded to the pandemic by introducing
new trade restrictive measures, 90% of which were export bans on medical products, such as
surgical masks, gloves, medicine and disinfectant. Since then, the WTO indicated that G20
economies have repealed 36% of the restrictions and lowered barriers to imports of many
53 Ibid., p. 115.
54 Ibid., p. 33.
55 Ibid., p. 118.
56 Trade Falls Steeply in First Half of 2020, World Trade Organization, June 23, 2020.
57 WTO Report on G20 Shows Moves to Facilitate Imports Even as Trade Restrictions Remain Widespread, World
Trade Organization, June 29, 2020. https://www.wto.org/english/news_e/news20_e/trdev_29jun20_e.htm.
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pandemic-related products. As of mid-May 2020, the WTO reported that 65 of the 93 pandemic-
related trade measures implemented during the monitoring period were of a trade-facilitating
measures, rather than trade-restricting measures.58
Concerning the WTO’s updated forecast, WTO Director-General Azevêdo indicated that, “The
fall in trade we are now seeing is historically large—in fact, it would be the steepest on record.
But there is an important silver lining here: it could have been much worse.”59 Data in Table 6
will be updated when they are published by the WTO. The WTO argues that the wide range in the
forecast represents the high degree of uncertainty concerning the length and economic impact of
the pandemic. According to the WTO, the more optimistic scenario assumes that trade volumes
recover quickly in the second half of 2020 to their pre-pandemic trend, or that the global
economy experiences a V-shaped recovery. In comparison, the more pessimistic scenario assumes
there is a partial recovery in global trade that lasts into 2021, or that global economic activity
experiences a U-shaped recovery. The updated forecast reflects the WTO’s estimate that global
trade volumes in 2020 will not fall by as much as it had projected under its pessimistic scenario.
The WTO concludes, however, that the impact on global trade volumes could exceed the drop in
global trade during the height of the 2008-2009 financial crisis.60
Table 6. WTO April Forecast: Merchandise Trade Volume and Real GDP 2018-2021
Annual percentage change
Optimistic Pessimistic
Historical scenario scenario
2018 2019 2020 2021 2020 2021
Volume of world merchandise trade 2.9% -0.1% -12.9% 21.3% -31.9% 24.0%
Exports
North America 3.8 1.0 -17.1 23.7 -40.9 19.3
South and Central America 0.1 -2.2 -12.9 18.6 -31.3 14.3
Europe 2.0 0.1 -12.2 20.5 -32.8 22.7
Asia 3.7 0.9 -13.5 24.9 -36.2 36.1
Other regions 0.7 -2.9 -8.0 8.6 -8.0 9.3
Imports
North America 5.2 -0.4 -14.5 27.3 -33.8 29.5
South and Central America 5.3 -2.1 -22.2 23.2 -43.8 19.5
Europe 1.5 0.5 -10.3 19.9 -28.9 24.5
Asia 4.9 -0.6 -11.8 23.1 -31.5 25.1
Other regions 0.3 1.5 -10 13.6 -22.6 18.0
Real GDP at market exchange rates 2.9 2.3 -2.5 7.4 -8.8 5.9
North America 2.8 2.2 -3.3 7.2 -9.0 5.1
South and Central America 0.6 0.1 -4.3 6.5 -11 4.8
58 Report on G20 Trade Measures (Mid-October 2019 to Mid-May 2020), World Trade Organization, June 29, 2020.
59 Trade Falls Steeply in First Half of 2020, p, 1.
60 Trade Set to Plunge as COVID-19 Pandemic Upends Global Economy, World Trade Organization, April 8, 2020.
https://www.wto.org/english/news_e/pres20_e/pr855_e.htm.
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Optimistic Pessimistic
Historical scenario scenario
2018 2019 2020 2021 2020 2021
Europe 2.1 1.3 -3.5 6.6 -10.8 5.4
Asia 4.2 3.9 -0.7 8.7 -7.1 7.4
Other regions 2.1 1.7 -1.5 6.0 -6.7 5.2
Source: Trade Set to Plunge as COVID-19 Pandemic Upends Global Economy, World Trade Organization, April 8,
2020.
Note: Data for 2020 and 2021 are projections; GDP projections are based on scenarios simulated with the
WTO Global Trade Model.
The estimates indicate that all geographic regions will experience a double-digit drop in trade
volumes, except for “other regions,” which consists of Africa, the Middle East, and the
Commonwealth of Independent States. North America and Asia could experience the steepest
declines in export volumes. The forecast also projects that sectors with extensive value chains,
such as automobile products and electronics, could experience the steepest declines. Although
services are not included in the WTO forecast, this segment of the economy could experience the
largest disruption as a consequence of restrictions on travel and transport and the closure of retail
and hospitality establishments. Such services as information technology, however, are growing to
satisfy the demand of employees who are working from home.
The pandemic is also raising questions about the costs and benefits of the global supply chains
businesses erected over the past three decades. Evidence indicates that growth in supply chains
had slowed prior to the pandemic, but there is little consensus on the long-term impact of the
crisis. In some cases, businesses are reassessing their exposure to the risks posed by extensive
supply chains that potentially are vulnerable to numerous points of disruption. Also, some
governments are assessing the risks supply chains pose to national supplies of items considered to
be important to national security as a result of firms shifting production offshore. For
multinational businesses, changing suppliers and shifting production locations can be especially
costly for some firms and can introduce additional risks.61 In addition, businesses may be
reluctant to relocate from production locations, such as China, that not only serve as production
platforms, but are also important markets for their output. For instance, the Bureau of Economic
Analysis (BEA) reports that 10% of the global sales of the majority-owned foreign affiliates of
U.S. parent companies is shipped back to the U.S. parent company. In contrast, 60% of such sales
take place in the foreign country where the affiliate is located and another 30% is shipped to other
foreign countries in close proximity. For China, about 6% of such sales are shipped to the U.S.
parent, while 82% is sold in China and another 12% is shipped to other foreign countries.62
Economic Policy Challenges
The challenge for policymakers has been one of implementing targeted policies that address what
had been expected to be short-term problems without creating distortions in economies that can
outlast the impact of the virus itself. Policymakers, however, are being overwhelmed by the
61 Beattie, Alan, Will Coronavirus Pandemic Finally Kill Off Global Supply Chains?, Financial Times, May 28, 2020.
https://www.ft.com/content/4ee0817a-809f-11ea-b0fb-13524ae1056b.
62 Activities of U.S. Multinational Enterprises: U.S. Parent Companies and Their Foreign Affiliates, Preliminary 2017
Statistics, Bureau of Economic Analysis, August 23, 2019, Table II.E.2. https://www.bea.gov/news/2019/activities-us-
multinational-enterprises-2017.
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quickly changing nature of the global health crisis that appears to be turning into a global trade
and economic crisis whose effects on the global economy are escalating. As the economic effects
of the pandemic grow, policymakers are giving more weight to policies that address the
immediate economic effects at the expense of longer-term considerations such as debt
accumulation. During the early stages of the crisis, many policymakers felt constrained in their
ability to respond to the crisis as a result of limited flexibility for monetary and fiscal support
within conventional standards, given the broad-based synchronized slowdown in global economic
growth, especially in manufacturing and trade, that had developed prior to the viral outbreak. The
pandemic is also affecting global politics as world leaders have cancelled international
meetings,63 nations are competing for medical supplies, and some nations reportedly are stoking
conspiracy theories that shift blame to other countries.64
Initially, the economic effects of the virus were expected to be short-term supply issues 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, has had international repercussions
as firms experienced delays in supplies of intermediate and finished goods through supply chains.
Concerns have grown, however, that virus-related supply shocks are creating more prolonged and
wide-ranging demand shocks as reduced activity by consumers and businesses leads to a lower
rate of economic growth. As demand shocks unfold, businesses experience reduced activity and
profits and potentially escalating and binding credit and liquidity constraints. While
manufacturing firms experience supply chain shocks, reduced consumer activity through social
distancing affects the services sector of the economy, which accounts for two-thirds of annual
U.S. economic output. In this environment, manufacturing and services firms initially tended to
hoard cash, which affected market liquidity. In response, central banks lowered interest rates
where possible and expanded lending facilities to provide liquidity to financial markets and to
firms potentially facing insolvency.
The longer the economic effects persist, the greater the economic impacts are likely to be as the
effects are spread through trade and financial linkages to an ever-broadening group of countries,
firms and households. These growing economic effects potentially increase liquidity constraints
and credit market tightening in global financial markets as firms hoard cash, with negative fallout
effects on economic growth. At the same time, financial markets are factoring in an increase in
government bond issuance in the United States, Europe, and elsewhere as government debt levels
are set to rise to meet spending obligations during an expected economic recession and increased
fiscal spending to fight the effects of COVID-19. Unlike the 2008-2009 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 and potential
insolvency. These market dynamics have led some observers to question if these events mark the
beginning of a full-scale global financial crisis.65
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 expanded from a
health crisis to macroeconomic and financial market issues that are addressed through a
combination of monetary, fiscal, and other policies, including border closures, quarantines, and
63 Taylor, Adam, Teo Armus, and Rick Noak, “Live updates: COVID-19 Turmoil Widens as U.S. Death Toll Mounts;
Xi Cancels Japan Trip, Washington Post, March 5, 2020, https://www.washingtonpost.com/world/2020/03/05/COVID-
19-live-updates/.
64 Shih, Gerry, “China Is Subtly Stoking COVID-19 Conspiracy Theories That Blame the U.S. for Outbreak,”
Washington Post, March 5, 2020. https://www.washingtonpost.com/world/2020/03/05/COVID-19-live-updates/.
65 Foroohar, Rana, “How COVID-19 Became a Corporate Credit Run,” Financial Times, March 15, 2020.
https://www.ft.com/content/f1ea5096-6531-11ea-a6cd-df28cc3c6a68.
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restrictions on social interactions. Essentially, while businesses have attempted to address worker
and output issues at the firm level, national leaders attempted to implement fiscal policies to
prevent economic growth from contracting sharply by assisting workers and businesses that face
financial strains, and central bankers adjusted monetary policies to address mounting credit
market issues.
In the initial stages of the health crisis, households did not experience the same kind of wealth
losses they saw during the 2008-2009 financial crisis when the value of their primary residence
dropped sharply. However, with unemployment numbers rising rapidly, job losses could result in
defaults on mortgages and delinquencies on rent payments, unless financial institutions provide
loan forbearance or there is a mechanism to provide financial assistance. In turn, mortgage
defaults could negatively affect the market for mortgage-backed securities, the availability of
funds for mortgages, and negatively affect the overall rate of economic growth. Losses in the
value of most equity markets in the U.S., Asia, and Europe could also affect household wealth,
especially that of retirees living on a fixed income and others who own equities. Investors that
trade in mortgage-backed securities reportedly reduced their holdings while the Federal Reserve
attempted to support the market.66 In the current environment, even traditional policy tools, such
as monetary accommodation, apparently have not always been 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.
Major Economic Developments
Between late February and mid-July 2020, financial markets from the United States to Asia and
Europe have been whipsawed as investors alternated between optimism and pessimism amid
concerns that COVID-19 would create a global economic and financial crisis with few metrics to
indicate how prolonged and extensive the economic effects may be.67 Investors have searched for
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, 2020.68 In response to concerns that
the global economy was in a freefall, the Federal Reserve lowered key interest rates on March 3,
2020, to shore up economic activity, while the Bank of Japan engaged in asset purchases to
provide short-term liquidity to Japanese banks; Japan’s government indicated it would also assist
workers with wage subsidies. The Bank of Canada also lowered its key interest rate. The
International Monetary Fund (IMF) announced that it was making about $50 billion available
through emergency financing facilities for low-income and emerging market countries and
through funds available in its Catastrophe Containment and Relief Trust (CCRT).69
66 Armstrong, Robert, “Mortgage Investment Funds Become ‘Epicenter’ of Crisis,” Financial Times, March 24, 2020.
https://www.ft.com/content/18909cda-6d40-11ea-89df-41bea055720b.
67 Samson, Adam and Hudson Lockett, “Stocks Fall Again in Worst Week Since 2008 Crisis,” Financial Times,
February 28. https://www.ft.com/content/4b23a140-59d3-11ea-a528-dd0f971febbc.
68 The price and yield of a bond are inversely related; increased demand for Treasury securities raises their price, which
lowers their yield. 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.
69 Georgieva, Kristalina, “Potential Impact of the COVID-19 Epidemic: What We Know and What We Can Do,”
International Monetary Fund, March 4, 2020. https://blogs.imf.org/2020/03/04/potential-impact-of-the-COVID-19-
epidemic-what-we-know-and-what-we-can-do/.
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Financial Markets
Reflecting investors’ uncertainties, the Dow Jones Industrial Average (DJIA) lost about one-third
of its value between February 14, 2020, and March 23, 2020, as indicated in Figure 5.
Expectations that the U.S. Congress would adopt a $2.0 trillion spending package moved the
DJIA up by more than 11% on March 24, 2020. From March 23 to April 15, the DJIA moved
higher by 18%, paring its initial losses by half. Since then, the DJIA has trended upward, but
moved erratically at times as investors have weighed news about the human cost and economic
impact of the pandemic and the prospects of various medical treatments. Between March 23 and
July 1, the DJIA regained 70% of the index valued lost during the February to March decline. As
indicated in Table 7, the DJIA lost the largest part of its market valuation in trading during
February and March when the index lost nearly one-fourth of its value as more trading sessions
ended with overall market values lower than higher. Since March, the index has posted more
trading sessions that closed with positive gains than with losses. For some policymakers, the drop
in equity prices raised concerns that foreign investors might attempt to exploit the situation by
increasing their purchases of firms in sectors considered important to national security. For
instance, Ursula von der Leyen, president of the European Commission, urged EU members to
better screen foreign investments, especially in areas such as health, medical research, and critical
infrastructure.70
Table 7. Dow Jones Industrial Average Market Changes by Month
Sessions up Sessions down Open Close Change in index valuation
January 13 8 28,638.97 28,256.03 -382.94 -1.34%
February 8 11 28,319.65 25,409.36 -2,910.29 -10.28%
March 10 12 25,590.51 21,917.16 -3,673.35 -14.35%
April 12 9 21,227.38 24,345.72 3,118.34 14.69%
May 10 10 24,120.78 25,383.11 1,262.33 5.23%
June 14 8 25,342.99 25,812.88 469.89 1.85%
Source: Financial Times, calculations by CRS.
Similar to the 2008-2009 global financial crisis, central banks have implemented a series of
monetary operations to provide liquidity to their economies. These actions, however, initially
were not viewed entirely positively by all financial market participants who questioned the use of
policy tools by central banks that are similar to those employed during the 2008-2009 financial
crisis, despite the fact that the current and previous crisis are fundamentally different in origin.
During the previous financial crisis, central banks intervened to restart credit and spending by
banks that had engaged in risky assets. In the current environment, central banks are attempting to
address financial market volatility and prevent large-scale corporate insolvencies that reflect the
underlying economic uncertainty caused by the pandemic.
70 Chazan, Guy and Jim Brunsden, “COVID-19 Crisis Pushes Europe into Nationalist Economic Turn,” Financial
Times, March 26, 2020. https://www.ft.com/content/79c0ae80-6df1-11ea-89df-41bea055720b.
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Figure 5. Dow Jones Industrial Average Index
February 14, 2020, to July 23, 2020
Source: Financial Times. Created by CRS.
International Role of the Dollar
Similar to conditions during the 2008-2009 financial crisis, the dollar has emerged as the
preferred currency by investors, reinforcing its role as the dominant global reserve currency. As
indicated in Figure 6, the dollar appreciated more than 3.0% during the period between March 3
and March 13, 2020, reflecting increased international demand for the dollar and dollar-
denominated assets. Since the highs reached on March 23, the dollar has given up some of its
value against other currencies, but has remained about 10% higher than it was at the beginning of
the year. Between mid-May and mid-June, the dollar lost about 3% of its value relative to the
currencies of other major trading partners and was equal to its value in mid-March. Since mid-
June, the dollar has regained about 1.5% of its value against the currencies of major trading
partners and is about where it was in mid-March.
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Figure 6. U.S. Dollar Trade-Weighted Broad Index, Goods and Services
January 2, 2020, through July 17, 2020
Source: St. Louis Federal Reserve Bank. Created by CRS.
Notes: January 2006 = 100.
The Bank for International Settlements (BIS) emphasized the role of the dollar as a dominant
global currency in its recent triennial survey of currency markets.71 According to the survey, the
dollar accounts for 88% of global foreign exchange market turnover and is key in funding an
array of financial transactions, including serving as an invoicing currency to facilitate
international trade, as indicated in Figure 7. It also accounts for two-thirds of central bank
foreign exchange holdings, half of non-U.S. banks foreign currency deposits, and two-thirds of
non-U.S. corporate borrowings from banks and the corporate bond market.72 In comparison, the
United States accounts for about one-fourth of global GDP and about one-fifth of global trade
(exports plus imports).
As a result of the role of the dollar as the dominant global reserve currency, disruptions in the
smooth functioning of the global dollar market can have wide-ranging repercussions on
international trade and financial transactions. A June 2020 report by BIS stresses the central role
of the dollar in the global economy. The report concludes that dollar funding activities are highly
complex, geographically dispersed, and interconnected in ways that provide benefits to the
stability of the global financial system. This also means, however, that strains in the system can
easily be transmitted across different financial markets and across regions.73
In addition, the dominant role of the dollar in international trade pricing and trade financing
means the dollar plays a key role in the global economic recovery and that it could amplify the
impact of the pandemic, according to the IMF.74 Traditionally, most economic models were based
on the assumption that countries set their prices in their home currencies. As a result,
71 Foreign Exchange Turnover in April 2019, Bank for International Settlements, September 16, 2019.
https://www.bis.org/statistics/rpfx19_fx.htm.
72 See CRS In Focus IF10112, Introduction to Financial Services: The International Foreign Exchange Market.
73 Bank for International Settlements, U.S, Dollar Funding: An International Perspective, CGFS Papers, No. 65, June
2020, p. 52. https://www.bis.org/publ/cgfs65.htm.
74 Dominant Currencies and External Adjustment, IMF Staff Discussion Note 20/05, International Monetary Fund, July
2020.
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domestically produced goods and services would become cheaper for trading partners when the
domestic currency weakens, leading to increased demand from trading partners and more exports.
However, much international trade, including many commodities, is priced in dollars, which
means that trade volumes respond less than they would if goods were priced in exporters’ home
currencies. Limited evidence indicates that a significant share of bilateral trade between countries
other than the United States is invoiced in U.S. dollars.75 As a result, an appreciation of the dollar
against other currencies, or a weakening in other currencies, has a muted effect on exports by
other countries, at least in the short run, as has been evidenced by recent movements in exchange
rates and trade volumes of emerging market and developing economies. The IMF also concludes
that because countries other than the United States price much of their trade in dollars, an
appreciation in the value of the dollar, or a depreciation in the value of other currencies relative to
the dollar, reduces both exports and imports. As a result, a depreciation in other currencies
relative to the dollar provides less of a boost to exports and, therefore, less of a countercyclical
support to economies.
The international role of the dollar also increases pressure on the Federal Reserve essentially to
assume the lead role as the global lender of last resort. Reminiscent of the financial crisis, the
global economy has experienced a period of dollar shortage, requiring the Federal Reserve to take
numerous steps to ensure the supply of dollars to the U.S. and global economies, including
activating existing currency swap arrangements, establishing such arrangements with additional
central banks, and creating new financial facilities to provide liquidity to central banks and
monetary authorities.76 Typically, banks lend long-term and borrow short-term and can only
borrow from their home central bank. In turn, central banks can only provide liquidity in their
own currency. Consequently, a bank can become illiquid in a panic, meaning it cannot borrow in
private markets to meet short-term cash flow needs. Swap lines are designed to allow foreign
central banks the funds necessary to provide needed liquidity to their country’s banks in dollars.
Figure 7. International Role of the Dollar
Source: U.S. Dollar Funding: An International Perspective, CGFS Papers No. 65, Bank for International Settlements,
June 2020. Created by CRS.
75 Ibid, p. 8.
76 Politi, James, Brendan Greeley, and Colby Smith, “Fed Sets Up Scheme to Meet Booming Foreign Demand for
Dollars,” Financial Times, March 31, 2020. https://www.ft.com/content/6c976586-a6ea-42ec-a369-9353186c05bb.
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Notes: (1) Data refer to 2019. (2) Data refer to 2019. (3) US dollar-denominated cross-border loans by banks
to counterparties in all countries; data refer to Q4 2019 (excluding interoffice claims but including interbank
claims on account of loans and deposits); loans comprise nonnegotiable debt instruments that are loaned by
creditors directly to a debtor or represented by evidence of a deposit. (4) US dollar denominated international
debt securities by all issuers; data refer to Q4 2019; these securities are issued outside the local market of the
country where the borrower resides, and capture issues conventionally known as eurobonds and foreign bonds
and exclude negotiable loans; instruments such as bonds, medium-term notes and money market instruments are
included. (5) Data refer to 2019. (6) Data refer to Q4 2019. (7) As estimated in Gopinath (2015). (8) Data refer
to February 2020. Sources: Gopinath (2015); Federal Reserve; IMF; CPB World Trade Monitor; Bloomberg;
SWIFT; BIS Triennial Central Bank Survey of Foreign Exchange and Over-the-counter (OTC) Derivatives
Markets; BIS locational banking statistics (LBS).
March 2020
The yield on U.S. Treasury securities dropped to historic levels on March 6, 2020, and March 9,
2020, as investors continued to move out of stocks and into Treasury securities and other
sovereign bonds, including UK and German bonds, due in part to concerns over the impact the
pandemic would have on economic growth and expectations the Federal Reserve and other
central banks would lower short-term interest rates.77 On March 5, the U.S. Congress passed an
$8 billion spending bill to provide assistance for health care, sick leave, small business loans, and
international assistance. At the same time, commodity prices dropped sharply as a result of
reduced economic activity and disagreements among oil producers over production cuts in crude
oil and lower global demand for commodities, including crude oil.
The drop in some commodity prices raised concerns about corporate profits and led some
investors to sell equities and buy sovereign bonds. In overnight trading in various sessions
between March 8, and March 24, U.S. stock market indexes moved sharply (both higher and
lower), triggering automatic circuit breakers designed to halt trading if the indexes rise or fall by
more than 5% when markets are closed and 7% when markets are open.78 By early April, the
global mining industry had reduced production by an estimated 20% in response to falling
demand and labor quarantines and as a strategy for raising prices.79
Ahead of a March 12, 2020, scheduled meeting of the European Central Bank (ECB), the German
central bank (Deutsche Bundesbank) announced a package of measures to provide liquidity
support to German businesses and financial support for public infrastructure projects.80 At the
same time, the Fed announced that it was expanding its repo market transactions (in the
repurchase market, investors borrow cash for short periods in exchange for high-quality collateral
like Treasury securities) after stock market indexes fell sharply, government bond yields fell to
record lows (reflecting increased demand), and demand for corporate bonds fell. Together these
developments raised concerns for some analysts that instability in stock markets could threaten
global financial conditions.81
77 Smith, Colby, Richard Henderson, Philip Georgiadis, and Hudson Lockett, “Stocks Tumble and Government Bonds
Hit Highs on Virus Fears,” Financial Times, March 6, 2020. https://www.ft.com/content/9f94d6f8-5f51-11ea-b0ab-
339c2307bcd4.
78 Georgiadis, Philip, Adam Samson, and Hudson Lockett, “Stocks Plummet as Oil Crash Shakes Financial Markets,”
Financial Times, March 9, 2020. https://www.ft.com/content/8273a32a-61e4-11ea-a6cd-df28cc3c6a68.
79 Hume, Neil, “Mine Closures Bolster Metals Prices as Demand Collapses,” Financial Times, April 7, 2020.
https://www.ft.com/content/06ef38c9-18d8-427e-8675-a567227397c0.
80 Chazan, Guy, David Keohane, and Martin Arnold, “Europe’s Policymakers Search for Answers to Virus Crisis,”
Financial Times, March 9, 2020. https://www.ft.com/content/d46467da-61e1-11ea-b3f3-fe4680ea68b5.
81 Smith, Colby and Brendan Greeley, “Fed Pumps Extra Liquidity Into Overnight Lending Markets,” Financial Times,
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On March 11, as the WHO designated COVID-19 a pandemic, governments and central banks
adopted additional monetary and fiscal policies to address the growing economic impact.
European Central Bank (ECB) President Christine Lagarde in a conference call to EU leaders
warned that without coordinated action, Europe could face a recession similar to the 2008-2009
financial crisis.82 The Bank of England lowered its key interest rate, reduced capital buffers for
UK banks, and provided a funding program for small and medium businesses. The UK
Chancellor of the Exchequer also proposed a budget that would appropriate £30 billion (about
$35 billion) for fiscal stimulus spending, including funds for sick pay for workers, guarantees for
loans to small businesses, and cuts in business taxes. The European Commission announced a €25
billion (about $28 billion) investment fund to assist EU countries and the Federal Reserve
announced that it would expand its repo market purchases to provide larger and longer-term
funding to provide added liquidity to financial markets.
President Trump imposed restrictions on travel from Europe to the United States on March 12,
2020, surprising European leaders and adding to financial market volatility.83 At its March 12
meeting, the ECB announced €27 billion (about $30 billion) in stimulus funding, combining
measures to expand low-cost loans to Eurozone banks and small and medium-sized businesses
and implement an asset purchase program to provide liquidity to firms. Germany indicated that it
would provide tax breaks for businesses and “unlimited” loans to affected businesses. The ECB’s
Largarde roiled markets by stating that it was not the ECB’s job to “close the spread” between
Italian and German government bond yields (a key risk indicator for Italy), a comment reportedly
interpreted as an indicator the ECB was preparing to abandon its support for Italy, a notion that
was denied by the ECB.84 The Fed also announced that it would further increase its lending in the
repo market and its purchases of Treasury securities to provide liquidity. As a result of tight
market conditions for corporate bonds, firms turned to their revolving lines of credit with banks to
build up their cash reserves. The price of bank shares fell, reflecting sales by investors who
reportedly had grown concerned that banks would experience a rise in loan defaults.85 Despite the
various actions, the DJIA fell by nearly 10% on March 12, recording the worst one-day drop since
1987. Between February 14 and March 12, the DJIA fell by more than 8,000 points, or 28% of its
value. Credit rating agencies began reassessing corporate credit risk, including the risk of firms
that had been considered stable.86
March 9, 2020. https://www.ft.com/content/e8c7b5f0-6200-11ea-a6cd-df28cc3c6a68.
82 O’Brien, Fergal, “ECB’s Lagarde Warns of 2008-Style Crisis Unless Europe Acts,” Washington Post, March 11,
2020. https://www.bloomberg.com/news/articles/2020-03-11/ecb-s-lagarde-warns-of-2008-style-crisis-without-urgent-
action.
83 McAuley, James and Michael Birnbaum, “Europe Blindsided by Trump’s Travel Restrictions, with Many Seeing
Political Motive,” 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.
84 Arnold, Martin, “ECB Enters Damage-Limitation Mode with Pledge of More Action,” Financial Times, March 13,
2020. https://www.ft.com/content/f1cbd4f8-650f-11ea-b3f3-fe4680ea68b5.
85 Morris, Stephen, Laura Noonan, Henny Sender, and Olaf Storbeck, “Banks Scramble as Companies Rush to Tap
Back-up Credit Lines,” Financial Times, March 12, 2020. https://www.ft.com/content/a3513a54-6486-11ea-b3f3-
fe4680ea68b5.
86 Edgecliffe-Johnson, Andrew, Peggy Hollinger, Joe Rennison, and Robert Smith, “Will the COVID-19 Trigger a
Corporate Debt Crisis?” Financial Times, March 12, 2020. https://www.ft.com/content/4455735a-63bc-11ea-b3f3-
fe4680ea68b5. Sectors most exposed to debt financing issues include automotive, insurance, capital goods, utilities, oil
and gas, technology, aerospace and defense, real estate, telecoms, consumer products, metals, mining and steel,
healthcare, retail/restaurants, chemicals, packaging, transportation, media and entertainment, and forest products.
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On March 13, President Trump declared a national emergency, potentially releasing $50 billion in
disaster relief funds to state and local governments. The announcement moved financial markets
sharply higher, with the DJIA rising 10%.87 Financial markets also reportedly moved higher on
expectations the Fed would lower interest rates. House Democrats and President Trump agreed to
a $2 trillion spending package to provide paid sick leave, unemployment insurance, food stamps,
support for small businesses, and other measures.88 The EU indicated that it would relax budget
rules that restrict deficit spending by EU members. In other actions, the People’s Bank of China
cut its reserve requirements for Chinese banks, potentially easing borrowing costs for firms and
adding $79 billion in funds to stimulate the Chinese economy; Norway’s central bank reduced its
key interest rate; the Bank of Japan acquired billions of dollars of government securities (thereby
increasing liquidity); and the Reserve Bank of Australia injected nearly $6 billion into its
financial system.89 The Bank of Canada also lowered its overnight bank lending rate.
The Federal Reserve lowered its key interest rate to near zero on March 15, 2020, arguing that the
pandemic had “harmed communities and disrupted economic activity in many countries,
including the United States” and that it was prepared to use its “full range of tools.”90 It also
announced an additional $700 billion in asset purchases, including Treasury securities and
mortgage-backed securities, expanded repurchase operations, activated dollar swap lines with
Canada, Japan, Europe, the UK, and Switzerland, opened its discount window to commercial
banks to ease household and business lending, and urged banks to use their capital and liquidity
buffers to support lending.91
Despite the Fed’s actions the previous day to lower interest rates, interest rates in the U.S.
commercial paper market, where corporations raise cash by selling short-term debt, rose on
March 16, 2020, to their highest levels since the 2008-2009 financial crisis, prompting investors
to call on the Fed to intervene.92 The DJIA dropped nearly 3,000 points, or about 13%. Most
automobile manufacturers announced major declines in sales and production;93 similarly, most
airlines reported they faced major cutbacks in flights and employee layoffs due to diminished
economic activity.94 Economic data from China indicated the economy would slow markedly in
the first quarter of 2020, potentially greater than that experienced during the global financial
87 Fritz, Angela and Meryl Kornfield, “President Trump Declares a National Emergency, Freeing $50 Billion in
Funding,” Washington Post, March 13, 2020. https://www.washingtonpost.com/world/2020/03/13/COVID-19-latest-
news.
88 Werner, Erica, Mike DeBonis, Paul Kane, Jeff Stein, “White House, House Democrats Reach Deal on COVID-19
Economic Relief Package, Pelosi Announces,” Washington Post, March 13, 2020. https://www.washingtonpost.com/
us-policy/2020/03/13/paid-leave-democrats-trump-deal-COVID-19/.
89 Georgiadis, Philip, Hudson Lockett, and Leo Lewis, “European Stocks and US Futures Soar After Historic Rout,”
Financial Times, March 13, 2020. https://www.ft.com/content/3bab76ac-64cd-11ea-a6cd-df28cc3c6a68.
90 Federal Reserve Releases FOMC Statement, Board of Governors of the Federal Reserve System, March 15, 2020.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm.
91 Greeley, Brendan, Colby Smith, Adam Samson, Joe Rennison, Katie Martin, and Jennifer Ablan, “Fed Cuts Rates to
Zero as Part of Sweeping Crisis Measures,” Financial Times, March 15, 2020. https://www.ft.com/content/a9a28bc0-
66fb-11ea-a3c9-1fe6fedcca75.
92 Rennison, Joe Rennison and Colby Smith, “Investors Call for Fed Help in ‘Frozen’ Commercial Paper Market,”
Financial Times, March 16, 2020. https://www.ft.com/content/34213560-677b-11ea-a3c9-1fe6fedcca75.
93 Campbell, Peter, Joe Miller, and David Keohane, “European Car Plants Close as Industry Crisis Deepens,” Financial
Times, March 16, 2020. https://www.ft.com/content/dd76d42a-678b-11ea-a3c9-1fe6fedcca75.
94 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,” Financial Times, March 16,
2020. https://www.ft.com/content/30a3a26e-674f-11ea-800d-da70cff6e4d3.
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crisis.95 The Bank of Japan announced that it would double its purchases of exchange traded
funds and the G-7 countries96 issued a joint statement promising “a strongly coordinated
international approach,” although no specific actions were mentioned. The IMF issued a
statement indicating its support for additional fiscal and monetary actions by governments and
that the IMF “stands ready to mobilize its $1 trillion lending capacity to help its membership.”
The World Bank also promised an additional $14 billion to assist governments and companies
address the pandemic.97
Following the drop in equity market indexes the previous day, the Federal Reserve unveiled a
number of facilities on March 17, 2020, in some cases reviving actions it had not taken since the
financial crisis. It announced that it would allow the 24 primary dealers in Treasury securities to
borrow cash collateralized against some stocks, municipal debt, and higher-rated corporate bonds;
revive a facility to buy commercial paper; and provide additional funding for the overnight repo
market.98 The UK government proposed government-backed loans to support business; a three-
month moratorium on mortgage payments for homeowners; a new lending facility with the Bank
of England to provide low-cost commercial paper to support lending; and loans for businesses.
In an emergency session on March 18, the ECB announced a temporary, nonstandard asset
purchase program, the Pandemic Emergency Purchase Program (PEPP), to acquire an additional
€750 billion (over $820 billion) in public and private sector bonds to counter the risks posed by
the pandemic crisis (as of May 5, the ECB had purchased about $180 billion in securities).99 The
ECB also broadened the types of assets it would accept as collateral to include nonfinancial
commercial paper, eased collateral standards for banks, and waived restrictions on acquiring
Greek government debt.100 The program was expected to end no later than yearend 2020.
The Federal Reserve broadened its central bank dollar swap lines to include Brazil, Mexico,
Australia, Denmark, Norway, and Sweden. Automobile manufacturers announced they were
suspending production at an estimated 100 plants across North America, following similar plant
closures in Europe.101 Major U.S. banks announced a moratorium on share repurchases, or stock
buy-backs, denying equity markets a major source of support and potentially amplifying market
volatility.102 During the week, more than 22 central banks in emerging economies, including
Brazil, Turkey, and Vietnam, lowered their key interest rates.
By March 19, 2020, investors were selling sovereign and other bonds as firms and other financial
institutions attempted to increase their cash holdings, although actions central banks took during
95 Weinland, Don and Xinning Liu, “Chinese Economy Suffers Record Blow from COVID-19,” Financial Times,
March 16, 2020. https://www.ft.com/content/318ae26c-6733-11ea-800d-da70cff6e4d3.
96 The G-7 is comprised of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
97 Wheatley, Jonathan, “Surging Dollar, Coronavirus and Oil Slump Hit Emerging Economies,” Financial Times,
March 18, 2020. https://www.ft.com/content/69fc6e2a-69d3-11ea-a3c9-1fe6fedcca75.
98
Politi, James, Brendan Greeley, Colby Smith, and Joe Rennison, “Fed to Lend Against Stocks and Bonds in Bid to
Stabilize Markets,” Financial Times, March 17, 2020. https://www.ft.com/content/cf485398-689d-11ea-800d-
da70cff6e4d3.
99 “ECB Announces €750 Billion Pandemic Emergency Purchase Program (PEPP),” European Central Bank, March
18, 2020. https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200318_1~3949d6f266.en.html.
100 Arnold, Martin, “ECB to Launch €750 Billion Purchase Program in Response to Coronavirus,” Financial Times,
March 18, 2020. https://www.ft.com/content/5919c6fb-1f5f-315d-8353-94f04afcf340.
101 Campbell, Peter and Claire Bushey, “Ford, General Motors and Fiat Chrysler Agree Widespread Shutdown,”
Financial Times, March 18, 2020. https://www.ft.com/content/feae3808-6949-11ea-800d-da70cff6e4d3.
102 Henderson, Richard, “Bank-Led Freeze on Stock Buybacks Could Spread Across US Market,” Financial Times,
March 18, 2020. https://www.ft.com/content/b1fa1688-68f6-11ea-a3c9-1fe6fedcca75.
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the week appeared to calm financial markets. Compared to previous financial market dislocations
in which stock market values declined while bond prices rose, stock and bond values fell at the
same time in March 2020 as investors reportedly adopted a “sell everything” mentality to build
up cash reserves.103 Senate Republicans introduced the Coronavirus Aid, Relief, and Economic
Security Act to provide $2 trillion in spending to support the U.S. economy.
By the close of trading on March 20, the DJIA index had fallen by 17% from March 13. At the
same time, the dollar continued to gain in value against other major currencies and the price of
Brent crude oil dropped close to $20 per barrel on March 20, as indicated in Figure 8. The
Federal Reserve announced that it would expand a facility to support the municipal bond market.
Britain’s Finance Minister announced an “unprecedented” fiscal package to pay up to 80% of an
employee’s wages and deferring value added taxes by businesses.104 The ECB’s Largarde
justified actions by the Bank during the week to provide liquidity by arguing that the
“coronavirus pandemic is a public health emergency unprecedented in recent history.” Market
indexes fell again on March 23 as the Senate debated the parameters of a new spending bill to
support the economy. Oil prices also continued to fall as oil producers appeared to be in a
standoff over cuts to production.
Figure 8. Brent Crude Oil Price per Barrel in Dollars
January 9, 2020, to July 22, 2020
Source: Markets Insider. Created by CRS.
Financial market indexes continued to fall on March 23, 2020, reaching their lowest point since
the start of the pandemic crisis. The Federal Reserve announced a number of new facilities to
provide an unlimited expansion in bond buying programs. The measures included additional
purchases of Treasury and mortgage-backed securities; additional funding for employers,
consumers, and businesses; establishing the Primary Market Corporate Credit Facility (PMCCF)
to support issuing new bonds and loans and the Secondary Market Corporate Credit Facility
(SMCCF) to provide liquidity for outstanding corporate bonds; establishing the Term Asset-
103 Stubbington, Tommy and Colby Smith, “Investment Veterans Try to Get to Grips With ‘Broken’ Markets,”
Financial Times, March 20, 2020. https://www.ft.com/content/97186440-6aa0-11ea-800d-da70cff6e4d3.
104 Parker, George Parker, Chris Giles, and Sebastian Payne, “Sunak Turns on Financial Firepower to Help Workers,”
Financial Times, March 20, 2020, https://www.ft.com/content/826d465a-6ac3-11ea-a3c9-1fe6fedcca75.
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Backed Securities Loan Facility (TALF), to support credit to consumers and businesses;
expanding the Money Market Mutual Fund Liquidity Facility (MMLF) to provide credit to
municipalities; and expanding the Commercial Paper Funding Facility (CPFF) to facilitate the
flow of credit to municipalities.105 The OECD released a statement encouraging its members to
support “immediate, large-scale and coordinated actions.” These actions included (1) more
international cooperation to address the health crisis; (2) coordinated government actions to
increase spending to support health care, individuals, and firms; (3) coordinated central bank
action to supervise and regulate financial markets; and (4) policies directed at restoring
confidence.106
Reacting to the Fed’s announcement, the DJIA closed up 11% on March 24, marking one of the
sharpest reversals in the market index since February 2020. European markets, however, did not
follow U.S. market indexes as various indicators signaled a decline in business activity in the
Eurozone that was greater than that during the financial crisis and indicated the growing potential
for a severe economic recession.107 U.S. financial markets were buoyed on March 25 and 26 over
passage in Congress of a $2.2 trillion economic stimulus package.
On March 27, leaders of the G-20 countries announced through a video conference they had
agreed to inject $5 trillion into the global economy and to do “whatever it takes to overcome the
pandemic.” Also at the meeting, the OECD offered an updated forecast of the viral infection,
which projected that the global economy could shrink by as much as 2% a month. Nine Eurozone
countries, including France, Italy, and Spain called on the ECB to consider issuing
“coronabonds,” a common European debt instrument to assist Eurozone countries in fighting
COVID-19.108 The ECB announced that it was removing self-imposed limits that it had followed
in previous asset purchase programs that restricted its purchases of any one country’s bonds.109
Japan announced that it would adopt an emergency spending package worth $238 billion, or
equivalent to 10% of the country’s annual GDP.110 Despite the various actions, global financial
markets turned down March 27 (the DJIA dropped by 900 points) reportedly over volatility in oil
markets and concerns that the economic effects of the COVID-19 pandemic were worsening.111
By March 30, central banks in developing countries from Poland, Columbia, South Africa, the
Philippines, Brazil, and the Czech Republic reportedly had begun adopting monetary policies
similar to that of the Federal Reserve to stimulate their economies.112 In commodity markets,
Brent crude oil prices continued to fall, reaching a low of $22.76. Strong global demand for
105 Federal Reserve Announces Extensive New Measures to Support the Economy, Board of Governors of the Federal
Reserve System, March 23, 2020. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm.
106 Gurria, Angel, COVID-19: Joint Actions to Win the War, Organization for Economic Cooperation and Development,
March 23, 2020. https://www.oecd.org/coronavirus/#op-ed.
107 Arnold, Martin Arnold and Valentina Romei, “Business Activity Crashes to Record Low in Eurozone,” Financial
Times, March 24, 2020. https://www.ft.com/content/f5ebabd4-6dad-11ea-89df-41bea055720b.
108
Dombrey, Daniel, Guy Chazan, and Jim Brunsden, “Nine Eurozone Countries Issue Call for ‘Coronabonds,’”
Financial Times, March 26, 2020. https://www.ft.com/content/258308f6-6e94-11ea-89df-41bea055720b.
109 Arnold, Martin and Tommy Stubbington, “ECB Shakes Off Limits on New €750bn Bond-Buying Plan,” Financial
Times, March 27, 2020. https://www.ft.com/content/d775a99e-13b2-444e-8de5-fd2ec6caf4bf.
110 Kajimoto, Tetsushi, Izumi Nakagawa, “Japan Plans Huge Stimulus Package to Cushion Blow from Coronavirus,”
Reuters, March 27, 2020, https://www.reuters.com/article/us-health-coronavirus-japan-stimulus/japan-plans-huge-
stimulus-package-to-cushion-blow-from-coronavirus-idUSKBN21E0UW.
111 Georgiadis, Philip, Hudson Lockett, and Leo Lewis, “Global Stocks Falter After Two Days of Big Gains,” Financial
Times, March 27, 2020. https://www.ft.com/content/bc33c31c-f019-4ef8-85df-0014a5406ac1.
112 Wheatley, Jonathan, “Emerging Market Central Banks Embark on Radical Stimulus Policies,” Financial Times,
March 30, 2020. https://www.ft.com/content/70398316-3fd5-4428-88ab-6f898ee42fd5.
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dollars continued to put upward pressure on the international value of the dollar. In response, the
Federal Reserve introduced a new temporary facility that would work with its swap lines to allow
central banks and international monetary authorities to enter into repurchase agreements with the
Fed.113 From mid-March to mid-April, U.S. workers’ claims for unemployment benefits reached
over 17 million as firms faced a collapse in demand and requirements for employees to self-
quarantine caused them to begin furloughing or laying off employees. Financial markets began to
recover somewhat in early April in response to the accumulated monetary and fiscal policy
initiatives, but remained volatile as a result of uncertainty over efforts to reach an output
agreement among oil producers and the continued impact of the viral health effects.
April 2020
The Federal Reserve announced on April 8 that it was establishing a facility to fund small
businesses through the Paycheck Protection Program. Japan also announced that it was preparing
to declare areas around Tokyo to be in a state of emergency and that it would adopt a $989 billion
funding package.114
On April 9, OPEC and Russia agreed to cut oil production by 10 million barrels per day.115 On
April 15, G-20 finance ministers and central bank governors announced their support for the
proposed agreement by Saudi Arabia and Russia to reduce oil production.116 They also announced
an agreement to freeze government loan payments until the end of the year to help low-income
developing countries address the pandemic and asked international financial institutions to do
likewise.117 G-7 finance ministers and central bank governors agreed to support the G-20 proposal
to suspend debt payments by developing countries.118 Eurozone finance ministers announced a
€500 billion (about $550 billion) emergency spending package to support governments,
businesses, and workers. Reportedly, the measure will provide funds to the European Stability
Mechanism, the European Investment Bank, and for unemployment insurance.119
In other policy areas, the IMF announced that it was doubling its emergency lending capability to
$100 billion, in response to requests from more than 100 countries for assistance.120 The Bank of
England announced that it would take the unprecedented move of temporarily directly financing
UK government emergency spending needs through monetary measures rather than through the
113 Politi, James, Brendan Greeley, and Colby Smith, “Fed Sets Up Scheme to Meet Booming Foreign Demand for
Dollars,” Financial Times, March 31, 2020. https://www.ft.com/content/6c976586-a6ea-42ec-a369-9353186c05bb.
114 Takeo, Yuko and Yoshiaki Nohara, “Japan’s Virus Stimulus Package to Come in Two Phases,” Bloomberg, April 5,
2020. https://www.bloomberg.com/news/articles/2020-04-06/japan-s-virus-stimulus-package-to-come-in-two-phases-
documents-k8nuj552.
115 Sheppard, David, Anjli Raval, Derek Brower, and Henry Foy, “G20 Ministers Meet to Endorse OPEC-Russia Deal
to Slash Oil Production,” Financial Times, April 10, 2020. https://www.ft.com/content/c7a1e2e6-8c17-48d5-8c16-
edce911b5cbb.
116 Sheppard, David, Anjli Raval, Derek Brower. and Henry Foy, G20 Backs Largest Oil Supply Agreement in History,
Financial Times, April 15, 2020. https://www.ft.com/content/16ac91d8-42bf-4190-88de-f3d89b2b36f4.
117 England, Andrew, Jonathan Wheatley and James Politi, G20 Agrees Debt Relief for Low Income Nations, Financial
Times, April 15, 2020. https://www.ft.com/content/5f296d54-d29e-4e87-ae7d-95ca6c0598d5.
118 Politi, James and Jonathan Wheatley, G7 Countries Back Debt Relief For Poorest Nations, Financial Times, April
14, 2020. https://www.ft.com/content/c384ed59-1ca3-476f-9b89-eaf5cf31e42c.
119 Fleming, Sam and Mehreen Khan, “Eurozone Countries Strike Emergency Deal on Coronavirus Rescue,” Financial
Times, April 9, 2020. https://www.ft.com/content/b984101a-42b8-40db-9a92-6786aec2ba5c.
120 Politi, James, “IMF Boosts Emergency Lending Capacity to $100bn,” Financial Times, April 9, 2020.
https://www.ft.com/content/e46faadc-456b-4cf8-a2fd-2017702747ab.
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typical method of issuing securities to fight the effects of COVID-19.121 Secretary-General of the
United Nations Guterres declared on April 9, 2020, before the United Nations Security Council
that the pandemic posed a significant threat to the maintenance of international peace and security
and outlined eight specific risks, including the erosion of trust in public institutions, increased
risks from terrorism and bioterrorism, and worsening existing human rights abuses.122
Federal Reserve Chairman Jerome Powell, stating that the U.S. economy was deteriorating “with
alarming speed,” announced on April 10 that the Fed would provide an additional $2.3 trillion in
loans, including a new financial facility to assist firms by acquiring shares in exchange traded
funds that own the debt of lower-rated, riskier firms that are among the most exposed to
deteriorating economic conditions associated with COVID-19 and low oil prices.123 On April 16,
the U.S. Labor Department reported that 5.2 million Americans filed for unemployment insurance
during the previous week, raising the total claims since mid-March to over 22 million.124
According to Chinese official statistics, the Chinese economy shrank by 6.8% on an annual basis
during the first quarter of 2020, reportedly the first such contraction in 40 years.125
Financial market indicators rose on April 17, reportedly on an upbeat sentiment that actions taken
by the Federal Reserve and other central banks would stabilize conditions in the corporate credit
market.126 The price of futures contracts for oil delivery in May 2020 for the U.S. West Texas
Intermediate (WTI) fell to $18 per barrel, the lowest it had been since 2002, reportedly reflecting
rising inventories and low global demand.127 Leaders of emerging economies in Latin America
and Africa argued that the G-20 call for suspension of interest payments fell short of what is
needed. National leaders from Columbia, Brazil, Mexico, and Chile encouraged the World Bank,
the InterAmerican Development Bank, and the IMF to double their net lending to Latin America,
arguing that, “The Covid-19 pandemic is a shock of unprecedented magnitude, uncertain duration
and catastrophic consequences that, if not properly addressed, could lead to one of the most tragic
episodes in the history of Latin America and the Caribbean.”128
The price of oil fell to its lowest level in two decades on April 19, reportedly reflecting a
significant drop in global demand for energy and rising inventories.129 Some Eurozone members
121 Giles, Chris and Philip Georgiadis, “Bank of England to Directly Finance UK Government’s Extra Spending,”
Financial Times, April 9, 2020. https://www.ft.com/content/664c575b-0f54-44e5-ab78-2fd30ef213cb.
122 Secretary-General’s Remarks to the Security Council on the COVID-19 Pandemic [as delivered], United Nations,
April 9, 2020. https://www.un.org/sg/en/content/sg/statement/2020-04-09/secretary-generals-remarks-the-security-
council-the-covid-19-pandemic-delivered.
123 Rennison, Joe, Robin Wigglesworth, and Colby Smith, “Federal Reserve Enters New Territory with Support for
Risky Debt,” Financial Times, April 10, 2020. https://www.ft.com/content/c0b78bc9-0ea8-461c-a5a2-89067ca94ea4.
Heather Long, “Fed Chair Powell Says U.S. Economy Deteriorating ‘With Alarming Speed,’” Washington Post, April
9, 2020. https://www.washingtonpost.com/business/2020/04/09/federal-reserve-unveils-over-2-trillion-new-lending-
small-businesses-city-governments-big-firms/.
124
Unemployment Insurance Weekly Claims, Department of Labor, April 16, 2020. https://www.dol.gov/ui/data.pdf.
125 Hale, Thomas, Xinning Liu, and Yuan Yang, China’s Economy Shrinks for First Time in Four Decades, Financial
Times, April 17, 2020. https://www.ft.com/content/8f941520-67ad-471a-815a-d6ba649d22ed.
126 Smith, Colby, Myles McCormick, Tommy Stubbington, and Hudson Lockett, US Stocks Extend Rally With Central
Bank Safety Net, Financial Times, April 17, 2020. https://www.ft.com/content/5ebbc2d8-ade3-4d5c-86f5-
49b9478fe03d.
127 Sheppard, David, US Crude Tumbles to 18-year Low as Supply Overwhelms Demand, Financial Times, April 17,
2020. https://www.ft.com/content/d0a0cfc3-765c-4b55-ada7-11e0d378d406.
128 Wheatley, Jonathan, Michael Stott, and David Pilling, Emerging Economies Call for More Financial Help After G20
Deal, Financial Times, April 17, 2020. https://www.ft.com/content/203ed8f5-6bb2-4016-80a9-dd99269bfa26.
129 Lockett, Hudson Lockett and David Sheppard, US Oil Price Plunges to 20-year Low as Coronavirus Hits Demand,
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reportedly argued for the ECB to create a Eurozone “bad bank” to remove billions of euros in
nonperforming debts from banks’ balance sheets to provide more capacity for Eurozone banks at
a potentially critical time when banks could see an increase in nonperforming loans.130 The World
Bank confirmed that its “pandemic bonds” would pay out $133 billion to the poorest countries
affected by the pandemic.131
On April 21, Agricultural Ministers of the G-20 countries released a joint statement that supported
measures to “ensure the health, safety, welfare, and mobility of workers in agriculture and
throughout the food supply chain.” The joint statement also indicated that the G-20 countries
would adopt measures that are “targeted, proportionate, transparent, and temporary, and that they
do not create unnecessary barriers to trade or disruption to global food supply chains.” The
statement also indicated that the G-20 would, “guard against any unjustified restrictive measures
that could lead to excessive food price volatility in international markets and threaten the food
security and nutrition of large proportions of the world population, especially the most vulnerable
living in environments of low food security.”132
On April 23, the House passed H.R. 266 (P.L. 116-139), the Paycheck Protection Program and
Health Care Enhancement Act, following similar actions by the Senate the previous day. The
measure will provide $484 billion for small business loans, health care providers, and COVID-19
testing. The U.S. Labor Department reported that 4.4 million Americans filed for unemployment
insurance in the previous week, raising the total that have applied to over 26 million.133 Indicators
of manufacturing and services activity in Europe dropped to their lowest level since 1990,
reflecting the impact of the pandemic on the European economy.134 The Bank of England
indicated that it would quadruple its borrowing over the second quarter of 2020, reflecting a
contraction in the UK economy, lower tax revenues, and increased financial demands to support
fiscal policy measures to fight the pandemic.135 The Saudi Presidency of the G-20 called on
international organizations on April 24 to fund an emergency response to the pandemic. The Bank
of Japan announced on April 27 that it would purchase unlimited amounts of government bonds
and quadruple its purchases of corporate debt to keep interest rates low and stimulate the
Japanese economy.136
At its April 29 scheduled meeting, the U.S. Federal Open Market Committee left its main interest
rates unchanged, but reiterated its commitment to use “its full range of tools to support the U.S.
economy.” The policy statement concluded that, “The ongoing public health crisis will weigh
heavily on economic activity, employment, and inflation in the near term, and poses considerable
Financial Times, April 19, 2020. https://www.ft.com/content/a5292644-958d-4065-92e8-ace55d766654.
130 Arnold, Martin and Javier Espinoza, ECB Pushes for Eurozone Bad Bank to Clean up Soured Loans, Financial
Times, April 19, 2020. https://www.ft.com/content/15d17d1d-8e1b-4f84-97b4-b62e6ae8f962.
131 Gross, Anna, World Bank Pandemic Bonds to Pay $133m to Poorest Virus-hit Nations, Financial Times, April 19,
2020. https://www.ft.com/content/c8556c9f-72f7-48b4-91bf-c9e32ddab6ff.
132 G20 Extraordinary Agriculture Ministers Meeting: Statement on COVID-19, G-20, April 21, 2020. https://g20.org/
en/media/Pages/pressroom.aspx.
133 Unemployment Insurance Weekly Claims, April 23, 2020. https://www.dol.gov/ui/data.pdf.
134 Arnold, Martin and Valentina Romei, European Business Activity Crashes Under Coronavirus Lockdowns,
Financial Times, April 23, 2020. https://www.ft.com/content/8520895f-3249-4a8b-b0e5-881a64e77971.
135 Giles, Chris, and Tommy Stubbington, UK Treasury to Quadruple Borrowing to £180bn Over Next Quarter,
Financial Times, April 23, 2020. https://www.ft.com/content/8886e002-c260-4daa-8b7b-509b3f7e6edb.
136 Harding, Robin, Bank of Japan Steps up Coronavirus Stimulus With Bond-buying Pledge, Financial Times, April
27, 2020. https://www.ft.com/content/7ba5c507-df9e-4107-87eb-73afa2c13e91.
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risks to the economic outlook over the medium term.”137 The Federal Reserve also announced a
change in its eligibility requirements for a $500 billion lending program for municipalities. The
statement followed the release of the preliminary estimate of U.S. first quarter GDP, which
indicated that the economy had contracted by an annualized rate of 4.8% (revised to 5.0%).138
On April 30, the Department of Labor released its weekly data on applications for unemployment
insurance, which indicated that an additional 3.8 million people had filed for unemployment
insurance during the week, raising the total number who had applied to 30 million.139 The Federal
Reserve also announced an expansion in its medium-size business loan program by allowing
firms with up to 15,000 employees or with revenues up to $5 billion to access a new $600 billion
program. In addition, the Fed lowered the minimum loan amount for small businesses and
announced a loan program to assist riskier businesses.140 At the same time, the ECB expanded a
record low-interest rate loan program for Eurozone banks to support economic activity, while
warning that the Eurozone economy could contract between 5% and 12% in 2020 as it faces, “an
economic contraction of a magnitude and speed that are unprecedented in peacetime.”141 The
ECB also announced a new nontargeted low-interest rate pandemic emergency longer-term
refinancing operation (PELTROs) to complement its Pandemic Emergency Refinance Operations
announced in March.142 House Speaker Pelosi stated that House Democrats were considering a $1
trillion spending bill to support state and local governments.143 In a development that seemed
incongruous with the broader economic situation, between April 1, 2020, and April 30, 2020, the
DJIA rose more than 3,400 points, or 16%, marking the strongest monthly increase since 1987.144
May 2020
On May 5, Germany’s Constitutional court issued a ruling that could prevent the German central
bank, the Bundesbank, from making additional bond purchases under the Pandemic Emergency
Purchase Program (PEPP). The ECB’s program is intended to ease borrowing costs across the
Eurozone to stimulate economic growth.
The U.S. Census Bureau reported on May 5 that U.S. exports and imports fell in March; exports
fell by a greater amount than imports, thereby increasing the monthly U.S. goods and services
trade deficit. The trade balance for March was -$44.5 billion, an increase of about $4.6 billion
137 Federal Reserve Issues FOMC Statement, Board of Governors of the Federal Reserve System, April 29, 2020.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200429a.htm.
138 Gross Domestic Product, First Quarter 2020 (Advance Estimate), Bureau of Economic Analysis, April 29, 2020.
https://www.bea.gov/.
139 Unemployment Insurance Weekly Claims, April 30, 2020. https://www.dol.gov/ui/data.pdf.
140 Politi, James, Colby Smith and Robert Armstrong, Federal Reserve Extends $600bn Main Street Lending Program.
Financial Times, April 30, 2020. https://www.ft.com/content/46fdc853-1d7d-49af-93e8-f12e0d006fc2.
141 Introductory Statement, European Central Bank, April 29, 2020. https://www.ecb.europa.eu/press/pressconf/2020/
html/ecb.is200430~ab3058e07f.en.html.
142 Arnold, Martin and Tommy Stubbington, ECB Launches Fresh Push to Lend to Banks at Ultra-low Rates, Financial
Times, April 30, 2020. https://www.ft.com/content/cef090d0-97dc-4e75-a4b1-deebfd4afacf.
143 Werner, Erica, Pelosi Points to $1 Trillion Need for State and Local Governments in Next Coronavirus Bill, The
Washington Post, April 30, 2020. https://www.washingtonpost.com/us-policy/2020/04/30/congress-coronavirus-
economy/.
144 Henderson, Richard Henderson, Robin Wigglesworth, and Katie Martin, U.S. Stocks Close Out Best Month Since
1987 in Global Rebound, Financial Times, April 30, 2020. https://www.ft.com/content/88e57ec9-42d4-455d-a045-
293a6a54837d.
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over the trade deficit in February. The decline in export and import values reflected lower imports
and exports of both goods and services.
On May 6, the European Commission released its Spring economic forecast, which indicated that
economic activity in the EU would decline by 7.4% in 2020 as a result of measures to contain the
pandemic. The Commission forecast that economic growth would advance by 6.0% in 2021,
assuming the containment measures can be lifted gradually, the viral effects remain contained,
and that the fiscal and monetary measures implemented by the EU members are effective in
blunting the negative effects on economies.145 On May 7, the Labor Department announced that
2.7 million Americans had filed for unemployment insurance during the week, raising the total
that had filed over the previous seven weeks to 33 million.146
On May 8, the U.S. Department of Labor announced that 20.5 million Americans had lost their
jobs in April, pushing the national unemployment rate to 14.5%. Despite the rise in the
unemployment rate, the DJIA rose by 2.0%, reportedly based on optimism that the monetary
policy actions the Federal Reserve, the ECB, and the Bank of Japan had taken to support financial
markets would stabilize and stimulate the markets and optimism that the health crisis is ebbing.147
On May 12, House Democrats introduced H.R. 6800, the Heroes Act, to provide a $3 trillion
supplemental spending bill for additional financial resources to state and local governments and
for other purposes. The measure passed the House on May 15 and was sent to the Senate for
consideration. On May 13, the UK Office of National Statistics reported that UK GDP contracted
by 2.0% in the first quarter, the largest decline in the UK’s GDP since 2008 with all major
economic sector affected.148 On May 14, the U.S. Department of Labor announced that an
additional 2.4 million Americans had filed for unemployment insurance during the previous
week, increasing the total number filing for unemployment insurance over the previous eight
weeks to 36 million.149
On May 18, German Chancellor Angela Merkel and French President Emmanuel Macron
proposed a €500 billion (about $620 billion) EU recovery fund in an effort to gain a coordinated
EU fiscal response to the pandemic.150
The Department of Labor announced on May 21 that an additional 2.4 million Americans had
filed for Unemployment Insurance, raising the total to 38.4 million over the previous nine
weeks.151
On May 27, European Commission President Ursula von der Leyen proposed a €750 billion
(about $825 billion) coronavirus recovery plan to provide loans and grants to the hardest hit EU
economies and changes to the EU budget. The Japanese Cabinet proposed a second supplemental
145 European Economic Forecast Spring 2020, European Commission, May 2020. https://ec.europa.eu/commission/
presscorner/detail/en/ip_20_799.
146 Unemployment Insurance Weekly Claims, May 5, 2020. https://www.dol.gov/ui/data.pdf.
147 Platt, Eric, Colby Smith, Adam Samson, and Hudson Lockett, Wall Street closes higher despite dire US jobs data,
Financial Times, May 8, 2020. https://www.ft.com/content/a9999ef1-1373-41b7-8d55-d780fd06825d.
148 GDP Monthly Estimate, UK: March 2020, Office for National Statistics, May 13, 2020. https://www.ons.gov.uk/
economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/march2020.
149 Unemployment Insurance Weekly Claims, May 14, 2020. https://www.dol.gov/ui/data.pdf.
150 Fleming, Sam, Victor Mallet, and Guy Chazan, Germany and France Unite in Call for €500 Billion Europe
Recovery Fund, Financial Times, May 18, 2020. https://www.ft.com/content/c23ebc5e-cbf3-4ad8-85aa-032b574d0562.
151 Unemployment Insurance Weekly Claims, May 21, 2020. https://www.dol.gov/ui/data.pdf.
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appropriation measure that includes $296 billion in spending and a total value of about $1.1
trillion in loans and guarantees, funded through new bonds.152
On May 28, the Department of Labor announced that an additional 1.9 million (revised)
Americans filed for Unemployment Insurance, raising the ten-week total to 42.6 million.153
June 2020
On June 4, the U.S. Census Bureau reported that U.S. imports fell by 13.7% and exports fell by
20.5% in April, increasing the monthly current account deficit and registering the largest decline
in U.S. trade since the global financial crisis.154 In addition, the Labor Department announced that
an additional 1.9 million Americans filed for unemployment insurance, increasing the 11-week
total to 44 million.155 The European Central Bank announced that it would double to $1.5 trillion
its Pandemic Emergency Purchase Program to stimulate the European economy.156 The DJIA rose
by more than 800 points on June 5 as a positive jobs report, apparently signaling to some that the
U.S. economy would recover quickly from the pandemic-driven economic downturn.157 OPEC
and Russia reportedly agreed on June 7 to maintain their cuts in oil production for one additional
month in an effort to raise international oil prices.158
On June 8, the DJIA rose nearly 2% reportedly on positive jobs data, extending gains in the value
of the index and rising to its highest level since late February.159 Most foreign markets indices
similarly rose. The World Bank forecasted that emerging and developing economies would
contract in 2020 for the first time in 60 years.160
On June 11, the DJIA fell by more than 1,800 points, or 6.9% reportedly on fears that a spike in
new coronavirus cases signaled the pandemic was not contained and over concerns about U.S.
economic growth as a result of projections by the Federal Reserve that were interpreted as
gloomy.161 The Labor Department reported that an additional 1.57 million Americans filed for
unemployment insurance during the previous week, raising the 12-week total from mid-March to
44 million Americans.162 According to a report by Eurostat on June 12, industrial production in
152 Harding, Robin, Japan’s Cabinet Approves Extra $1.1 Trillion Budget to Counter Recession, Financial Times, May
27, 2020. https://www.ft.com/content/ce7f3564-c997-339c-ad3d-c6d092fb7f1e.
153 Unemployment Insurance Weekly Claims, May 29, 2020. https://www.dol.gov/ui/data.pdf.
154 Monthly U.S. International Trade in Goods and Services in April 2020, U.S. Census Bureau, June 4, 2020.
https://www.census.gov/foreign-trade/data/index.html.
155 Unemployment Insurance Weekly Claims, June 4, 2020. https://www.dol.gov/ui/data.pdf.
156 Arnold, Martin, ECB Boosts Bond-Buying Stimulus Package by €600, Financial Times, June 4, 2020.
https://www.ft.com/content/c59ab92d-e614-4284-a028-46ee3bcf92f9.
157 Telford, Taylor, and Thomas Heath, Dow Soars 1,000 Points as Wall Street Closes in on Pre-Pandemic Levels, The
Washington Post, June 5, 2020. https://www.washingtonpost.com/business/2020/06/05/stocks-market-today-
coronavirus-economy/.
158 Sheppard, David, Anjli Raval, and Derek Brower, OPEC and Russia Agree to Extend Record Oil Supply Cuts,
Financial Times, June 7, 2020. https://www.ft.com/content/88747416-0fc4-4808-999f-753793589ca7.
159 Dempsey, Harry, Bryce Elder, and Hudson Lockett, U.S. Stocks Erase Losses for the Year, Financial Times, June 8,
2020. https://www.ft.com/content/1dfaeb58-6d65-4f17-b710-b1ebc6622649.
160 Politi, James, Emerging Economies Forecast to Shrink for First Time in 60 Years, Financial Times, June 8, 2020.
https://www.ft.com/content/47998ee3-b2d3-4066-a914-edbf60b797b5.
161 Seigel, Rachel and Thomas Heath, Dow Slides More Than 1,800 Points on Fears of Coronavirus Resurgence, More
Economic Pain, The Washington Post, June 11, 2020. https://www.washingtonpost.com/business/2020/06/11/markets-
today-fed-coronavirus/.
162 Unemployment Insurance Weekly Claims, Department of Labor, June 11, 2020. https://www.dol.gov/ui/data.pdf.
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the Eurozone fell by 17.1% in April, reportedly the largest decline in production recorded since
records began in 1991. The decline reflects lower levels of economic activity in manufacturing
and construction throughout the Eurozone.163 The Federal Reserve released its semi-annual
Monetary Policy Report.164
The Institute of International Finance reported on June 15, that capital outflows from developing
economies had reversed with funds flowing back into developing economies, primarily by bond
issuance through the international bond market, rather than by refinancing existing debt.165
In testimony before the Senate Banking Committee on June 17, Federal Reserve Chairman
Powell stressed that although there were positive signs that U.S. economic growth was beginning
to rebound, there was “significant uncertainty” about the timing and strength of the recovery.166
On June 17, the Bank of Japan announced that it was maintaining its low interest rates even as it
increased its coronavirus lending facility to $1 trillion.167 The U.S. Energy Information
Administration reported that U.S. crude oil production fell to its lowest point since March 2018,
while stockpiles reached record highs. The price of Brent crude reached $41 per barrel,
encouraging some U.S. producers to consider restarting wells that were closed when prices
dropped to around $20 per barrel.168
On June 18, the Department of Labor announced that an additional 1.54 million Americans filed
for unemployment during the week, raising the 13-week total to 45.7 million Americans.169
During May, U.S. retail sales increased by 17.7% as some businesses began reopening and
increasing optimism in financial markets that economic activity was on course for a quick
recovery. Concerns over trade disputes and a rise in new coronavirus cases, however, reportedly
overcame the optimism of increased sales and were factors in DJIA losses on June 24 of more
than 700 points. In addition, the IMF issued its updated economic outlook, forecasting that global
economic growth would contract by 4.9% in 2020, compared with an April forecast of a decline
of 3.0%.170
On June 25, the ECB and the German government announced they had reached a tentative accord
to end the conflict over the ECB’s bond-buying program.171 Elsewhere, the Labor Department
reported that an additional 1.48 million Americans filed for unemployment insurance, raising the
14-week total from mid-March to over 47 million.172 Between June 1 and June 26, the DJIA
163 Arnold, Martin, Eurozone Industrial Production Falls by Record 17.1% in April, Financial Times, June 12, 2020.
https://www.ft.com/content/e3301cd6-27ce-35f0-829a-c6613849b378.
164 Board of Governors of the Federal Reserve System, Monetary Policy Report, June 12, 2020.
https://www.federalreserve.gov/monetarypolicy/2020-06-mpr-summary.htm
165 Wheatley, Jonathan, Developing Economies Borrow More Despite Debt Relief Initiative, Financial Times, June 15,
2020. https://www.ft.com/content/54c545aa-01b5-4e95-8adc-e680f5d82be1.
166 Powell, Jerome H., Semiannual Monetary Report to the Congress, June 16, 2020. https://www.federalreserve.gov/
newsevents/testimony/powell20200616a.htm.
167 Harding, Robin, Bank of Japan Pledges $1 Trillion in Coronavirus Lending, Financial Times, June 17, 2020.
https://www.ft.com/content/5d8e5df2-dfb6-44f1-a434-ab8a745d37ba.
168 Brower, Derek, U.S. Oil Production Drops to Lowest Point Since 2018, Financial Times, June 17, 2020.
https://www.ft.com/content/6b877160-28e4-4ddf-8959-2a7cd0acd4ba.
169 Unemployment Insurance Weekly Claims, Department of Labor, June 18, 2020. https://www.dol.gov/ui/data.pdf.
170 World Economic Outlook Update, p. 5.
171 Arnold, Martin, Berlin and ECB Signal End to Legal Impasse to Bond-Buying, Financial Times, June 22, 2020.
https://www.ft.com/content/5f000a25-3d54-4610-8579-cab9b21759ee.
172 Unemployment Insurance Weekly Claims, Department of Labor, June 25, 2020. https://www.dol.gov/ui/data.pdf.
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posted 13 days with gains and 7 days of declines, with the DJIA value at the end of the period
nearly the same as it was in early March 2020. On June 24 and 26, the DJIA index fell by more
than 700 points, reportedly over investors’ concerns over a spike in new coronavirus cases in
various U.S. States.173 Also on June 25, the Federal Reserve announced the result of stress tests
on 33 U.S. banks under 3 scenarios174 to ascertain their capital sufficiency given the strains to the
financial system caused by COVID-19.175 The Fed reported that all large U.S. banks are
“sufficiently capitalized” to survive the three scenarios.176 Both the IMF and the WTO released
forecasts indicating that global trade had declined sharply in the first quarter of 2020 and was
projected to post similarly sharp declines for the year. By the end of June, the international price
of crude had risen slightly above $40 per barrel, regaining about half the value it had lost during
the first quarter of 2020.
July 2020
The Department of Labor announced on July 2 that an additional 1.4 million Americans had filed
for Unemployment Insurance, raising the total to 48.7 million over the 15-week period from mid-
March.177 The insured seasonally adjusted unemployment rate in June was estimated at 13.2%,
unchanged from the revised rate in the previous week. On July 2, the BLS also released data on
the employment situation in June, indicating that non-farm payroll rose by 4.8 million, lowering
the unemployment rate to 11.5%. The Census Bureau also released U.S. trade data for May
indicating that the U.S. merchandise trade deficit rose by nearly 10% over that recorded in April
as exports fell by more than imports.178
On July 9, the BLS reported that an additional 1.3 Americans filed for Unemployment Insurance,
raising the 16-week total from mid-March to 50 million.179 On July 17, the European Council met
to approve a proposed plan to provide an additional €750 billion in pandemic support funds to
assist European economies. Negotiations failed to produce an agreement and talks continued over
the weekend and resumed on July 20. On July21, however, European leaders announced they had
agreed to a €750 billion (about $859 billion) pandemic economic relief package.
173 Elder, Bryce, Sarah Provan, and Hudson Lockett, U.S. Stocks End Lower as States Roll Back Reopening Measures,
Financial Times, June 26, 2020. https://www.ft.com/content/5013d097-c1bf-4ed9-979a-842749e5956a.
174 The three scenarios include (1) a rapid, or “V”-shaped recovery; (2) a slower, or “U”-shaped recovery; and (3) a
“W”-shaped or double-dip recession with a short-lived recovery followed by a severe drop in activity later this year due
to a second COVID event. Assessment of Bank Capital During the Recent Coronavirus Event, Board of Governors of
the Federal Reserve System, June 2020, p. 2.
175 Ibid.
176 Ibid., pp. 1-2.
177 Unemployment Insurance Weekly Claims, July 1, 2020. https://www.dol.gov/ui/data.pdf.
178 Monthly U.S. International Trade in Goods and Services, May 2020, U.S. Census Bureau, July 2, 2020.
https://www.census.gov/foreign-trade/data/index.html.
179 Unemployment Insurance Weekly Claims, July 9, 2020. https://www.dol.gov/ui/data.pdf.
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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, encouraging Congress to pass the Troubled Asset Relief Program (TARP) to prevent the collapse of
the financial sector and boost consumer spending. Other measures included 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 did not start as a
financial crisis, but could evolve into one if a recovery in economic activity is delayed. 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.
Prepared by Martin A. Weiss, CRS.
Policy Responses
In response to growing concerns over the global economic impact of the pandemic, 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.180 The Finance Ministers also pledged
180 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 COVID-19 Spreads, But They Don’t
Announce Any New Action,” Washington Post, March 3, 2020. https://www.washingtonpost.com/business/2020/03/
03/economy-COVID-19-rate-cuts/.
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fiscal support to ensure health systems can sustain efforts to fight the outbreak.181 In most cases,
however, countries have pursued their own divergent strategies, in some cases including banning
exports of medical equipment. 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 of the COVID-19.”182 At the time, the cut
was the largest one-time reduction in the interest rate by the Fed since the global financial crisis.
After a delayed response, other central banks have begun to follow the actions of the G-7
countries. Most central banks have lowered interest rates and acted to increase liquidity in their
financial systems through a combination of measures, including lowering capital buffers and
reserve requirements, creating temporary lending facilities for banks and businesses, and easing
loan terms. In addition, national governments have adopted various fiscal measures to sustain
economic activity. In general, these measures include making payments directly to households,
temporarily deferring tax payments, extending unemployment insurance, and increasing
guarantees and loans to businesses.
See Appendix A to this report for detailed information about the policy actions by individual
governments.183
The United States
Recognizing the growing impact the pandemic is having on financial markets and economic
growth, the Federal Reserve (Fed) has taken a number of steps to promote economic and financial
stability involving the Fed’s monetary policy and “lender of last resort” roles. Some of these
actions are intended to stimulate economic activity by reducing interest rates and others are
intended to provide liquidity to financial markets so that firms have access to needed funding. In
announcing its decisions, the Fed indicated that “[t]he COVID-19 outbreak has harmed
communities and disrupted economic activity in many countries, including the United States.
Global financial conditions have also been significantly affected.184” On March 31, 2020, the
Trump Administration announced that it was suspending for 90 days tariffs it had placed on
imports of apparel and light trucks from China, but not on other consumer goods and metals.185
On April 29, the Bureau of Economic Analysis released first quarter U.S. GDP data indicating
that the U.S. economy had contracted by 4.8% at an annual rate, as indicated in Figure 9. A
decline in economic activity of 30% or more was recorded in motor vehicles and parts, recreation,
food services and accommodation and transportation sectors, reflecting the quarantine measures
adopted across the country. In contrast to the other sectors of the economy, food and beverage
consumption increased by 25% as a result of the switch by individuals from eating at restaurants
and other commercial food service establishments to preparing and eating food at home.
181 Giles, et al., “Finance Ministers Ready to Take Action.”
182 Federal Reserve Releases FOMC Statement, March 3, 2020, https://www.federalreserve.gov/newsevents/
pressreleases/monetary20200303a.htm.
183 Stage Three Proposal, U.S. Department of the Treasury, March 17, 2020. https://www.washingtonpost.com/context/
department-of-treasury-proposal-for-COVID-19-response/6c2d2ed5-a18b-43d2-8124-28d394fa51ff/?itid=
lk_inline_manual_3.
184 Federal Reserve Issues FOMC Statement, March 15, 2020. https://www.federalreserve.gov/newsevents/
pressreleases/monetary20200315a.htm.
185 Politi, James and Aime Williams, “Trump to Suspend Some Tariffs for 90 Days,” Financial Times, March 31, 2020.
https://www.ft.com/content/46add447-2048-4348-bd34-2088ad0e3bc8.
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Figure 9. U.S. GDP, Percentage Change From Preceding Quarter, 1st Quarter 2020
Source: Bureau of Economic Analysis. Created by CRS.
On July 2, the U.S. Census Bureau reported an increase in the overall U.S. trade deficit in May on
a month-to-month basis of $4.8 billion, reflecting lower amounts of exports and imports for goods
and services, as indicated in Figure 10.186 Exports and imports of both goods and services fell
from the previous month, although the deficit in goods trade increased from $71 billion in April
to $76 billion in May; the surplus in services trade fell from $22 billion to $21.5 billion. Through
May, U.S. goods exports had fallen by 15% in value terms compared with the comparable period
in 2019; imports of goods had fallen by 12%, reflecting the overall decline in global trade.
Figure 10. U.S. Exports and Imports of Goods and Services 2020
In billions of dollars
Source: Census Bureau. Created by CRS.
186 Monthly U.S. International Trade in Goods and Services, May 2020, Census Bureau, July 2, 2020.
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On May 8, the Department of Labor reported that the U.S. non-farm unemployment rate in April
increased by 20 million, raising the total number of unemployed Americans 23 million, or an
unemployment rate of 14% of a total civilian labor force of 156 million. The unemployment rate
does not include approximately 10 million workers who are involuntarily working part-time and
another 9 million individuals seeking employment. As indicated in Figure 11, the number of
unemployed individuals increased the most in the leisure and hospitality sector, reflecting
national quarantining policies to reduce the spread of COVID-19 through social contact. The
employment losses were widely spread across the economy, affecting every non-farm sector and
all labor groups.
Figure 11. Change in U.S. Employment by Major Industrial Sector
Source: The Employment Situation, Bureau of Labor Statistics, April, May, June 2020. Created by CRS.
In a speech on May 13, Federal Reserve Chairman Jerome Powell stated that the Federal
Reserve’s analysis indicated that of individuals working in February, “almost 40 percent of those
in households making less than $40,000 a year had lost a job in March.”187 Chairman Powell also
indicated that given the extraordinary nature of the current economic downturn the Fed would,
“continue to use our tools to their fullest until the crisis has passed and the economic recovery is
well under way.” In characterizing the current situation, Chairman Powell said
The overall policy response to date has provided a measure of relief and stability, and will
provide some support to the recovery when it comes. But the coronavirus crisis raises
longer-term concerns as well. The record shows that deeper and longer recessions can leave
behind lasting damage to the productive capacity of the economy. Avoidable household
and business insolvencies can weigh on growth for years to come. Long stretches of
unemployment can damage or end workers’ careers as their skills lose value and
professional networks dry up, and leave families in greater debt. The loss of thousands of
small- and medium-sized businesses across the country would destroy the life’s work and
family legacy of many business and community leaders and limit the strength of the
recovery when it comes. These businesses are a principal source of job creation—
187 Current Economic Issues; Speech at the Peterson Institute for International Economics, Jerome H. Powell, May 13,
2020.
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something we will sorely need as people seek to return to work. A prolonged recession and
weak recovery could also discourage business investment and expansion, further limiting
the resurgence of jobs as well as the growth of capital stock and the pace of technological
advancement. The result could be an extended period of low productivity growth and
stagnant incomes.188
Monetary Policy189
Forward Guidance
Forward guidance refers to Fed public communications on its future plans for short-term interest
rates, and it took many forms following the 2008 financial crisis. As monetary policy returned to
normal in recent years, forward guidance was phased out. It is being used again today. For
example, when the Fed reduced short-term rates to zero on March 15, it announced that it
“expects to maintain this target range until it is confident that the economy has weathered recent
events and is on track to achieve its maximum employment and price stability goals.”
Quantitative Easing
Large-scale asset purchases, popularly referred to as quantitative easing or QE, were also used
during the financial crisis. Under QE, the Fed expanded its balance sheet by purchasing
securities. Three rounds of QE from 2009 to 2014 increased the Fed’s securities holdings by $3.7
trillion.
On March 23, the Fed announced that it would increase its purchases of Treasury securities and
mortgage-backed securities (MBS)—including commercial MBS—issued by government
agencies or government-sponsored enterprises to “the amounts needed to support smooth market
functioning and effective transmission of monetary policy....” These would be undertaken at the
unprecedented rate of up to $125 billion daily during the week of March 23. As a result, the value
of the Fed’s balance sheet is projected to exceed its post-financial crisis peak of $4.5 trillion. One
notable difference from previous rounds of QE is that the Fed is purchasing securities of different
maturities, so the effect likely will not be concentrated on long-term rates.
Actions to Provide Liquidity
Reserve Requirements
On March 15, the Fed announced that it was reducing reserve requirements—the amount of vault
cash or deposits at the Fed that banks must hold against deposits—to zero for the first time ever.
As the Fed noted in its announcement, because bank reserves are currently so abundant, reserve
requirements “do not play a significant role” in monetary policy.
Term Repos
The Fed can temporarily provide liquidity to financial markets by lending cash through
repurchase agreements (repos) with primary dealers (i.e., large government securities dealers who
are market makers). Before the financial crisis, this was the Fed’s routine method for targeting the
federal funds rate. Following the financial crisis, the Fed’s large balance sheet meant that repos
188 Ibid.
189 This section was prepared by Marc Labonte, Specialist in Macroeconomic Policy, Government and Finance
Division, CRS. CRS Insight IN11259, Federal Reserve: Recent Actions in Response to COVID-19, by Marc Labonte.
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were no longer needed, until they were revived in September 2019. On March 12, the Fed
announced it would offer a three-month repo of $500 billion and a one-month repo of $500
billion on a weekly basis through the end of the month in addition to the shorter-term repos it had
already been offering. These repos would be larger and longer than those offered since
September. On March 31, the Fed announced the Foreign and International Monetary Authorities
(FIMA) Repo Facility, which works like the foreign repo pool in reverse. This facility allows
foreign central banks to convert their U.S. Treasury holdings into U.S. dollars on an overnight
basis. The Fed will charge a (typically) above market interest rate of 0.25 percentage points above
the interest rate paid on bank reserves. The facility is intended to work in tandem with currency
swap lines to provide additional dollars to meet global demand and is available to a broader group
of central banks than the swap lines.
Discount Window
In its March 15 announcement, the Fed encouraged banks (insured depository institutions) to
borrow from the Fed’s discount window to meet their liquidity needs. This is the Fed’s traditional
tool in its “lender of last resort” function. The Fed also encouraged banks to use intraday credit
available through the Fed’s payment systems as a source of liquidity.
Foreign Central Bank Swap Lines
Both domestic and foreign commercial banks rely on short-term borrowing markets to access
U.S. dollars needed to fund their operations and meet their cash flow needs. But in an
environment of strained liquidity, only banks operating in the United States can access the
discount window. Therefore, the Fed has standing “swap lines” with major foreign central banks
to provide central banks with U.S. dollar funding that they can in turn lend to private banks in
their jurisdictions. On March 15, the Fed reduced the cost of using those swap lines and on March
19 it extended swap lines to nine more central banks. On March 31, 2020, the Fed set up a new
temporary facility to work in tandem with the swap lines to provide additional dollars to meet
global demand. The new facility allows central banks and international monetary authorities to
exchange their U.S. Treasury securities held with the Federal Reserve for U.S. dollars, which can
then be made available to institutions in their jurisdictions.190
Emergency Credit Facilities for the Nonbank Financial System
In 2008, the Fed created a series of emergency credit facilities to support liquidity in the nonbank
financial system. This extended the Fed’s traditional role as lender of last resort from the banking
system to the overall financial system for the first time since the Great Depression. To create
these facilities, the Fed relied on its emergency lending authority (Section 13(3) of the Federal
Reserve Act). To date, the Fed has created six facilities—some new, and some reviving 2008
facilities—in response to COVID-19.
On March 17, the Fed revived the commercial paper funding facility to purchase
commercial paper, which is an important source of short-term funding for
financial firms, nonfinancial firms, and asset-backed securities (ABS).
Like banks, primary dealers are heavily reliant on short-term lending markets in
their role as securities market makers. Unlike banks, they cannot access the
discount window. On March 17, the Fed revived the primary dealer credit facility,
190 For additional information about swap lines, see CRS In Focus IF11489, Federal Executive Agencies: Selected Pay
Flexibilities for COVID-19 Response, by Barbara L. Schwemle.
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which is akin to a discount window for primary dealers. Like the discount
window, it provides short-term, fully collateralized loans to primary dealers.
On March 19, the Fed created the Money Market Mutual Fund Liquidity Facility
(MMLF), similar to a facility created during the 2008 financial crisis. The
MMLF makes loans to financial institutions to purchase assets that money
market funds are selling to meet redemptions.
On March 23, the Fed created two facilities to support corporate bond markets—
the Primary Market Corporate Credit Facility to purchase newly issued corporate
debt and the Secondary Market Corporate Credit Facility to purchase existing
corporate debt on secondary markets.
On March 23, the Fed revived the Term Asset-Backed Securities Loan Facility to
make nonrecourse loans to private investors to purchase ABS backed by various
nonmortgage consumer loans.
On April 6, the Fed announced the Payroll Protection Program Lending Facility
(PPPLF) to provide credit to depository institutions (e.g., banks) making loans
under the CARES Act (H.R. 748/P.L. 116-136) Payroll Protection Program.
Because banks are not required to hold capital against these loans, this facility
increases lending capacity for banks facing high demand to originate these loans.
The PPP provides low-cost loans to small businesses to pay employees. These
loans do not pose credit risk to the Fed because they are guaranteed by the Small
Business Administration.
On April 9, the Fed announced the Main Street Lending Program (MSLP), which
purchases loans from depository institutions to businesses with up to 10,000
employees or up to $2.5 billion in revenues. The loans to businesses would defer
principal and interest repayment for one year, and the businesses would have to
make a “reasonable effort” to retain employees.
On April 9, the Fed announced the Municipal Liquidity Facility (MLF) to
purchase state and municipal debt in response to higher yields and reduced
liquidity in that market. The facility will only purchase debt of larger counties
and cities.
Many of these facilities are structured as special purpose vehicles controlled by the Fed because
of restrictions on the types of securities that the Fed can purchase. Although there were no losses
from these facilities during the financial crisis, assets of the Treasury’s Exchange Stabilization
Fund have been pledged to backstop any losses on several of the facilities today.
Fiscal Policy
In terms of a fiscal stimulus, Congress adopted H.R. 6074 on March 5, 2020 (P.L. 116-123), to
appropriate $8.3 billion in emergency funding to support efforts to fight COVID-19; President
Trump signed the measure on March 6, 2020. President Trump also signed on March 18, H.R.
6201 (P.L. 116-127), the Families First COVID-19 Response Act, that provides paid sick leave
and free COVID-19 testing, expands food assistance and unemployment benefits, and requires
employers to provide additional protections for health care workers. Other countries have
indicated they will also provide assistance to workers and to some businesses. 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, a reduction in the
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payroll tax,191 and extended of the tax filing deadline.192 President Trump has taken additional
actions, including
Announcing on March 11, 2020, restrictions on all travel from Europe to the
United States for 30 days, directing the Small Business Administration (SBA) to
offer low-interest loans to small businesses, and directing the Treasury
Department to defer tax payments penalty-free for affected businesses.193
Declaring on March 13, a state of emergency that frees up disaster relief funding
to assist state and local governments to address the effects of the pandemic. The
President also announced additional testing for the virus, a website to help
individuals identify symptoms, increased oil purchases for the Strategic Oil
Reserve, and a waiver on interest payments on student loans.194
Invoking on March 18, 2020, the Defense Production Act (DPA) that gives him
the authority to require some U.S. businesses to increase production of medical
equipment and supplies that are in short supply.195
On March 25, 2020, the Senate adopted the COVID-19 Aid, Relief, and Economic Security Act
(S. 3548) to formally implement President Trump’s proposal by providing direct payments to
taxpayers, loans and guarantees to airlines and other industries, and assistance for small
businesses, actions similar to those of various foreign governments. The House adopted the
measure as H.R. 748 on March 27, and President Trump signed the measure (P.L. 116-136) on
March 27. The law
Provides funding for $1,200 tax rebates to individuals, with additional $500
payments per qualifying child. The rebate begins phasing out when incomes
exceed $75,000 (or $150,000 for joint filers).
Assists small businesses by providing funding for, forgivable bridge loans; and
additional funding for grants and technical assistance; authorizes emergency
loans to distressed businesses, including air carriers, and suspends certain
aviation excise taxes.
Creates a $367 billion loan program for small businesses, establishes a $500
billion lending fund for industries, cities and states, a $150 billion for state and
local stimulus funds, and $130 billion for hospitals.
191 Armus, Theo, “Federal, State Officials Attempt to Fight Virus Through Social Distancing, Stimulus Package,”
Washington Post, March 11, 2020. https://www.washingtonpost.com/world/2020/03/11/Covid-19-live-updates/.
192 Sevastopulo, Demetri, “US Treasury Considers Tax Filing Extension to Ease Virus Impact,” Financial Times,
March 11, 2020. https://www.ft.com/content/c65a6e40-639f-11ea-b3f3-fe4680ea68b5.
193 McAuley, James, and Michael Birnbaum, “Europe Blindsided by Trump’s Travel Restrictions, with Many Seeing
Political Motive,” 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.
194 Fritz, Angela and Meryl Kornfield, “President Trump Declares a National Emergency, Freeing $50 Billion in
Funding,” Washington Post, March 13, 2020. https://www.washingtonpost.com/world/2020/03/13/Covid-19-latest-
news/.
195 Hellmann, Jessie, “Trump Invokes Defense Production Act as Covid-19 Response,” The Hill, March 18, 2020.
https://thehill.com/policy/healthcare/488226-trump-invokes-defense-production-act-as-Covid-19-response.
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Increases unemployment insurance benefits, expands eligibility and offer workers
an additional $600 a week for four month, in addition to state unemployment
programs.196
Establishes special rules for certain tax-favored withdrawals from retirement
plans; delays due dates for employer payroll taxes and estimated tax payments
for corporations; and revises other provisions, including those related to losses,
charitable deductions, and business interest.
Provides additional funding for the prevention, diagnosis, and treatment of
COVID-19; limits liability for volunteer health care professionals; prioritizes
Food and Drug Administration (FDA) review of certain drugs; allows emergency
use of certain diagnostic tests that are not approved by the FDA; expands health-
insurance coverage for diagnostic testing and requires coverage for preventative
services and vaccines; and revises other provisions, including those regarding the
medical supply chain, the national stockpile, the health care workforce, the
Healthy Start program, telehealth services, nutrition services, Medicare, and
Medicaid.
Temporarily suspends payments for federal student loans and revises provisions
related to campus-based aid, supplemental educational-opportunity grants,
federal work-study, subsidized loans, Pell grants, and foreign institutions.
Authorizes the Department of the Treasury temporarily to guarantee money-
market funds.
On April 23, 2020, the House passed H.R. 266 (P.L. 116-139), the Paycheck Protection Program
and Health Care Enhancement Act, following similar actions by the Senate the previous day. The
measure provides $484 billion for small business loans, health care providers, and COVID-19
testing. In particular, the law
Provides additional lending authority for certain Small Business Administration
(SBA) programs in response to COVID-19 increases the authority for (1) the
Paycheck Protection Program, under which the SBA may guarantee certain loans
to small businesses during the COVID-19 pandemic; and (2) advances on
emergency economic injury disaster loans made in response to COVID-19. The
division also expands eligibility for such disaster loans and advances to include
agricultural enterprises.
Provides $100 billion in FY2020 supplemental appropriations to HHS for the
Public Health and Social Services Emergency Fund, including $75 billion to
reimburse health care providers for health care related expenses or lost revenues
that are attributable to the coronavirus outbreak; and $25 billion for expenses to
research, develop, validate, manufacture, purchase, administer, and expand
capacity for COVID-19 tests to effectively monitor and suppress COVID-19.
Allocates specified portions of the $25 billion for COVID-19 testing to states,
localities, territories, and tribes; the Centers for Diseases Control and Prevention;
the National Institutes of Health; the Biomedical Advanced Research and
196 For additional information about unemployment and sick leave provisions, see CRS Insight IN11249, H.R. 6201:
Paid Leave and Unemployment Insurance Responses to COVID-19, by Sarah A. Donovan, Katelin P. Isaacs, and Julie
M. Whittaker, and CRS In Focus IF11487, The Families First Coronavirus Response Act Leave Provisions, by Sarah
A. Donovan and Jon O. Shimabukuro.
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Development Authority; the Food and Drug Administration; community health
centers; rural health clinics; and testing for the uninsured.
On May 12, House Democrats introduced H.R. 6800, the Heroes Act, to provide a $3 trillion
supplemental spending bill for additional financial resources to state and local governments. The
measure passed the House on May 15 and was sent to the Senate for consideration. Among other
provisions, the bill would
Appropriate $200 billion in hazard pay to essential workers.
Extend additional payments to individuals, for nutrition and housing assistance,
and provide funding for additional testing and contact tracing.
Restore the tax deduction for state and local taxes.
Provide FY2020 emergency supplemental appropriations to federal agencies.
Provide payments and other assistance to state, local, tribal, and territorial
governments.
Provide additional direct payments of up to $1,200 per individual.
Expand paid sick days, family and medical leave, unemployment compensation,
nutrition and food assistance programs, housing assistance, and payments to
farmers.
Modify and expand the Paycheck Protection Program, which provides loans and
grants to small businesses and nonprofit organizations.
Expand several tax credits and deductions.
Provide funding and establish requirements for COVID-19 testing and contact
tracing.
Eliminate cost-sharing for COVID-19 treatments;
Extend and expand the moratorium on certain evictions and foreclosures; and
Require employers to develop and implement infectious disease exposure control
plans.
On May 27, the Federal Reserve released its “Beige Book”—a mostly qualitative assessment of
the U.S. economy produced 8 times a year by the 12 regional Federal Reserve banks—that
provides an assessment of economic activity across the various regions of the country. The
assessment indicated that economic activity to mid-May had fallen sharply in each of the
districts.197 The Bureau of Economic Analysis (BEA) reported on May 29 that U.S. personal
income rose by 10.5% in April, primarily reflecting an 88% increase in government payments to
individuals from federal economic recovery programs, as indicated in Figure 12. During the
same period, personal consumption fell by more than 13% as consumers curtailed spending. The
lower level of spending combined with income transfers, which households apparently deposited
into saving accounts, raising the personal savings rate to 33% in April at an annual rate, compared
to an annual rate of 8.2% in February. In May, BEA reported that personal income fell by 4.2%
compared with the previous month as government transfer payments fell by 17.2% from $6.4
trillion in April to $ 5.3 trillion in May. Also, personal consumption recovered somewhat, rising
by 8.2% in May as some businesses began opening. As a result of the increase in spending, the
197 The Beige Book: Summary of Commentary on Current Economic Conditions by Federal Reserve District, May 17,
2020, the Federal Reserve System.
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personal savings rate fell to 23.2%, still high by historical standards. During May, the price of
Brent crude oil increased by 33.5%, rising from $26.44 per barrel to $35.31 per barrel.
Figure 12. U.S. Personal Income, Consumption, and Saving
Change from preceding month, unless otherwise indicated
Source: Personal Income and Outlays, May 2020, Bureau of Economic Analysis, June 26, 2020.
On June 1, the Congressional Budget Office (CBO) issued a revised estimate of the effects of the
pandemic on the U.S. economy. In the revised forecast, U.S. GDP in the second quarter of 2020
was estimated to have declined by 14.2% compared with the January 2020 forecast. The CBO
also estimated that over the 2020-2030 period, cumulative real output could be 3.0% lower than
the cumulative amount estimated in January 2020.198
On June 10, the Federal Open Market Committee released a statement indicating that the
pandemic “poses considerable risks to the economic outlook over the medium term.”199 Similarly,
in testimony before the Senate Banking Committee on June 17, Federal Reserve Chairman Powell
stressed that although there were positive signs that U.S. economic growth was beginning to
198 Congressional Budget Office, Letter to Charles A. Schumer, June 1, 2020.
199 Federal Reserve Issues FOMC Statement, Board of Governors of the Federal Reserve System, June 10, 2020.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200610a.htm.
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rebound, there was “significant uncertainty” about the timing and strength of the recovery.200 He
indicated that the source of the uncertainty was the path of the virus and the effectiveness of the
measures used to contain the disease. The accompanying Monetary Policy Report indicated the
pandemic was posing acute risks to small businesses as a result of insolvencies and that real
economic growth in the second quarter of 2020 would decline at a rapid pace.201 In its forecast,
the Federal Open Market Committee made three projections for such major economic variables as
GDP, the unemployment rate, and the personal consumption expenditure (PCE) measure of
inflation compared with its December 2019 projections of the same variables, as indicated in
Table 8. The three measures include (1) the median projected change; (2) the central tendency,
which excludes the highest and lowest three projections; and (3) the range, which indicates
forecasts from the highest to the lowest values. According to the median forecast, U.S. GDP could
fall by 6.5%, the unemployment rate could rise to 9.3%, the rate of inflation could rise by 0.8%,
compared with projections made in December 2018 of a rise in GDP of 2.0%, an unemployment
rate of 3.5%, and an inflation rate of 1.9, respectively. The possible range for GDP, however
could vary between -10.2$ and -4.2% in 2020, with a possible rate of unemployment between
7.0% and 14.0%.
According to the FOMC assessment, the range of estimates was necessary to represent the
“extremely elevated” uncertainty related to the economic effects of the pandemic and the limited
historical response of the U.S. economy to past economic shocks. As a result of the “significant
uncertainty and downside risks associated with the pandemic, including how much the economy
would weaken and how long it would take to recover,” the assessment of a more pessimistic
projection was judged to be no less pessimistic than the baseline scenario (median). The
assessment also indicated the possibility of a second wave of the viral outbreak later in 2020 with
the attendant restrictions on social activities and business operations.202
Table 8. Economic Projections of Federal Reserve, June 2020
Percentage change, fourth quarter over previous year fourth quarter
Median1 Central Tendency2 Range3
Variable 2020 2021 2022 2020 2021 2022 2020 2021 2022
Change in real GDP -6.5 5.0 3.5 -7.6– -5.5 4.5–6.0 3.0–4.5 -10.0– -4.2 -1.0–7.0 2.0–6.0
December projection 2.0 1.9 1.8 2.0–2.2 1.8–2.0 1.8–2.0 1.8–2.3 1.7–2.2 1.5–2.2
Unemployment rate 9.3 6.5 5.5 9.0–10.0 5.9–7.5 4.8–6.1 7.0–14.0 4.5–12.0 4.0–8.0
December projection 3.5 3.6 3.7 3.5–3.7 3.5–3.9 3.5–4.0 3.3–3.8 3.3–4.0 3.3–4.1
PCE inflation 0.8 1.6 1.7 0.6–1.0 1.4–1.7 1.6–1.8 0.5–1.2 1.1–2.0 1.4–2.2
December projection 1.9 2.0 2.0 1.8–1.9 2.0–2.1 2.0–2.2 1.7–2.1 1.8–2.3 1.8–2.2
Source: Chairman’s Federal Open Market Committee Projections Materials, June 10, 2020.
Notes: (1) For each period, the median is the middle projection when the projections are arranged from lowest
to highest. (2) The central tendency excludes the three highest and three lowest projections for each variable in
each year. (3) The range for a variable in a given year includes all participants’ projections, from lowest to
200 Powell, Semiannual Monetary Report to the Congress.
201 Board of Governors of the Federal Reserve System, Monetary Policy Report, June 12, 2020, p. 1.
https://www.federalreserve.gov/monetarypolicy/mpr_default.htm.
202 Chairman’s Federal Open Market Committee Projections Materials, June 10, 2020, p. 9.
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highest, for that variable in that year. Projections for the unemployment rate represent the average civilian
unemployment rate in the fourth quarter of the year indicated.
On June 25, the Federal Reserve (Fed) announced the result of stress tests on 33 U.S. banks under
three scenarios203 to ascertain their capital sufficiency given the strains to the financial system
caused by COVID-19.204 The Fed reported that all large U.S. banks were “sufficiently
capitalized” to survive the three scenarios, but it determined that there is “material uncertainty”
about the trajectory for the economic recovery and corresponding uncertainty related to its effects
on the financial health of banking organizations. In addition, the Fed concluded that under the
first and second scenarios, all of the banks would remain well above their minimum capital ratios,
but under the third scenario (a double-dip recession), several banks would approach their
minimum capital ratios.205 As a result, the Fed announced that it will
suspend share repurchases;
cap the growth of dividends and impose a limit that does not exceed recent
income;
require banks to reassess their capital needs and resubmit their capital plans later
this year; and
conduct additional stress analyses later this year as data from banks become
available and economic conditions evolve.206
The Department of Labor announced on July 2 that an additional 1.4 million Americans had filed
for Unemployment Insurance, raising the total to 48.7 million over the 15-week period from mid-
March.207 The insured seasonally adjusted unemployment rate in June was estimated at 13.2%,
unchanged from the revised rate in the previous week. On July 2, the BLS also released data on
the employment situation in June, indicating that non-farm payroll rose by 4.8 million, lowering
the unemployment rate to 11.5%.208 The unemployment number does not include 9.1 million
individuals working part time who would prefer to work full time and 8.2 million individuals who
are seeking employment. In addition, the June unemployment number does not include
individuals who were misclassified as being employed, but absent due to temporary, pandemic
closures. Had the individuals been classified as unemployed, the overall unemployment rate
would have been one percentage point higher. On July 2, the Census Bureau also reported that the
U.S. goods and services trade deficit in May was $54.6 billion, up 9.7% from the April deficit as
a result of a 4.4% drop in U.S. exports and a 0.9% drop in U.S. imports.209 Through May, U.S.
exports are down by 14% and imports were down by 13.1% in value terms compared with the
same five months in 2019.
203 The three scenarios include (1) a rapid, or “V”-shaped recovery; (2) a slower, or “U”-shaped recovery; and (3) a
“W”-shaped or double-dip recession with a short-lived recovery followed by a severe drop in activity later this year due
to a second COVID event. Assessment of Bank Capital During the Recent Coronavirus Event, Board of Governors of
the Federal Reserve System, June 2020, p. 2.
204 Ibid.
205 Ibid., p. 2.
206 Ibid., pp. 1-2.
207 Unemployment Insurance Weekly Claims, July 1, 2020. https://www.dol.gov/ui/data.pdf.
208 The Employment Situation—June 2020, Bureau of Labor Statistics, July 2, 2020.
209 Monthly U.S. International Trade in Goods and Services, May 2020, U.S. Census Bureau, July 2, 2020.
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On July 17, the Federal Reserve Board modified its Main Street Lending Program to provide
greater access to credit for nonprofit organizations such as educational institutions, hospitals, and
social service organizations.
On July 23, the DOL reported that an additional 1.4 million Americans filed for Unemployment
Insurance during the previous week, raising the 18-week total from mid-March to 51 million.210
The insured seasonally adjusted unemployment rate for the week was estimated at 11.1%, down
from the rate the previous week of 11.9%. On a seasonally adjusted basis, the number of insured
unemployed workers was 16.2 million in late-July, down from a peak of 25 million in mid-May.
For additional information about the impact of COVID-19 on the U.S. economy see CRS Insight
IN11235, COVID-19: Potential Economic Effects.211
Europe
Until recently, European countries have not displayed a synchronized fiscal policy response
similar to the one they developed during the 2008-2009 global financial crisis, but that reportedly
changed with the adoption of a pandemic economic recovery package in July 2020. For the most
part, EU members have used a combination of national fiscal policies and bond buying by the
ECB to address the economic impact of the pandemic. Individual countries have adopted
quarantines and required business closures, travel and border restrictions, tax holidays for
businesses, extensions of certain payments and loan guarantees, and subsidies for workers and
businesses. The European Commission has advocated for greater coordination among the EU
members in developing and implementing monetary and fiscal policies to address the economic
fallout from the viral pandemic. Various EU and ECB officials appeared to have negotiated a
coordinated fiscal response by the Eurozone and broader EU.
In its July 2020 economic forecast, the European Commission forecasted that EU GDP in 2020
would fall by 8.3%, nearly a full percentage point higher than in its May forecast, as indicated in
Table 9. The Commission stated that, “Given the severity of this unprecedented worldwide shock,
it is now quite clear that the EU has entered the deepest economic recession in its history.” In
addition, the Commission forecasted that EU GDP would rise by 5.8% in 2021, not fast enough to
erase all the 2020 decline, but would exhibit a distinct “V” shaped recession and recovery.
Greece, Spain, France, and Italy are forecasted to experience the largest declines in GDP in 2020
as a result of their dependence on tourism, which is expected to experience a slow economic
recovery. Germany and other Northern European countries are projected to experience a more
modest decline in economic activity. Some analysts argue that this disparity in economic effects
may complicate efforts to coordinate economic policies.212 To address the crisis, the Commission
argued that, “[t]he risk … is that the crisis will lead to severe distortions within the Single Market
and to entrenched economic, financial and social divergences between euro area Member States
that could ultimately threaten the stability of the Economic and Monetary Union.”213 The
Commission also expects European countries to emerge from the recession at different rates and
different paths, reflecting differences in the timing of when social distancing measures were
introduced and removed, dependency on tourism, and the magnitude and effectiveness of
economic policies. The Commission also noted the rise in saving among EU households that it
210 Unemployment Insurance Weekly Claims, July 23, 2020. https://www.dol.gov/ui/data.pdf.
211 CRS Insight IN11235, COVID-19: Potential Economic Effects, by Marc Labonte.
212 Birnbaum, Michael, European Union Says That Pandemic Recession Will be Worst in its History, The Washington
Post, May 6, 2020. https://www.washingtonpost.com/world/european-union-says-pandemic-recession-will-be-worst-in-
its-history/2020/05/06/e787a70e-8f96-11ea-9322-a29e75effc93_story.html.
213 European Economic Forecast Summer 2020, European Commission, July 8, 2020.
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argues is mostly involuntary, rather than precautionary and would revert to pre-crisis levels once
consumers felt confident to resume their regular spending patterns.
Table 9. European Commission Economic Forecast
Percentage change, real GDP
Spring Forecast Summer Forecast
2019 2020 2021 2019 2020 2021
EU 1.5 -7.4 6.1 1.5 -8.3 5.8
Euro area 1.2 -7.7 6.3 1.3 -8.7 6.1
Belgium 1.4 -7.2 6.7 1.4 -8.8 6.5
Germany 0.6 -6.5 5.9 0.6 -6.3 5.3
Ireland 5.5 -7.9 6.1 5.5 -8.5 6.3
Greece 1.9 -9.7 7.9 1.9 -9.0 6.0
Spain 2.0 -9.4 7.0 2.0 -10.9 7.1
France 1.3 -8.2 7.4 1.5 -10.6 7.6
Italy 0.3 -9.5 6.5 0.3 -11.2 6.1
Luxembourg 2.3 -5.4 5.7 2.3 -6.2 5.4
Malta 4.4 -5.8 6.0 4.7 -6.0 6.3
Netherlands 1.8 -6.8 5.0 1.7 -6.8 4.6
Austria 1.6 -5.5 5.0 1.6 -7.1 5.6
Portugal 2.2 -6.8 5.8 2.2 -9.8 6.0
Finland 1.0 -6.3 3.7 1.1 -6.3 2.8
Denmark 2.4 -5.9 5.1 2.4 -5.2 4.3
Sweden 1.2 -6.1 4.3 1.2 -5.3 3.1
United Kingdom 1.4 -8.3 6.0 1.5 -9.7 6.0
Source: European Economic Forecast Summer 2020, European Commission, July 8. 2020,
Pandemic-related economic effects reportedly are having a significant impact on business activity
in Europe, with some indexes falling farther then they had during the height of the financial crisis
and others indicating that Europe may well experience a deep economic recession in 2020.214
France, Germany, Italy, Spain, and the UK reported steep drops in industrial activity in March
2020. EU countries have issued travel warnings, banning all but essential travel across borders,
raising concerns that even much-needed medical supplies could stall at borders affected by traffic
backups.215 The travel bans and border closures reportedly are causing shortages of farm laborers
in Germany, the UK, and Spain, which has caused growers to attempt to recruit students and
workers laid off because of the pandemic.216
214 Arnold, Martin and Valentina Romei, “Business Activity Crashes to Record Low in Eurozone,” Financial Times,
March 24, 2020. https://www.ft.com/content/f5ebabd4-6dad-11ea-89df-41bea055720b.
215 Birnbaum, Michael, “Europe Is Closing Borders amid Covid-19 Outbreak. They May be Hard to Reopen,”
Washington Post, March 17, 2020. https://www.washingtonpost.com/world/europe/europe-closing-borders-Covid-19/
2020/03/17/131a6f56-67c8-11ea-b199-3a9799c54512_story.html.
216 Evans, Judith Evans, Emiko Terazono, and Leila Abboud, “Farmers Warn over Food Supply with Harvest Workers
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In previous actions, the European Commission had announced that it was relaxing rules on
government debt to allow countries more flexibility in using fiscal policies. Also, the European
Central Bank (ECB) announced that it was ready to take “appropriate and targeted measures,” if
needed. France, Italy, Spain and six other Eurozone countries have argued for creating a
“coronabond,” a joint common European debt instrument. Similar attempts to create a common
Eurozone-wide debt instrument have been opposed by Germany and the Netherland, among other
Eurozone members.217 With interest rates already low, however, it indicated that it would 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.218 ECB President-designate Christine Lagarde called on EU leaders to take more urgent
action to avoid the spread of COVID-19 from triggering a serious economic slowdown. The
European Commission indicated that it was creating a $30 billion investment fund to address
COVID-19 issues.219 In other actions
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 that was in addition to €20 billion a month it previously had
committed to purchasing.220
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, 2020.221 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.222
Germany’s Economic Minister announced on March 13, 2020, that Germany
would provide unlimited loans to businesses experiencing negative economic
Shut Out,” Financial Times, March 27, 2020. https://www.ft.com/content/e27a9395-db47-4e7b-b054-3ec6ba4cbba3.
217 Dombey, Daniel Dombey, Guy Chazan, and Jim Brunsden, “Nine Eurozone Countries Issue Call for
‘Coronabonds,’” Financial Times, March 26, 2020. https://www.ft.com/content/258308f6-6e94-11ea-89df-
41bea055720b.
218 “US Fed’s Covid-19 Rate Cut Is First Move in a Dance with Markets,” 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 Covid-19,” Financial Times, March 3, 2020.
https://www.ft.com/content/b86f7d92-5d38-11ea-b0ab-339c2307bcd4.
219 Arnold, Martin and Guy Chazan, “Christine Lagarde Calls on EU Leaders to Ramp up Covid-19 Response,”
Financial Times, March 11, 2020. https://www.ft.com/content/44eac1f2-6386-11ea-a6cd-df28cc3c6a68.
220 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.
221 Stafford, Philip and Adam Samson, “European Regulators Intervene in Bid to Stabilize Stock and Bond Prices,”
Financial Times, March 13, 2020. https://www.ft.com/content/77f57d4c-6509-11ea-a6cd-df28cc3c6a68.
222 Arnold, Martin, “ECB Enters Damage-Limitation Mode with Pledge of More Action,” Financial Times, March 13,
2020. https://www.ft.com/content/f1cbd4f8-650f-11ea-b3f3-fe4680ea68b5.
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activity (initially providing $555 billion), tax breaks for businesses,223 and export
credits and guarantees.224
On March 18, the ECB indicated that it would: create a €750 billion (about $800
billion) Pandemic Emergency Purchase Program to purchase public and private
securities; expand the securities it will purchase to include nonfinancial
commercial paper; and ease some collateral standards.225 In announcing the
program, President-designate Lagarde indicated that the ECB would, “do
everything necessary.” In creating the program, the ECB removed or significantly
loosened almost all constraints that applied to previous asset-purchase programs,
including a self-imposed limit of buying no more than one-third of any one
country’s eligible bonds, a move that was expected to benefit Italy.
The ECB also indicated that it would make available up to €3 trillion in liquidity
through refinancing operations.226 Britain ($400 billion) and France ($50 billion)
also announced plans to increase spending to blunt the economic effects of the
virus. Recent forecasts indicate that the economic effect of COVID-19 could
push the Eurozone into an economic recession in 2020.227
On March 23, 2020, Germany announced that it would adopt a €750 billion (over
$800 billion) package in economic stimulus funding.
On April 15, Eurozone finance ministers announced a €500 billion (about $550
billion) emergency spending package to support governments, businesses, and
workers and will provide funds to the European Stability Mechanism, the
European Investment Bank, and for unemployment insurance.228
On May 5, 2020, Germany’s Constitutional Court issued a ruling challenging the legality of a
bond-buying program conducted by the ECB since 2015, the Public Sector Purchase Program
(PSPP). In its ruling, the court directed the German government to request clarification from the
ECB about various aspects of the PSPP program that the court argued might exceed the ECB’s
legal mandate. The German government has not yet indicated how it will formally respond to the
ruling, but many analysts contend that the ruling—and the challenge to the authority of the ECB
and the European Court of Justice—could have far-reaching implications for future ECB
activities. This could potentially include challenges to the ECB’s Pandemic Emergency Purchase
Program (PEPP) initiated in March. The PEPP is a temporary program that authorizes the ECB to
acquire up to €750 billion (about $820 billion) in private and public sector securities to address
the economic effects of the pandemic crisis.
223 Loveday, Morris and Louisa Beck, “Germany Announces ‘Bazooka’ Economic Plan to Mitigate Covid-19 Hit,”
Washington Post, March 13, 2020. https://www.washingtonpost.com/world/2020/03/13/Covid-19-latest-news/.
224
Arnold, Martin, Guy Chazan, Victor Mallet, Miles Johnson, and Daniel Dombey, “How European Economies Are
Trying to Mitigate the Covid-19 Shock,” Financial Times, March 17, 2020. https://www.ft.com/content/26af5520-
6793-11ea-800d-da70cff6e4d3.
225 ECB Announces €759 Billion Pandemic Emergency Purchase Program, the European Central Bank, March 18,
2020. https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200318_1~3949d6f266.en.html.
226 Lagarde, Christine, “The ECB Will Do Everything Necessary to Counter the Virus,” Financial Times, March 20,
2020. https://www.ft.com/content/281d600c-69f8-11ea-a6ac-9122541af204.
227 “Lagarde to Confront Covid-19 Crisis at ECB Policy Meeting,” Financial Times, March 8, 2020.
https://www.ft.com/content/79a280c6-5fb5-11ea-b0ab-339c2307bcd4.
228 Fleming, Sam and Mehreen Khan, “Eurozone Countries Strike Emergency Deal on Coronavirus Rescue,” Financial
Times, April 9, 2020. https://www.ft.com/content/b984101a-42b8-40db-9a92-6786aec2ba5c.
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The German court’s ruling has heightened tensions between the court and the European Court of
Justice. Following the 2008-2009 financial crisis and the subsequent Eurozone financial crisis, the
ECB launched four asset purchase programs in 2014 to provide assistance to financially strapped
Eurozone governments and to sustain financial liquidity in Eurozone banks. Those programs
included the Corporate Sector Purchase Program (CSPP), the Public Sector Purchase Program
(PSPP), the Asset-Backed Securities Purchase Program (ABSPP), and the Third Covered Bond
Purchase Program (CBPP3). The programs operated from 2014 to 2018; the PSPP was restarted
in November 2019. As of May 8, the PSPP program held €2.2 trillion (about $2.5 trillion) with
another €600 billion (about $700 billion) held under other asset purchase programs.229 Various
groups in Germany challenged the legality of the ECB bond-buying programs before the German
Constitutional Court arguing that the programs exceeded the ECB’s legal mandate. In turn, the
German court referred the case to the European Court of Justice, which ruled in December 2019
that the ECB’s actions were fully within the ECB’s authority.
In the German Constitutional Court’s May 5 ruling, the German judges characterized the ECJ’s
ruling as “incomprehensible,” and directly challenged the ECB and the European Court of Justice
and the primacy of the European Court of Justice ruling over national law. The German justices
argued that the ECB had exceeded its authority by not fully evaluating the economic costs and
benefits of previous bond-buying activities, including the impact on national budgets, property
values, stock markets, life insurance and other economic effects. The German court also argued
that the ECB’s lack of a strategy for reducing its holdings of sovereign debt of Eurozone
members increased risks for national governments that back up the ECB, and it challenged the
ECB’s strategy for reducing its holdings of sovereign debt. By the end of June, however, the
standoff appeared to be reaching a resolution. The ECB reportedly agreed to provide the German
court with the Bank’s analysis of the economic and fiscal policy impact of the ECB bond-buying
programs. The ECB reportedly will also provide the unpublished full minutes of the central
bank’s governing council monetary policy meetings, including the ECB’s discussions in March
2015 of its purchases of sovereign bonds.230
On May 18, German Chancellor Angela Merkel and French President Emmanuel Macron
proposed a €500 billion (about $620 billion) EU recovery fund in an effort to gain a coordinated
EU fiscal response to the pandemic.231 Reportedly, the funds would be raised by the European
Commission and used to fund EU spending through grants to individual members to ease the
economic strain in some of the southern EU members that have been the most negatively
affected. Austria, the Netherland, Denmark, and Sweden indicated they would only support
proposals that provided funds to members through loans that would be required to be repaid.
On May 27, ECB President Lagarde indicated that the ECB projected a drop in the EU economy
of 8% to 12% in 2020, twice as severe as the recession following the 2008 financial crisis, and
called for a €500 billion (about $620 billion) stimulus package.232 In addition, European
Commission President Ursula von der Leyen proposed a €750 billion (about $820 billion) EU
recovery fund, termed the “Next Generation Fund,” that would provide €500 billion ($550
billion) in grants in a Recovery and Resilience Facility and €250 billion ($270 billion) in loans.
229 European Central Bank. https://www.ecb.europa.eu/mopo/implement/pepp/html/pepp-qa.en.html.
230 Arnold, Martin, Berlin and ECB Signal End to Legal Impasse Over Bond-Buying, Financial Times, June 25, 2020.
https://www.ft.com/content/5f000a25-3d54-4610-8579-cab9b21759ee.
231 Fleming, Sam, Victor Mallet, and Guy Chazan, Germany and France Unite in Call for €500 Billion Europe
Recovery Fund, Financial Times, May 18, 2020. https://www.ft.com/content/c23ebc5e-cbf3-4ad8-85aa-032b574d0562.
232 Arnold, Martin, Coronavirus Hit to Eurozone Economy Set to Dwarf Financial Crisis, Financial Times, May 27,
2020. https://www.ft.com/content/a01424e8-089d-4618-babe-72f88184ac57.
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The proposal would take the unprecedented step of allowing the EU to issues bonds
independently from the other EU central banks.233 Questions remain over the source and
distribution of the funds. The program may have limited appeal given various restrictions:
reportedly, the funds must be used to achieve certain EU goals, including increasing
competitiveness, shifting away from declining heavy industry, supporting a green economy, and
building the digital economy.234 Proposals for raising funds include issuing 30-year bonds and
raising taxes on large technology firms, such as Google and Facebook. In addition to the recovery
fund, von der Leyen proposed a revised EC seven-year budget, the Multiannual Financial
Framework (MFF), of €1.1trillion for 2021 to 2027.
On May 28, several key political groups within the EU Parliament voiced their support for new
rules that would allow the EU to retaliate in such trade areas as services and intellectual property
protection without waiting for a WTO ruling. Some Parliamentarians reportedly argued that such
expanded authority, termed a “trade bazooka,” was necessary to respond to trade disputes,
because the United States had blocked the appointment of judges to the WTO’s appellate body.235
European leaders, reportedly interested in finalizing an investment agreement with China,
announced they would not follow President Trump in applying trade restrictions on China for
positioning itself to limit Hong Kong’s autonomy granted by the “one country two systems”
principle after the end of British rule in 1997.236
The European Central Bank announced on June 4 that it would double to $1.5 trillion its
Pandemic Emergency Purchase Program to stimulate the European economy; it also extended the
program to at least June 2021.237 At the same time, the German government announced a package
of fiscal measures, including tax cuts, aid to small businesses, cash payments to parent, and other
measures totaling €135 billion (about $150 billion). Austria, Denmark, the Netherland, and
Sweden have resisted payouts in grants instead of loans that require repayment. The German plan
reportedly would give households $336 per child, reduce value added taxes on daily items, and
reduce households’ utility bills. The plan also includes about $6 billion for the social security
system, $11 billion to assist cities cover housing and other costs, about $2 billion for cultural
institutions and nonprofit groups and incentives for purchases of electric vehicles.238
On June 25, Germany’s Minister for Economic Affairs and Energy announced that the German
government would provide more than €300 million (about $330 million), to acquire a 25% stake
in a privately owned German drug company that is conducting trials on a possible COVID-19
vaccine. Reportedly, the U.S. Government had attempted to acquire part of the company to secure
supplies of a potential vaccine. Germany has in place legal restrictions on foreign investments in
critical industries such as energy and telecoms, but the German Parliament amended Germany’s
233 Birnbaum, Michael, and Loveday Morris, E.U. Proposes $825 Billion Coronavirus Rescue Plan Giving Brussels
Power to Raise Money for First Time, The Washington Post, May 27, 2020. https://www.washingtonpost.com/world/
europe/angela-merkel-economic-rescue/2020/05/27/9d21b998-9f7c-11ea-be06-af5514ee0385_story.html.
234
Brunsden, Jim and Sam Fleming, How Would Ursula von der Leyen’s Coronavirus Recovery Fund Work?,
Financial Times, May 27, 2020. https://www.ft.com/content/ebaa7dcd-b6f7-418f-802b-7a8dbc9668f1.
235 Vela, Jakob Hanke, Trade Bazooka Gets Backing From Main Political Groups in EU Parliament, Politico Pro, May
28, 2020; Draft Report, 2019/10273(COD), European Parliament, Committee on International Trade, May 6, 2020.
236 Lau, Stuart Lau, Jakob Hanke Vela, Jacopo Barigazzi, and Finbarr Bermingham, EU Won't Follow Trump Into a
Trade War Over Hong Kong, Politico Pro, May 28, 2020.
237 Arnold, Martin, ECB Boosts Bond-Buying Stimulus Package by €600, Financial Times, June 4, 2020.
https://www.ft.com/content/c59ab92d-e614-4284-a028-46ee3bcf92f9.
238 Ewing, Jack, and Melissa Eddy, ‘Europe Finally Got the Message’: Leaders Act Together on Message, The New
York Times, June 4, 2020. https://www.nytimes.com/2020/06/04/business/europe-coronavirus-economic-support.html?
action=click&module=Top%20Stories&pgtype=Homepage.
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Foreign Trade Act, set to become law in 2020, that broadens the scope of transactions that must
be approved by the Federal government to include “critical” technologies, including robotics,
biotech, and quantum computing.239
On July 17, the European Commission met to approve the proposed €750 billion support fund to
assist European countries address the economic effects of the pandemic. Initially, the Commission
was unable to agree on various aspects of the program, but talks continued over the weekend and
resumed on July 20. European leaders announced on July 21 they had approved a €750 billion
(about $859 billion) pandemic relief package and a multi-year EU budget, referred to as the
Multiannual Financial Framework (MFF), with a combined value of over €2 trillion. The
pandemic plan is aimed at funding post-pandemic economic recovery with the European
Commission set to borrow an unprecedented amount of funds on European capital markets.240
The €750 billion relief fund reportedly includes a Recovery and Resilience Facility of €672.5
billion, which includes €360 billion in loans and €312.5 billion in grants and half a dozen other
initiatives to assist economically weakened member states. The relief fund was coupled with
rebates on EU budget contributions for so-called “frugal” states, or EU members with stronger
fiscal balances. Austria, the Netherlands, Denmark, and Sweden reportedly will receive such
budget rebates.241
The United Kingdom
The United Kingdom has taken a number of steps to support economic activity. These steps are
expected to limit the damage to the UK economy. The Bank of England (BOE) forecasted in May
2020 that the UK economy would contract by 30% in the first half of 2020, but then rebound
sharply in the second half of the year, exhibiting a “V” shaped recovery. The Bank of England has
announced a number of policy initiatives including
On March 11, the BOE adopted a package of four measures to deal with any
economic disruptions associated with COVID-19. The measures included an
unscheduled cut in the benchmark interest rate by 50 basis points (0.5%) to a
historic low of 0.25%; the reintroduction of the Term Funding Scheme for Small
and Medium-sized Enterprises (TFSME) that provides banks with over $110
billion for loans at low interest rates; a lowering of banks’ countercyclical capital
buffer from 1% to zero, which is estimated to support over $200 billion of bank
lending to businesses; and a freeze in banks’ dividend payments.242
On March 15, the BOE reinstituted U.S. dollar swap lines with the Federal
Reserve.
On March 17, the BOE and the UK Treasury introduced the COVID Corporate
Financing Facility (CCFF) to provide assistance to UK firms to bridge through
Covid-19-related disruptions to their cash flow.
239 Miller, Joe, Germany Flexes its Muscles on Foreign Investment, Financial Times, June 25, 2020.
https://www.ft.com/content/54f92ca5-5380-466b-95f8-3e98b40ebc82.
240 Special Meeting of the European Council-Conclusions, EUCP 10/20, July 21, 2020.
241 Fleming, Sam, Mehreen Khan and Jim Brunsden, EU Leaders Strike Deal on €750bn Recovery Fund After
Marathon Summit, Financial Times, July 21, 2020. https://www.ft.com/content/713be467-ed19-4663-95ff-
66f775af55cc.
242 Romei, Valentina, “Covid-19 Fallout: Bank of England Launches 4 Key Measures,” Financial Times.
https://www.ft.com/content/4e60c08e-6380-11ea-b3f3-fe4680ea68b5.
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On March 19, during a Special Monetary Policy Meeting, the Bank of England
reduced its main interest rate to 0.1%, increased the size of its TFSME fund, and
increased the stock of asset purchases by £200 billion to a total of £645 billion
financed by issuing UK government bonds and some additional nonfinancial
investment-grade corporate bonds.243
On March 20, the BOE participated in an internationally coordinated central bank
expansion of liquidity through U.S. standing dollar liquidity swap line
arrangements.
On March, the BOE activated the Contingent Term Repo Facility (CTRF).
On April 6, announced the activation of the TFSME ahead of schedule.
On April 23, the Bank of England indicated it would quadruple its borrowing
over the second quarter of 2020, reflecting a contraction in the UK economy,
lower tax revenues, and increased financial demands to support fiscal policy
measures.244
In terms of fiscal policy, UK Chancellor of the Exchequer Rishi Sunak proposed a national
budget on March 11, 2020, that included nearly $3.5 billion in fiscal spending to counter adverse
economic effects of the pandemic and increased in statutory sick leave by about $2.5 billion in
funds to small and medium businesses to provide up to 14 days of sick leave for affected
employees. The plan provides affected workers up to 80% of their salary, or up to £2,500 a month
(about $2,800) if they are laid off. Some estimates indicate that UK spending to support its
economy could rise to about $60 billion in 2020.245 Identified as the Coronavirus Job Retention
Scheme (CJRS), the program was backdated to start on March 1 and had been expected to run
through May, but was extended to expire the end of June 2020. Prime Minister Johnson also
announced that all pubs, cafés, restaurants, theatres, cinemas, nightclubs, gyms and leisure centers
would be closed.246 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.247
On July 8, Chancellor Sunak proposed additional fiscal measures to support the UK economy. 248
The measures include raising threshold tax levels on home purchases, reducing taxes for the
hospitality industry, and a “job retention bonus” of £1.000 (around $1,200) per worker to
companies that bring employees out of furlough, estimated at around 9 million workers, and a
subsidy of £2.000 for firms that hire new apprentices. In addition, the proposed plan includes a
243 Johnson, Miles, Chris Giles, Martin Arnold, and James Politi, “Italy’s PM Urges Brussels to Unleash €500bn
Rescue Fund,” Financial Times, March 18, 2020. https://www.ft.com/content/5b8205ac-6a06-11ea-800d-
da70cff6e4d3.
244 Giles, Chris, and Tommy Stubbington, UK Treasury to Quadruple Borrowing to £180bn Over Next Quarter,
Financial Times, April 23, 2020. https://www.ft.com/content/8886e002-c260-4daa-8b7b-509b3f7e6edb.
245 Parker, George, Chris Giles, and Sebastian Payne, “Sunak Turns on Financial Firepower to Help Workers,”
Financial Times, March 20, 2020. https://www.ft.com/content/826d465a-6ac3-11ea-a3c9-1fe6fedcca75.
246 Ibid.
247 Payne, Sebastian and Chris Giles, “Budget 2020: Sunak Unveils £30bn Stimulus to Counter UK Covid-19 Shock,”
Financial Times. https://www.ft.com/content/f7b27264-6384-11ea-a6cd-df28cc3c6a68.
248 Pickard, Jim and Chris Giles, Sunak’s Summer Statement: UK Government to Pay Companies to Bring Workers
Back From Furlough, Financial Times, July 7, 2020. https://www.ft.com/content/ad1688ee-3d8d-4e52-9b16-
a3632eed8be9.
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50% discount on meals and non-alcoholic drinks eaten at restaurants and cafes during August,
with some restrictions.
Japan
The Bank of Japan, with already-low interest rates, injected $4.6 billion in liquidity into Japanese
banks to provide short-term loans for purchases of corporate bonds and commercial paper 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.249 On March 24, 2020, Japan announced that the Summer Olympics set to take
place in Tokyo would be postponed by a year, delaying an expected boost to the Japanese
economy that was expected from the event. Japan reportedly is considering an emergency fiscal
package of about $515 billion, roughly equivalent to 10% of Japan’s annual gross domestic
product (GDP). On April 27, 2020, the Bank of Japan announced it would purchase unlimited
amounts of government bonds and quadruple its purchases of corporate debt to keep interest rates
low and stimulate the Japanese economy.250
The Japanese Cabinet proposed a second supplemental appropriation measure that includes $296
billion in spending and a total value of about $1.1 trillion in loans and guarantees, funded through
new bonds. This and a previous set of spending measures reportedly are comparable to 40% of
Japan’s GDP and include grants for businesses to pay rents through the Development Bank of
Japan and funds to small and medium-sized businesses through the Regional Economy
Vitalization Corporation of Japan, payments to assist furloughed workers, and a reserve fund to
provide capital injections to struggling firms through the Japan Investment Corporation.251
On June 17, the Bank of Japan (BOJ) announced that it was maintaining its low interest rates of -
0.1%, even as it increased its coronavirus lending facility from $76 trillion to $1 trillion and
would continue to purchase exchange traded funds at the rate of $12 trillion a year.252 The
COVID-19 lending facility assists banks in providing zero interest rate loans to businesses. In a
separate program, the BOJ is providing about $110 trillion to buy commercial paper and
corporate bonds.
China
According to a recent CRS In Focus,253 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
249 Harding, Robin and Hudson Lockett, “BoJ Spurs Asia Markets Rebound with Vow to Fight Covid-19,” Financial
Times, March 2, 2020. https://www.ft.com/content/9fa91e06-5c3b-11ea-b0ab-339c2307bcd4.
250 Harding, Robin, Bank of Japan Steps up Coronavirus Stimulus With Bond-buying Pledge, Financial Times, April
27, 2020. https://www.ft.com/content/7ba5c507-df9e-4107-87eb-73afa2c13e91.
251 Harding, Robin, Japan’s Cabinet Approves Extra $1.1 Trillion Budget to Counter Recession, Financial Times, May
27, 2020. https://www.ft.com/content/ce7f3564-c997-339c-ad3d-c6d092fb7f1e.
252 Harding, Bank of Japan Pledges $1 trillion in Coronavirus Lending.
253 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.
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China announced that it would provide $78.8 billion in funding, primarily to small businesses, by
reducing bank’s reserve requirements.254
The International Monetary Fund (IMF) is providing funding to poor and emerging market
economies that are short on financial resources.255 If the economic effects of the virus persist,
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 Response256
International Monetary Fund
Created in the aftermath of World War II, the IMF’s fundamental mission is to promote
international monetary stability. To advance this goal, one of the key functions of the IMF is
providing emergency loans to countries facing economic crises. The COVID-19 pandemic has
resulted in an unprecedented demand for IMF financial assistance. More than 100 of the IMF’s
189 member countries have requested IMF programs,257 and IMF Managing Director Kristalina
Georgieva has stated that the IMF stands ready to deploy the entirety of its current lending
capacity—approximately $1 trillion—in response to the pandemic and resulting economic
crises.258 The IMF has already approved several COVID-related programs, including for Bolivia,
Chad, the Democratic Republic of Congo, Kyrgyz Republic, Nigeria, Niger, Rwanda,
Madagascar, Mozambique, Pakistan, and Togo, among others, and additional programs are
expected.259
In addition to loans, the IMF has taken a number of other policy steps to bolster its COVID-19
response. The IMF is tapping its Catastrophe Containment and Relief Trust (CCRT), a donor
country trust fund at the IMF, to cover six months of debt payments owed by 29 low-income
countries to the IMF. The IMF also created a new a new Short-term Liquidity Line.260 It is a
revolving and renewable backstop for member countries with very strong economic policies in
need of short-term and moderate financial support, and intends to support a country’s liquidity
buffers. The IMF also adopted proposals to accelerate Board consideration of member financing
requests for emergency financing and doubled (to about $100 billion) access to IMF emergency
assistance.
For FY2021, the Administration had requested authorization for about $38 billion for a
supplemental fund at the IMF (the New Arrangements to Borrow [NAB]). In March 2020,
254 Weinland, Don, “China’s Central Bank Launches $79bn Stimulus for Virus-Hit Companies,” Financial Times,
March 13, 2020. https://www.ft.com/content/deb56f86-6515-11ea-b3f3-fe4680ea68b5.
255 Politi, James, “IMF Sets Aside $50bn for Covid-19-Hit Countries,” Financial Times, March 4, 2020,
https://www.ft.com/content/83c07594-5e3a-11ea-b0ab-339c2307bcd4.
256 For more information, see CRS Report R46342, COVID-19: Role of the International Financial Institutions, by
Rebecca M. Nelson and Martin A. Weiss.
257 Remarks by IMF Managing Director Kristalina Georgieva During the G20 Finance Ministers and Central Bank
Governors Meeting, International Monetary Fund, April 15, 2020.
258 IMF Managing Director Kristalina Georgieva’s Statement Following a G20 Ministerial Call on the Coronavirus
Emergency, March 23, 2020. Some policy experts estimate the IMF’s current maximum lending capacity is about $787
billion.
259 IMF Lending Tracker, https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker.
260 “IMF Adds Liquidity Line to Strengthen COVID-19 Response,” International Monetary Fund, April 15, 2020.
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Congress enacted this authorization in the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act, P.L. 116-136) as a way to bolster IMF resources available to support countries
during the pandemic. There is ongoing debate about whether member countries should contribute
additional resources to the IMF, whether the IMF should raise funds by selling a portion of its
gold holdings, and whether the IMF should enact policies to buffer member state reserves,
through a process called an SDR allocation.
World Bank and Regional Development Banks
The World Bank, which finances economic development projects in middle- and low-income
countries, among other activities, is mobilizing its resources to support developing countries
during the COVID-19 pandemic.261 As of June 1, 2020, the World Bank had approved, or was in
the process of approving, 150 COVID-19 projects, totaling $15 billion, in 99 countries.262
Examples of approved projects include $47 million for the Democratic Republic of Congo to
support containment strategies, train medical staff, and provide equipment for diagnostic testing
to ensure rapid case detection; $11.3 million for Tajikistan to expand intensive care capacity; $20
million for Haiti to support diagnostic testing, rapid response teams, and outbreak containment;
and $1 billion for India to support screening, contract tracing, and laboratory diagnostics, procure
personal protective equipment, and set up new isolation wards, among other projects.263
Over the next 15 months, the World Bank Group estimates it could deploy as much as $160
billion to respond to the COVID-19 pandemic, more than double the amount it committed in
FY2019. In April 2020, the World Bank also announced its plans to establish a new multi-donor
trust fund to help countries prepare for disease outbreaks, the Health Emergency Preparedness
and Response Multi-Donor Fund (HEPRF).264 The new fund is to complement, and augment, the
$160 billion of financing provided by the World Bank.
In addition to the World Bank, which has a near-global membership and operates in many sectors
in developing countries worldwide, a number of smaller and more specialized multilateral
development banks (MDBs) are also mobilizing resources in response to the COVID-19
pandemic. The United States is a member of a number of regionally focused MDBs, including the
African Development Bank, the Asian Development Bank, the European Bank for Reconstruction
and Development, and the Inter-American Development Bank, as well as the functionally focused
International Fund for Agricultural Development. The United States does not belong to some
MDBs, including the Chinese-led Asian Infrastructure Investment Bank and the New
Development Bank created by the BRICS countries (Brazil, Russia, India, China, and South
Africa), the European Investment Bank, or the Islamic Development Bank.
In response to COVID-19, MDBs are reprogramming existing projects, establishing and funding
with existing resources lending facilities dedicated to the COVID-19 response, and streamlining
approval procedures. According to the President of the World Bank, other multilateral
development banks have committed roughly $80 billion over the next 15 months to respond to
261 Remarks by World Bank Group President David Malpass on G20 Finance Ministers Conference Call on COVID-19,
March 23, 2020.
262 https://maps.worldbank.org/. Accessed on June 1, 2020.
263 World Bank, “World Bank Group Launches First Operations for COVID-19 (Coronavirus) Emergency Health
Support, Strengthening Developing Country Response,” Press Release, April 2, 2020.
264 World Bank, “World Bank Group to Launch New Multi-donor Trust Fund to help Countries Prepare for Disease
Outbreaks,” Press Release, April 17, 2020.
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COVID-19.265 Together with the World Bank’s commitment of $160 billion, $240 billion in
financing is to be made available to developing countries from the MDBs during this time
period.266
To support the MDB response to COVID-19, Congress accelerated authorizations requested by
the Administration for FY2021 for two lending facilities at the World Bank and two lending
facilities at the African Development Bank in the CARES Act (P.L. 116-136). Given the
unprecedented demand for MDB resources, discussions are underway about whether the MDBs
should pursue fiduciary reforms that would allow them to expand their lending based on existing
resources, particularly lending against donor country guarantees to the institutions (called
“callable” capital).
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.”267 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.268
Saudi Arabia, the 2020 chair of the G-20, called an emergency G-20 summit on March 25 to
discuss a response to the pandemic.269 The G-20 is a broader group of economies, including the
G-7 countries and several major emerging markets.270 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.271
Analysts are hopeful that the recent G-7 summit, and 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-19.272 An emergency meeting of G-7 finance ministers on March 3,
265 David Malpass, “Remarks to G20 Finance Ministers,” World Bank, April 15, 2020.
266 World Bank Group President David Malpass: Remarks to G20 Finance Ministers, April 15, 2020.
267 White House, G-7 Leaders’ Statement, March 16, 2020, https://www.whitehouse.gov/briefings-statements/g7-
leaders-statement/.
268 Ibid.
269 “Spain Says Saudi Arabia to Cal G-20 to Meet on Covid-19 in Coming Days,” Reuters, March 16, 2020.
270 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).
271 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.
272 See for example, Jennifer Rankin, “EU Leaders Divided on How to Protect Economies after Covid-19,” The
Guardian, March 14, 2020.
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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.273 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. Some experts argue that a large, early, and coordinated response is
needed to address the economic fallout from COVID-19, but several concerns loom about the G-
20’s ability to deliver.274 Their concerns focus on the Trump Administration’s prioritization of an
“America First” foreign policy over one committed to multilateralism; the 2020 chair of the G-20,
Saudi Arabia, is embroiled in its own domestic political issues and oil price war; and U.S.-China
tensions make G-20 consensus more difficult.
Meanwhile, international organizations including the IMF and multilateral development banks,
have tried to forge ahead with economic support given their current resources. Additionally, the
Financial Stability Board (FSB), an international body including the United States that monitors
the global financial system and makes regulations to ensure stability, released a statement on
March 20, 2020, that its members are actively cooperating to maintain financial stability during
market stress related to COVID-19.275 The FSB is encouraging governments to use flexibility
within existing international standards to provide continued access to funding for market
participants and for businesses and households facing temporary difficulties from COVID-19,
while noting that many FSB members have already taken action to release available capital and
liquidity buffers.
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.276 In addition, travel bans and quarantines are taking a heavy economic toll on a
broad range of countries. 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.277 Across
Asia, some forecasters argue that recent data indicate that Japan, South Korea, Thailand, the
Philippines, Indonesia, Malaysia, and Vietnam could experience an economic recession in
2020.278
In early January 2020, before the COVID-19 outbreak, economic growth in developing
economies as a whole was projected by the International Monetary Fund (IMF) to be slightly
273 Jack Ewing and Jeanna Smialek, “Economic Powers Vow to Fight Crisis,” New York Times, March 3, 2020.
274 Matthew Goodman and Mark Sobel, “Time to Pull the G-20 Fire Bell,” Center for Strategic and International
Studies, March 18, 2020.
275 “FSB Coordinates Financial Sector Work to Buttress the Economy in Response to Covid-19,” Financial Stability
Board, Press Release 6/2020, March 20, 2020.
276 OECD Interim Economic Assessment, p. 7.
277 Ibid., p. 5.
278 Arnold, Martin Arnold and Valentina Romei, “European Factory Output Plummets as Covid-19 Shutdown Bites,”
Financial Times, April 1, 2020. https://www.ft.com/content/8646c0ee-8fba-4e4c-a047-cf445ff41cf6.
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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 2020.279
These projections likely will be revised downward due to the slowdown in global trade associated
with COVID-19, lower energy and commodity prices, an increase in the foreign exchange value
of the dollar, 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, an increase in the value of the dollar, 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 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 13).280
Figure 13. 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 14). Oil importers, such as South Africa and Turkey, have also been hit hard;
279 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.
280 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.
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South Africa’s rand has fallen 18%281 against the dollar since the beginning of 2020 and the
Turkish lira has lost 8.5%.282 Some economists are concerned that the depreciation in currencies
could lead to rising rates of inflation by pushing up the prices of imports and negatively economic
growth rates in 2020.283
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.284 (Venezuela’s request was quickly rebuffed due to
disagreement among the IMF membership over who is recognized as Venezuela’s legitimate
leader: Nicolás Maduro or Juan Guaidó.285)
Figure 14. Depreciation Against the Dollar Since January 1, 2020
Source: Created by CRS. Data from Bloomberg.
International Economic Cooperation
Initial efforts at coordinating the economic response to the COVID-19 pandemic across countries
have been uneven. Governments are divided over the appropriate response and in some cases
have acted unilaterally, particularly when closing borders and imposing export restrictions on
281 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.
282 Nevzat Devranoglu, “Turkish Lira Hits Weakest Level Since 2018 Currency Crisis Due to Covid-19,” Nasdaq,
March 17, 2020, https://www.nasdaq.com/articles/turkish-lira-hits-weakest-level-since-2018-currency-crisis-due-to-
Covid-19-2020-03-17.
283 Johnson, Steve, “Currency Sell-Off Threatens Emerging Market Response to Covid-19,” Financial Times, March 3,
2020. https://www.ft.com/content/94ad9d70-2ca2-4490-96fb-5b01b509ed37.
284 “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
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.
285 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/.
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medical equipment and medicine. An emergency meeting of G-7 (Canada, France, Germany,
Italy, Japan, the United Kingdom, and the United States) 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 sharply after the meeting.286 However, on
March 16, 2020, the leaders of the G-7 countries 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.”287 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.288 G-7 coordination has not been unproblematic
however, including disagreement among G-7 foreign affairs ministers about how to refer to the
virus (coronavirus or the “Wuhan virus”) and concerns about collaboration on vaccine research.289
The United States is chairing the G-7 in 2020, and while the June summit at Camp David had
been canceled due to concerns about COVID-19, on May 20, President Trump indicated that the
summit may be held after all.
The G-20, which has a broader membership of major advanced and emerging-market economies
representing 85% of world GDP, was slower to respond to the pandemic.290 Even though G-20
coordination is widely viewed as critical in the response to the global financial crisis of 2008-
2009, several factors may have complicated G-20 coordination in the current context: the Trump
Administration’s prioritization of an “America First” foreign policy over one committed to
multilateralism; the 2020 chair of the G-20, Saudi Arabia, is embroiled in its own domestic
political issues and oil price war; and U.S.-China tensions make G-20 consensus more difficult.291
The G-20 held a summit by teleconference on March 26, 2020, but the resulting communique was
criticized for failing to include concrete action items beyond what national governments were
already doing.292 However, G-20 coordination appears to be gaining momentum, most notably
with the G-20 agreement on debt relief for low-income countries (see “Looming Debt Crises and
Debt Relief Efforts”).
Meanwhile, international organizations including the IMF and multilateral development banks,
have tried to forge ahead with economic support given their current resources. Additionally, the
Financial Stability Board (FSB), an international body including the United States that monitors
286 Jack Ewing and Jeanna Smialek, “Economic Powers Vow to Fight Crisis,” New York Times, March 3, 2020.
287 White House, G-7 Leaders’ Statement, March 16, 2020, https://www.whitehouse.gov/briefings-statements/g7-
leaders-statement/.
288 Ibid.
289 “Pompeo, G-7 Foreign Ministers Spar over ‘Wuhan Virus’,” Politico, March 25, 2020; Katrin Bennhold and David
E. Sanger, “U.S. Offered ‘Large Sum’ to German Company for Access to Coronavirus Vaccine Research, German
Officials Say,” New York Times, March 15, 2020.
290 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).
291 Matthew Goodman and Mark Sobel, “Time to Pull the G-20 Fire Bell,” Center for Strategic and International
Studies, March 18, 2020.
292 Matthew Goodman, Stephanie Segal, and Mark Sobel, “Assessing the G20 Virtual Summit,” Center for Strategic
and International Studies, March 27, 2020.
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the global financial system and makes regulations to ensure stability, released a statement on
March 20, 2020 that its members are actively cooperating to maintain financial stability during
market stress related to COVID-19.293 The FSB is encouraging governments to use flexibility
within existing international standards to provide continued access to funding for market
participants and for businesses and households facing temporary difficulties from COVID-19,
while noting that many FSB members have already taken action to release available capital and
liquidity buffers.
Looming Debt Crises and Debt Relief Efforts
COVID-19 could trigger a wave of defaults around the world.294 In Q3 2019—before the
outbreak of COVID-19—global debt levels reached an all-time high of nearly $253 trillion, about
320% of global GDP.295 About 70% of global debt is held by advanced economies and about 30%
is held by emerging markets. Globally, most debt is held by nonfinancial corporations (29%),
governments (27%) and financial corporations (24%), followed by households (19%). Debt in
emerging markets has nearly doubled since 2010, primarily driven by borrowing from state-
owned enterprises.
High debt levels make borrowers vulnerable to shocks that disrupt revenue and inflows of new
financing. The disruption in economic activity associated with COVID-19 is a wide-scale
exogenous shock that will make it significantly more difficult for many private borrowers
(corporations and households) and public borrowers (governments) around the world to repay
their debts. COVID-19 has hit the revenue of corporations in a range of industries: factories are
ceasing production, brick-and-mortar retail stores and restaurants are closing, commodity prices
have plunged (Bloomberg commodity price index—a basket of oil, metals, and food prices—has
dropped 27% since the start of the year and is now at its lowest level since 1986), and overseas
and in some cases domestic travel is being curtailed.296 Some governments, including Argentina
and Lebanon, were already experiencing debt pressures, which have been exacerbated by the
pandemic. Other countries are facing new debt pressures created by the pandemic, while some
countries, such as Abu Dhabi and Egypt, have completed successful sovereign bond sales since
the outbreak of the pandemic.297
Households are facing a rapid increase in unemployment and, in many developing countries, a
decline in remittances. With fewer resources, corporations and households may default on their
debts, absent government intervention. These defaults will result in a decline in bank assets,
making it difficult for banks to extend new loans during the crisis or, more severely, creating
solvency problems for banks. Meanwhile, many governments are dramatically increasing
spending to combat the pandemic, and are likely to face sharp reductions in revenue, putting
pressure on public finances and raising the likelihood of sovereign (government) defaults. Debt
dynamics are particularly problematic in emerging economies, where debt obligations
denominated in foreign currencies (usually U.S. dollars). Many emerging market currencies have
293 “FSB Coordinates Financial Sector Work to Buttress the Economy in Response to Covid-19,” Financial Stability
Board, Press Release 6/2020, March 20, 2020.
294 John Plender, “The Seeds of the Next Debt Crisis,” Financial Times, March 4, 2020.
295 Emre Tiftik, Khadija Mahmood, Jadranka Poljak, and Sonja Gibbs, “Global Debt Monitor: Sustainability Matters,”
Institute for International Finance, January 13, 2020.This includes debt held by governments, financial institutions,
nonfinancial institutions, and households.
296 “Covid-19 Worsens Debt Crisis in Poor Countries,” Jubilee Debt Campaign, March 22, 2020.
297 Trieu Pham, “EM Sovereign Debt Issuance: Encouraging Signs but Not Yet Back to Business as Usual,” ING, May
26, 2020.
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depreciated since the outbreak of the pandemic, raising the value of their debts in terms of local
currency.
Governments will face difficult choices if there is a widespread wave of defaults. Most
governments have signaled a commitment to or already implemented policies to support those
economically impacted by the pandemic. These governments face decisions about the type of
assistance to provide (loans versus direct payments), the amount of assistance to provide, how to
allocate rescue funds, and what conditions if any to attach to funds. Governments have
undertaken extraordinary fiscal and monetary measures to combat the crisis. However,
developing countries that are constrained by limited financial resources and where health systems
could quickly become overloaded are particularly vulnerable.
In terms of defaults by governments (sovereign defaults), emergency assistance is generally
provided by the IMF, and sometimes paired with additional rescue funds from other governments
on a bilateral basis. The IMF and other potential donor countries will need to consider whether
the IMF has adequate resources to respond to the crisis, how to allocate funding if the demand for
funding exceeds the amount available, what conditions should be attached to rescue funding, and
whether IMF programs should be paired with a restructuring of the government’s debt (“burden
sharing” with private investors).
International efforts are underway to help the most vulnerable developing countries grapple with
debt pressures. In mid-April 2020, the IMF tapped its Catastrophe Containment and Relief Trust
(CRRT), funded by donor countries, to provide grants to cover the debt payments of 25 poor and
vulnerable countries to the IMF for six months. The IMF hopes that additional donor
contributions will allow this debt service relief to be extended for two years. Additionally, the G-
20 finance ministers agreed to suspend debt service payments for the world’s poorest countries
through the end of 2020. The Institute for International Finance (IIF), which represents 450
banks, hedge funds, and other global financial funds, also announced that private creditors will
join the debt relief effort on a voluntary basis. This debt standstill will free up more than $20
billion for these countries to spend on improving their health systems and fighting the
pandemic.298 Private sector commitments were critical for official creditors, so that developing
countries could redirect funds to improving health systems rather than repaying private creditors.
However, the debt standstill is complicated. There is debate among creditor governments about
what debts should be included in the standstill, and how it can be enforced. On May 1, the IIF in a
letter laid out some of the obstacles facing private sector participation in the debt still, including
reliance on “voluntary” participation, each participating creditor will need to make its own
assessments, the standstill could require a lengthy contract-by-contract approach, and the
participating borrowing countries may face risks, such as rating downgrades and inability to
borrow from financial markets (often referred to as “loss of market access”). Some economists
have characterized the letter as a list of reasons private creditors may cite as justification for their
refusal to participate in the debt standstill.299 Reportedly, some African countries are opting to
negotiate debt relief individually with China and other creditor nations because of concerns they
will be blocked from financial markets if they participate in the G-20 debt standstill.300
298 Davide Barbuscia, Marwa Rashad, and Andrea Shalal, “G20 Countries Agree Debt Freeze for World’s Poorest
Countries,” Reuters, April 15, 2020
299 Patrick Bolton, Lee Buchheit, Pierre-Olivier Gourinchas, et. al, “Sovereign Debt Standstills: An Update” VoxEU,
May 28, 2020.
300 Jevans Nyabiage, “All Eyes on China as Africa Spurns G20 Debt Relief Plan,” South China Morning Post, May 26,
2020.
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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”).301 School closures are affecting 1.5 billion children worldwide, challenging parental leave
policies.302 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, infected. Other firms are adopting paid sick leave
policies to encourage sick employees to stay home and are adopting remote working policies.303
Microsoft and Amazon have instructed all of their Seattle-based employees to work from home
until the end of March 2020.304
The drop in business and tourist travel has caused 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 and the growing list of countries that are similarly restricting flights),305 while
airports in Europe estimate they could lose $4.3 billion in revenue due to fewer flights.306 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.307 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
301 Rosenberg, Alyssa, “Covid-19 Shut Down Mona Lisa and James Bond. We Can’t Let it Isolate Us,” Washington
Post, March 4, 2020. https://www.washingtonpost.com/opinions/2020/03/04/Covid-19-shut-down-mona-lisa-james-
bond-we-cant-let-it-isolate-us/.
302 Taylor, Adam, Teo Armus, Rick Noak, “Covid-19 Turmoil Widens as U.S. Death Toll Mounts; Xi Cancels Japan
Trip,” Washington Post, March 5, 2020; Strauss, Valerie, “1.5 Billion Children Around Globe Affected by School
Closure. What Countries Are Doing to Keep Kids Learning During Pandemic,” Washington Post, March 27, 2020.
https://www.washingtonpost.com/education/2020/03/26/nearly-14-billion-children-around-globe-are-out-school-heres-
what-countries-are-doing-keep-kids-learning-during-pandemic/.
303
Hill, Andrew and Emma Jacobs, “Covid-19 May Create Lasting Workplace Change,” Financial Times, February 27,
2020. https://www.ft.com/content/5801a710-597c-11ea-abe5-8e03987b7b20.
304 Armus, Teo, “Live Updates: Covid-19 Turmoil Widens as U.S. Death Toll Mounts; Xi Cancels Japan Trip,”
Washington Post, March 5, 2020, https://www.washingtonpost.com/world/2020/03/05/Covid-19-live-updates/.
305 Taylor, Adam, “Airlines Could Suffer up to $113 Billion in Lost Revenue Due to Covid-19 Crisis, IATA Says,”
Washington Post, March 5, 2020. https://www.washingtonpost.com/world/2020/03/05/Covid-19-live-updates/.
306 “Airlines Slash Flights to Cut Costs as Covid-19 Hits Travel Demand,” Financial Times. https://www.ft.com/
content/c28b5790-62c6-11ea-a6cd-df28cc3c6a68.
307 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,” Financial Times, March 16,
2020.
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prices.308 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 drove
oil prices below $25 per barrel at times, half the estimated $50 per barrel break-even point for
most oil producing countries.309 Rising oil supplies and falling demand combined to create an
estimated surplus of 25 million barrels a day and overwhelmed storage capacity at times and
challenged the viability of U.S. shale oil production.310 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.311 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.312
Disruptions to industrial activity in China reportedly caused delays in shipments of computers,
cell phones, toys, and medical equipment.313 Factory output in China, the United States, Japan,
and South Korea all declined in the first months of 2020.314 Reduced Chinese agricultural exports,
including to Japan, are leading to shortages in some commodities. In addition, numerous auto
producers have faced 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 they could be forced to shutter if prices did not rebound quickly.315 Disruptions in the
movements of goods and people reportedly caused some companies to reassess how international
they want their supply chains to be.316 According to some estimates, nearly every member of the
Fortune 1000 has been affected by disruptions in production in China.317
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 the following:
How long will the crisis last?
308 Brower, Derek, “Cash-Strapped US Shale Producers Pray for OPEC Aid,” Financial Times, March 3, 2020.
https://www.ft.com/content/9161e62c-5cb1-11ea-b0ab-339c2307bcd4.
309 Strauss, Delphine, “Why There Are No Winners from the Oil Price Plunge This Time,” 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,” 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.
310 Sheppard, David and Derek Brower, “U.S. Crude Oil Price Drops Below $20,” Financial Times, March 29, 2020.
https://www.ft.com/content/bc938195-82d3-43eb-b031-740028451382.
311 “Texas Oil Groups: Panhandling Ahead,” The Financial Times, January 20, 2020.
312
Ibid.
313 Hille, Kathrin, Alistair Gray, and Patrick McGee, “Covid-19 Delays PC and Smartphone Shipments for Weeks,”
Financial Times, March3, 2020. https://www.ft.com/content/72742872-5c31-11ea-b0ab-339c2307bcd4.
314 Newmyer, Tory, “The Finance 202: Stocks Stage Major Comeback, but Manufacturing Report Points to Continued
Covid-19 Pain,” 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-
Covid-19-pain/5e5d84a6602ff10d49ac081f/?itid=hp_hp-cards_hp-card-politics%3Ahomepage%2Fcard-ans.
315 Lynch, David J., “Economic Fallout from China’s Covid-19 Mounts Around the World,” Washington Post,
February 13, 2020. https://www.washingtonpost.com/business/economy/economic-fallout-from-chinas-Covid-19-
mounts-across-the-globe/2020/02/13/7bb69a12-4e8c-11ea-9b5c-eac5b16dafaa_story.html?itid=lk_inline_manual_12
316 Ibid.
317 Ibid.
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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 countries such as Italy, Taiwan,
South Korea, Hong Kong, and China have sharply impacted their economies
(with plant closures, travel restrictions, and so forth). How are the tradeoffs
between public health and the economic impact of policies to contain the spread
of the virus being weighed?
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Appendix. Table A-1. Select Measures Implemented
and 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.
March 16: Increased reverse repo operations by another $500 billion.
March 17: U.S. Treasury Secretary Mnuchin approved the Federal Reserve’s creation
of a “Commercial Paper Funding Facility," (CPFF) through March 17, 2021, which will
allows the Fed to create a corporation which can purchase commercial paper, short-
term, unsecured loans made by businesses for everyday expenses and authorized up
to $10 billion from the Treasury to help cover loan losses incurred under this
program.
March 17: Relaunched the Primary Dealer Credit Facility (PDCF) for at least six
months. Starting March 20, the PDCF will offer short-term loans to banks secured by
collateral such as municipal bonds or investment-grade corporate debt.
March 18: Launched the Money Market Mutual Fund Liquidity Facility (MMLF)
through the end of September, a new program to lend money to banks so they can
purchase assets from money market funds. Treasury is offering up to $10 billion to
cover loan losses the Fed incurs from the program.
March 23: Announced a series of measures designed to stabilize markets, enhance
liquidity and stimulate growth. The measures included the roll out of 2 new facilities,
the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan
issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide
liquidity for outstanding corporate bonds. The FOMC removed its caps on planned
QE purchases and will now purchase Treasuries and agency mortgage-backed
securities “in the amounts needed to support smooth market functioning and
effective transmission of monetary policy to broader financial conditions and the
economy.”
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 COVID-19 outbreak (H.R. 6074:
COVID-19 Preparedness and Response Supplemental Appropriations Act 2020).
March 13: The House of Representatives passed a COVID-19 response package
(H.R. 6201; P.L. 116-127, Families First COVID-19 Response Act); measure was
signed by President Trump on March 18, 2020. The measure appropriates about $100
billion and includes tax credits for employers offering paid sick leave and increases to
unemployment benefits and food assistance.
March 19: The Senate introduced the COVID-19 Aid, Relief, and Economic Security
Act (S. 3548) to provide $2.0 trillion in assistance to businesses and workers.
March 27: Passed, and the President signed, the COVID-19 Aid, Relief, and
Economic Security Act (CARES Act, H.R. 748, P.L. 116-136), a $2.1 trillion fiscal
stimulus package. It includes $454 billion in loans for businesses, $349 billion in loans
for small businesses, $300 billion for direct payments of $1,200 each for lower- and
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middle-income individual taxpayers (and $500 for each child), $250 billion for
unemployment insurance, and $221 billion in tax deferrals, among other measures.
March 30: Some Members of the House of Representatives announced they had
begun work on a fourth COVID-19 bill targeting a number of issues, including short
supplies of medical equipment and protective gear to enhance worker protections,
infrastructure needs, and additional payments to individuals.
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.
March 31: President Trump calls for $2 trillion infrastructure spending, possibly as
part of fourth COVID-19 stimulus bill.
Albania The Bank of Albania
March 25: Cut its benchmark interest rate to a record-low 0.5% and its one-day
lending rate to 0.9% on to help lending in the economy affected by the COVID-19
outbreak. It also announced that it would inject unlimited liquidity into the banking
sector, ensure the normal functioning of the electronic payments system, and that,
together with the government, it had agreed to postpone until the end of May all loan
repayments by businesses and individuals facing difficulties due to the outbreak.
Government of Albania
March 20: Passed measures totaling $370 million in its budget to soften the impact
from the COVID-19 crisis, including $25 million for the health sector; guarantees
worth $100 million to companies unable to pay their employees; and $65 million to
help the needy, small businesses, and those unable to work because of stay-at-home
orders. It also announced that it would write off penalties on delayed electricity bill
payments worth some $150 million, postpone taxes on company profits, and cut the
wages of government ministers and lawmakers by half for the duration of the crisis.
Argentina Central Bank of Argentina
March 19: Indicated that it would lower reserve requirements for banks that
extended special credit lines to small and medium-sized enterprises at a maximum
annual interest rate of 24% in a bid to offset the impact of COVID-19.
Government of Argentina
March 19: Announced a fiscal stimulus package of 700 billion pesos ($11.3 billion) to
mitigate the impact of the COVID-19 and support the economy. The main measures
include providing credit to productive activities (350 billion pesos), increasing public
investments (100 billion pesos), and waiving payroll taxes for firms affected by the
COVID-19.
Armenia March 17: The Central Bank of Armenia cut its key refinancing rate by 25 basis
points to 5.25% from 5.5% due to the effects of the COVID-19 outbreak on the
economy.
Australia Reserve Bank of Australia
March 3: Cut its benchmark interest rate by 25 basis points to 0.5% due to the
significant effect of the COVID-19 outbreak on the Australian economy.
March 19: Cut its cash rate by 25 basis points to 0.25% and and introduced a series
of measures: (1) targeting the 3-year government bond yield at 0.25% via purchases in
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the secondary market, (2) providing a three-year term funding facility to authorized
deposit-taking institutions worth at least AU$90 billion at a fixed rate of 0.25%,
aiming to support credit to small and medium-sized enterprises, (3) fixing the
exchange settle balances at the central bank at 10 basis points. It will also continue to
provide liquidity by conducting one-month and three-month repo operations until
further notice. Longer-term repo operations of six-month maturity or longer would
be undertaken at least weekly. The central bank also set out forward guidance, saying
that it will not increase the cash rate until progress is made towards full employment
and confident that inflation is sustainably within its target band.
March 19: Through its daily money market operation, it has injected cash into the
banking system (through repurchasing agreements), aiming to ease liquidity
constraints in the stressed bond market: AU$12.7 billion (March 19), AU$10.7 billion
(March 18), AU$8.8 (March 17), AU$5.9 billion (March 16), and AU$8.8 (March 13).
Government of Australia
March 12: 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.
March 19: Announced that the Australian Office of Financial Management (AOFM)
will be provided with an investment capacity of $15 billion to enable smaller lenders
to continue supporting Australian consumers and small businesses. (AOFM will be
able to purchase residential mortgage backed securities and invest in a range of other
asset backed securities and warehouse facilities over the next 12 months.)
March 22: Announced an additional AU$66.4 billion ($38.5 billion) fiscal package,
which extends income support measures for existing welfare and newly unemployed
workers, and boosted previously announced measures for businesses such as cash
flow and wage subsidies. The government is also expected to give local businesses
AU$100,000 if the company has a turnover of less than AU$50 million each year and
underwrite 50% of up AU$40 billion in loans offered by local lenders to small and
medium sized companies.
March 30: Unveiled an economic package of AU$130 billion ($79.85 billion) to
subsidize the wages of an estimated 6 million people, marking a third tranche of
stimulus designed to limit the fallout of the COVID-19 pandemic on the country’s
economy. The “job keeper” allowance, which would bring the country’s COVID-19-
related stimulus so far to A$320 billion (about 15% of Australia’s gross domestic
product), will provide eligible companies with AU$1,500 every fortnight for six
months for each employee. Any company that lost 30% of its revenue can apply for
the funds.
Austria Government of Austria
March 14: Set up an initial 4 billion euro ($4.4 billion) “corona crisis fund” to cover,
among other things, benefits for affected workers, as well as bridge loans and credit
guarantees to shore up businesses’ liquidity.
March 18: Announced that it will spend up to 38 billion euros ($42 billion) to secure
jobs and keep companies afloat, and it will provide another 9 billion euros in
guarantees and warranties, 15 billion euros in emergency aid, and 10 billion euros in
tax deferrals.
Bosnia and March 17: The prime minister met with the IMF Resident Representative in Bosnia
Herzegovina to request assistance from the IMF. The IMF indicated that it may extend a 165
million euros ($181 million) loan to Bosnia under a Rapid Financing Instrument (RFI)
to finance the increasing costs sustained by the country’s health system in combating
COVID-19.
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Brazil Central Bank of Brazil
March 18: Cut its benchmark interest rate by 50 basis points to 3.75% to cushion
the economic blow of the COVID-19 pandemic. It also sold $830 million in two
rounds of spot foreign exchange intervention and announced a repurchase program
for dollar-denominated sovereign bonds held by Brazilian banks, which will be carried
out in conjunction with the Treasury.
March 23: Announced that it planned to inject 1.2 trillion reais ($233.81 billion) into
the country’s financial system to counteract the effects of the COVID-19 outbreak,
with more than half that amount comprising loans to banks. Under the program,
lenders will be able to package their loan portfolios into long-term deposits to be
acquired by the central bank in a move aimed at freeing up 670 billion reais for fresh
loans. It also (1) cut long-term reserve requirements to 17% from 25%, freeing up 68
billion reais currently in compulsory deposits with the central bank to banks, (2)
announced measures allowing small and mid-sized lenders to issue up to 2 billion
reais in special long-term bonds guaranteed by a privately held deposit insurance fund,
limited to an amount equivalent to its shareholders’ equity, and (3) will extend loans
backed by corporate bonds to financial institutions between March 23 and April 30 to
add liquidity to their investment funds.
Government of Brazil
March 16: Announced a fiscal stimulus package of 147.1 billion reais ($28.6 billion)
to mitigate the impact of the COVID-19 and boost the economy. It does not contain
new money, but is a range of measures that aim to protect the most vulnerable
population through social assistance payments (83.4 billion reais), support domestic
companies and defer business taxes (59.4 billion reais), and increase investments in
healthcare to combat the COVID-19 (4.5 billion reais). The government also
announced a 3.1 billion reais boost to the “Bolsa Família” assistance for some of
Brazil’s poorest families.
March 16: The National Monetary Council (CMN) approved the measures that will
allow banks to (1) increase loans and offer better terms to firms and households over
the next six months and (2) extend certain loan maturities for the next six months. It
also lowered capital requirements for banks.
April 1: Announced that it will cut the IOF financial tax for 90 days. It will be
temporary and cost 7 billion reais. It will also extend the deadline for submitting the
2019 base year net income report to June 30 from April 30 and allow companies to
postpone payment of certain tax contributions for two months and reduce wages by
up to 70% (or the minimum wage) for three months, among other measures.
Bulgaria Government of Bulgaria
March 30: Announced it will spend more than 1 billion levs ($566 million) to pay
part of workers’ salaries in companies whose operations have been hit by the
COVID-19 crisis, part of part of an overall 4.5 billion-lev package.
March 31: Announced plans to raise the ceiling on new debt it can raise to 10 billion
levs due to the COVID-19 pandemic.
Cambodia Government of Cambodia
March 5: Announced that it would allocate $30 million to finance Cambodia’s
COVID-19 screening and monitoring efforts.
March 10: Allocated between $800 million to $2 billion to address the economic
impacts of the novel COVID-19 outbreak.
Canada Bank of Canada
March 4: Lowered its target for the overnight rate by 50 basis points to 1.25%
(setting the bank rate to 1.5% and the deposit rate to 1%).
March 12: Announced that it will broaden the scope of the current Government of
Canada bond buyback program and temporarily add new Term Repo operations.
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March 13: Lowered its benchmark overnight rate to 1.25% from 1.75% in response
to the epidemic.
March 13: Announced its intention to launch the Bankers’ Acceptance Purchase
Facility (BAPF), starting the week of March 23, 2020, in an effort to support the
continuous functioning of financial markets; it will conduct secondary market
purchases of one-month Bankers’ Acceptances issued and guaranteed by any
Canadian bank and of sufficiently high quality. BAPF operations will be conducted
weekly with the purchase amount and reserve rate being adjusted to reflect market
conditions. (For the first operation, the Bank of Canada will purchase up to $10
billion of one-month Bankers’ Acceptances with a reserve rate of the overnight index
swap rate plus 20 basis points.)
March 16: Announced that it will broaden eligible collateral for its term repo facility
and increase purchases of mortgage-backed securities (Canada Mortgage Bonds).
March 27: Cut its overnight interest rate by 50 basis points to 0.25%, its lowest level
since June 2010 and the third cut in March, to support an economy hit hard by the
outbreak of COVID-19. It also announced that it would begin purchases of CA$5
billion per week of Government of Canada securities in the secondary market.
Canadian Government
March 6: Announced an investment of CA$27 million to fund COVID-19 research
and accelerate the development, testing, and implementation of measures to deal
with the COVID-19 outbreak.
March 11: Unveiled CA$1 billion ($750 million) in funding for vaccine research and
health measures.
March 13: Established a Business Credit Availability Program (BCAP) to support
financing in the private sector through the Business Development Bank of Canada
(BDC) and Export Development Canada (EDC); it will allow BDC and EDC to
provide more than $10 billion of additional support to businesses.
March 13: The Office of the Superintendent of Financial Institutions (OSFI) lowered
the Domestic Stability Buffer requirement for domestic systemically important banks
by 1.25% of risk weighted assets; it will increase the lending capacity of Canada’s large
banks and support the supply of credit to the economy by more than CA$300 billion.
March 25: Almost doubled the value of an aid package previously announced to help
people and businesses deal with losses from the COVID-19 outbreak, from CA$27
billion to CA$52 billion ($36.6 billion). It will give people affected by the outbreak
CA$2,000 a month, delay student loan repayments, and defer tax payments, among
other measures to boost the economy.
Chile Central Bank of Chile
March 16: Cut its benchmark rate by 75 basis points to 1% and announced measures
to inject liquidity, including allocating $4 billion to purchase inflation-linked bank
bonds and providing additional credit to banks.
March 31: Cut its benchmark interest rate by 50 basis points to 0.50% amid the
COVID-19 pandemic.
Government of Chile
March 19: Announced a stimulus package of $11.75 bn to mitigate the negative
economic impact of the outbreak of COVID-19 and civil unrest. The measures
include extending unemployment insurance to those who are sick or unable to work
from home, delaying tax payments for small businesses, a cash bonus for
approximately 2 million workers who lack formal employment, and emergency funds
for municipalities.
China People’s Bank of China (PBOC)
February 3: Expanded reverse repo operations by $174 billion; added another $71
billion on February 4.
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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
loaned out.
March 30: Lowered the interest rate on reverse repurchase agreements to 2.20%
from 2.40%, as authorities stepped up easing measures to relieve pressure on the
economy that has been hit hard by the epidemic.
PRC Government
February: Asked banks to extend the terms of business loans and commercial
landlords to reduce rents.
February 24: The Asian Infrastructure Investment Bank (AIIB) contributed $1
million in medical equipment to help China control the spread of COVID-19.
February 27: Announced a number of tax relief measures to tackle COVID-19
disruption, including a temporary reduction its value-added tax (VAT) and the
elimination of VAT on medical, catering, accommodation, hairdressing, and laundry
services as well as on masks and protective clothing.
March: Earmarked $15.9 billion to fight the epidemic.
March 21: Announced that it would cut fees on a large scale to stimulate private-
sector investment and also accelerate the development of “new infrastructure” to
help spur the economy.
March 19: Reportedly is considering a fiscal stimulus package worth trillions of yuan
to revive the economy amid the COVID-19 pandemic. The ramped-up spending will
aim to spur infrastructure investment, backed by as much as 2.8 trillion yuan ($394
billion) of local government special bonds.
March 27: The Communist Party’s Politburo announced that it would step up
macroeconomic policy changes and pursue more proactive fiscal policy. It called for
expanding the budget deficit, issuing more local and national bonds, guiding interest
rates lower, delaying loan repayments, reducing supply-chain bottlenecks and
boosting consumption.
Colombia Central Bank of Colombia
March 18: Announced a $400 million dollar to peso swap to take place on March
19, and that it would increase the resources available to financial institutions and ease
rules on which institutions can have access to funds.
March 27: Cut its benchmark interest rate by 50 basis points to 3.75% in an effort to
boost economic growth amid fall-out from COVID-19.
Government of Colombia
March 18: Announced that it has 14.8 trillion pesos ($3.65 billion) to spend on
emergency measures to ease the economic fallout from COVID-19, but it will not
take on additional debt to finance the efforts (12.1 trillion pesos will come from the
country’s savings programs). It will initially spend 1 trillion pesos on the healthcare
system and 500 billion pesos on additional payments to social welfare programs for
families, young people and the elderly, accelerate a plan to return value added tax to
the neediest Colombians from April, and make 48 trillion pesos available to give
credit guarantees to small and medium-sized businesses and households.
Congo-Kinshasa March 24: The Central Bank of the Congo cut its base interest rate to 7.5% from
(Democratic Republic 9.0% in order to cushion the economic impact of the COVID-19 outbreak. It will also
of the Congo) cut mandatory reserve requirements and provide liquidity to banks.
Cyprus Government of Cyprus
March 15: Unveiled a 700 million euro support package for companies and workers
to deal with the impact of the spread of COVID-19, which includes a temporary VAT
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reduction, support for individuals and companies affected, additional paid sick leave,
and 100 million euro for the public health sector.
March 23: Announced that it is revising the economic package announced on March
15. It will amount to at least 1.5 billion euro and include direct support, deferred
government income in the form of payment suspension of direct and indirect taxes
and other fees, as well as government guarantees (which would not incur a fiscal
impact unless they materialize).
Czech Republic Czech National Bank
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.
March 17: Revised the countercyclical capital buffer for exposures located in the
Czech Republic to 1.75 %.
March 26: Cut its main two-week repo rate by 75 basis points to 1.00% and
announced that it was ready to cut interest rates further if needed.
Government of the Czech Republic
March 9: Adopted a number of economic measures, which will include providing 100
billion CZK ($3.9 billion) in direct support and 900 billion CZK ($34.8 billion) in
indirect in the form of guarantees to maintain the employment rate, paying out
(through the respective employers) 60% of the average contribution base to
employees affected by the quarantine, supporting employers who continue, despite
their businesses being shut down, to pay out 100% of the salary to affected
employees by covering 80% of salary costs (up to 1.2 billion CZK), and allocating 10
billion CZK ($390 million) to the Czech-Moravian Guarantee and Development Bank
for immediate granting of interest-free loans with a one-year deferral with the
possibility of a two-year extension for businesses affected by the COVID-19
(“COVID Loans Program”). (On March 16, the government earmarked another 1
billion CZK to the COVID Loans Program.)
March 13: Extended the deadline for the filing of tax returns until 1 July and waived
fines stemming from the late submission of tax declarations or reports.
March 13: The Czech Banking Association (ČBA) will allow banks to voluntarily
extend the deadlines on loan and mortgage payments.
March 23: Approved a five-fold rise in this year’s budget deficit, as it offers help to
businesses hit hard by the COVID-19 outbreak.
April 1: Announced that it had approved a scheme for a moratorium of up to six
months on consumer, company, and mortgage loan payments to help the country
through the COVID-19 crisis.
Denmark Danmarks Nationalbank
March 12: Released banks’ emergency buffer and will be offering low interest rate
loans to banks.
March 26: Injected $2.85 billion in loans to Danish banks and financial institutions by
auctioning off U.S. dollars in two loans with a maturity date on April 8 and June 19
and a cut-off rate of 0.32 and 0.34, respectively.
April 1: Sold $750 million worth of its mint 30-year government bonds in an auction
that was held a month early to expedite funding of aid packages due to COVID-19
that is expected to cost the state more than 60 billion Danish crowns ($8.8 billion).
Government of Denmark
March 10: Will grant tax breaks to businesses affected by the COVID-19 as part of a
series of measures worth $20 billion. Large businesses will be given an additional 30
days to pay value added tax, while all companies will be granted four additional
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months to pay their labor contributions. The government is also lifting the ceiling on
businesses’ tax accounts, so that corporations can avoid paying the negative interest
rates they are charged when placing cash in the bank.
March 12: Indicated that it would release banks’ counter-cyclical capital buffer,
freeing about 200 billion Danish crowns ($30 billion) for lending. Other fiscal
measures, worth 2.8 billion Danish crowns ($416 million), include compensation to
companies for salary payments to employees who have fallen ill or been quarantined
due to the COVID-19.
March 18: Proposed an economic aid package worth 40 billion kroner ($5.8 billion)
to help small businesses cover (for three months) most of the losses in revenue and
some of their fixed expenses as a result of the COVID-19 outbreak. Under the
program, companies who have seen their revenues decline by 40% or more will
receive government grants to help cover between 25% to 80% of their fixed costs,
and self-employed and small firms who see their revenues fall more than 30% will also
be offered government compensation worth 75% of their normal monthly income.
March 31: Announced that it will postpone by three months around 200,000
companies’ deadline of end-May to submit their annual reports in an effort to help
companies affected by the COVID-19 outbreak.
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.
March 23: Told commercial banks to cut interest on dollar deposits to 1% above the
London Interbank Offered Rate (Libor) instead of 1.5% above Libor, starting March
23, in order to control the exchange market and reduce the expected dollarization
operations after cutting interest rates on March 16.
March 29: Instructed Egyptian banks to apply temporary limits on daily withdrawals
and deposits in a move seemingly designed to control inflation and hoarding during
the coronavirus’ spread, after 30 billion Egyptian pounds ($1.91 billion) were
withdrawn from banks in the past three weeks. The daily limit for individuals would
be 10,000 Egyptian pounds ($635) and 50,000 pounds for companies.
Government of Egypt
March 14: Indicated that the government will allocate 100 billion Egyptian pounds
($6.4 billion) to finance a “comprehensive” state plan for combating the COVID-19
outbreak.
March 22: Announced that the government would allocate 20 billion Egyptian
pounds ($1.27 billion) to support the stock exchange.
March 30: Ordered relevant authorities to boost strategic reserves of staple goods,
as global concerns about food security rise amid the COVID-19 crisis.
Eswatini (Swaziland) March 21: The Central Bank of Eswatini cut its main lending rate by 100 basis points
to 5.5%, citing global and domestic economic developments and the impact of
COVID-19. The reduction was to ensure the equal pegging of the local currency with
the South African rand after the South African Reserve Bank (SARB) cut its main
lending rate by 100 basis points to 5.25% on March 19.
European Union 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).
March 18: Launched a new, 750 billion euro ($818 billion) temporary asset purchase
program of private and public sector securities to counter the risks posed by the
outbreak and escalating diffusion of COVID-19 (the Pandemic Emergency Purchase
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Programme). Purchases will be conducted until the end of 2020 and will include all
the asset categories eligible under the existing asset purchase program. It will also
support commercial debt markets by expanding the range of eligible assets under the
corporate sector purchase program to nonfinancial commercial paper of sufficient
credit quality, and by easing collateral standards by expanding the scope of Additional
Credit Claims to include claims related to the financing of the corporate sector.
March 26: Announced that under the new 750 billion euro ($818 billion) temporary
bond purchase Pandemic Emergency Purchase Program (PEPP), it would not apply
self-imposed limits on how many bonds it could buy from any single euro zone
country. Under its long-running asset purchase scheme, the ECB has capped bond
buys at 33% of each euro zone state’s debt.
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
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.
March 19: Adopted a Temporary Framework to enable Member States to use the
full flexibility foreseen under state aid rules to support the economy in the context of
the COVID-19 outbreak. It provides for five types of aid: (1) direct grants, selective
tax advantages and advance payments (Member States will be able to set up schemes
to grant up to 800,000 euros to a company to address its urgent liquidity needs); (2)
state guarantees for loans taken by companies from banks; (3) subsidized public loans
to companies; (4) safeguards for banks that channel state aid to the real economy;
and (5) short-term export credit insurance.
Fiji March 18: The Reserve Bank of Fiji cut its Overnight Policy Rate by 25 basis points
to 0.25% in order to stimulate demand and cushion the blow to its important tourism
industry from the global spread of COVID-19.
France Government of France
March 12: 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 COVID-19 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: 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: Announced that it would spend 45 billion euros ($50 billion) to help small
businesses and employees struggling with the COVID-19 outbreak, including through
an expanded partial-unemployment package in which the state pays the salaries of
employees who are not needed during the crisis.
Gambia February 28: The Central Bank of The Gambia lowered its policy rate by 50 basis
points to 12.0% amid risks from the COVID-19 outbreak and uncertainty surrounding
global food prices.
Georgia April 1: The government announced that it will put 2 billion lari ($606 million) from
its state budget toward helping the economy through the COVID-19 pandemic, in
addition to 351 million lari that will be allocated for the healthcare system from the
state budget. The government will fund three months’ payments for electricity and
gas consumption to Georgians who used less than 200 kilowatts of electricity and 200
cubic meters of gas a month in March, April, and May.
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Germany Government of Germany
March 13: Pledged to provide unlimited liquidity assistance to German companies hit
by the pandemic. (The measure envisages an 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 (about $3.5 billion) between 2021 and 2024.
March 23: Agreed to a package worth more than 750 billion euros ($808 billion) to
mitigate the damage of the COVID-19 outbreak. It includes 156 billion euros in debt
to finance higher social spending, 50 billion-euro liquidity fund for self-employed
people, 600 billion-euro rescue fund (400 billion euros in guarantees,100 billion euros
in loans through state-run development bank KfW, and 100 billion euros earmarked
for equity stakes in companies). Additionally, the state’s KfW bank has 500 billion
euros available to boost liquidity of German companies.
March 30: Announced that, in response to COVID-19, it would expand export loan
guarantees on short-term payments to include transactions within the EU and with
Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland, Britain, and the
United States.
Ghana March 18: The Bank of Ghana (Ghana’s central bank) cut its interest rate to 14.5%
from 16% due to the negative economic impacts it anticipates from the spread of the
COVID-19.
Greece Government of Greece
March 9: Will suspend the payment of sales taxes due at the end of March (for four
months) of social security contributions by companies (until June 30).
March 17: Announced a package of up to 2 billion euros ($2.20 billion) to support
businesses following the COVID-19 outbreak
March 17: The Hellenic Bank Association will offer businesses hit by the COVID-19
crisis a six-month freeze on loan payments as part of relief efforts to help borrowers
deal with the economic shutdown.
March 30: Announced new tax breaks and economic assistance to thousands of
businesses and workers to buffer its economy from a national lockdown triggered by
the COVID-19 pandemic. The support measures include a one-off benefit for 1.7
million, or 81% of private sector workers whose jobs are temporarily suspended and
payment of their social security contributions for 45 days, extend financial aid for the
self-employed, and suspend VAT and tax arrear payments for 800,000 businesses.
Guatemala March 29: The government announced that it would use nearly $26 million from an
emergency fund to help the country’s neediest families, as measures to combat the
spread of a COVID-19 impact on the economy and jobs, It plans to withdraw 200
million quetzals ($25.8 million) from the emergency fund and give families 1,000
quetzals ($129) to help pay for electricity, water and supplies.
Hong Kong Hong Kong Monetary Authority
March 3: Lowered its base rate charged through the overnight discount window by
50 basis points to 1.5% after the U.S. Federal Reserve delivered a rate cut of the same
margin.
March 16: Lowered its base rate charged through the overnight discount window to
0.86%, after the U.S. Federal Reserve delivered a rate cut. It also cut the level of
capital buffers it requires financial institutions to hold to 1% from 2% of their risk-
weighted assets to help companies and lenders weather the impact of the COVID-19
outbreak.
Government of Hong Kong
February 26: 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
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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.
Hungary Hungarian National Bank
March 16: Announced emergency steps to help businesses, boosting the range of
collateral it accepts from banks and calling on lenders to apply a loan repayment
moratorium for firms hit by the coronavirus economic fallout. (It said in a statement
that performing corporate loans in domestic banks’ balance sheets totaled close to
3.6 trillion forints, and that it would apply a 30% haircut on those, boosting the range
of collaterals that can be used and thus also lifting banks’ lending potential by more
than 2.5 trillion forints ($8.10 billion)). It also offered to inject forint liquidity into the
banking system via foreign exchange swaps.
March 18: Urged domestic banks to introduce a moratorium on household loan
repayments considering the “extraordinary situation” due to the coronavirus crisis,
and that if banks did not bring in the measure, the Bank would ask the government to
pass a decree enforcing it. It also announced that it was considering restarting its
mortgage note buying program to provide more long-term liquidity for the banking
system and reduce the financing costs of household loans.
March 24: Launched new measures to boost liquidity and flagged further steps if
needed to prevent long-term damage to the economy from the coronavirus
pandemic. It moved to pump more money into the banking system by introducing a
massive fixed-rate collateralized loan instrument. Lending will be provided to banks at
a fixed interest rate in unlimited quantity, to support bank lending and also
government bond purchases. It also released domestic lenders from the requirement
to hold a certain level of cash as reserves.
April 1: Announced its collateralized loan tenders, offering liquidity to banks at a
fixed rate of 0.9% on various maturities, and that it would offer them to domestic
open-ended investment funds, in order to support the government securities market
and the real estate market and help offset the fallout from the coronavirus pandemic.
Government of Hungary
April 4: Created a $2 billion special fund to aid the fight against COVID-19 and it will
include contributions from banks and foreign retailers. Hungarian banks will be
expected to pay 55 billion forints ($163 million) in the fund this year, with
multinational retailers adding 36 billion forints. Local governments will have to divert
vehicle taxes amounting to a total of 34 billion forints to the fund, while political
parties will pay half of their central budget revenue to the fund for a total of 1.2
billion forints.
April 6: Announced a stimulus package, which includes subsidized loans to Hungarian
companies and funds to preserve jobs. It would amount to 18%-20% of gross
domestic product (GDP), including National Bank of Hungary programs. The prime
minister said that the government was ready to pay some of the wage costs of
companies forced to cut working hours, would support investments with 450 billion
forints ($1.3 billion), and would provide targeted support for sectors such as tourism,
the food industry, and construction. Subsidized loans to companies will total more
than 2 trillion forints, while pensioners will get one month’s extra pension to be
disbursed in four tranches from early 2021.
Iceland The Central Bank of Iceland
March 11: Cut its benchmark interest rate by 50 basis points to 2.25%, as it tries to
alleviate the potential impact of the COVID-19 on its tourism-dependent economy. It
will also lower deposit institutions’ average reserve requirement to 0% from 1% to
ease banks’ liquidity positions.
March 18: Cut its key interest rate for the second time in a week by 50 basis points
to 1.75% and reduced the banks’ countercyclical capital buffer to 0% from 2%.
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March 23: Announced that it would start buying up treasury bonds in order to boost
liquidity and support government plans to increase spending to help the economy
weather the COVID-19 outbreak.
Government of Iceland
March 10: Announced an action plan to respond to the economic impact of COVID-
19, which includes deferring taxes and levies, providing temporary relief to the
tourism industry, and accelerating ongoing and planned infrastructure projects.
March 21: Announced a 230-billion-krona ($1.6 billion) package (8% of gross
domestic product) to cushion the impact of COVID-19 on the economy. It includes
state guarantees on bridge loans to businesses and the payment of as much as 75% of
an employee’s lost salaries over the next two-and-a-half months. In addition, public
projects worth 20 billion krona will be moved forward to this year and tax breaks for
banks will be implemented sooner than originally planned.
India Reserve Bank of India
March 12: Announced a $2 billion injection into the foreign-exchange market to
support the rupee.
March 13: Announced a plan to add liquidity through short-term repurchase
operations.
March 14: Plans to infuse 250 billion rupees ($3.4 billion) into the system through
short-term repurchase operation.
March 19: Announced that it will buy bonds on the open market for a total of 100
billion Indian rupees ($1.35 billion) due to mature between 2022 and 2025 to try to
keep all market segments liquid and stable.
March 27: Lowered its benchmark repo rate by 75 basis points to 4.40% and
announced several other steps to tackle the impact of COVID-19 on various
industries from the lockdown, some of which include cutting banks’ cash reserve
ratio and targeted long term repos operations. The reverse repo rate was reduced by
90 basis points to 4%.
Government of India
March 15: Pledged $10 million towards South Asian Association for Regional
Cooperation (SAARC) “COVID-19 emergency fund.”
March 15: Is reportedly “pushing” state-run banks to approve new loans amounting
to 500 billion-600 billion rupees by the end of March.
March 26: Announced a 1.7-trillion-rupee ($22.6 billion) economic stimulus plan
providing direct cash transfers and food security measures to give relief to millions of
poor people hit by a nationwide lockdown over COVID-19. It will provide direct cash
transfers to 200 million women and the elderly, hand out free cooking gas cylinders
to 83 million poor families, and help feed about 800 million poor people over the
next three months by distributing 5 kilograms of staple food-grains wheat or rice for
each person free of cost, with a kilogram of pulses for every low-income family. The
government outlined plans for medical insurance cover of 5 million rupees ($66,000)
for every frontline health worker, from doctors, nurses and paramedics to those
involved in sanitary services.
Indonesia Bank Indonesia (Bank Sentral Republik Indonesia)
February 20: Cut the seven-day reverse repurchase rate by 25 basis points to
4.75%.
March 19: Cut the seven-day reverse repurchase rate by 25 basis points to 4.50%
and indicated that it will intensify intervention to ensure market confidence and
liquidity. It has purchased government bonds to combat capital outflows amid the
COVID-19 epidemic, including 27 trillion rupiah ($2 billion) on February 20 and 6
trillion rupiah ($405 million) on March 13, adding to 8 trillion rupiah of bonds
purchased March 12.
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March 25: Announced with the country’s financial regulator that currency market
and stock trading hours will be limited next week as part of efforts to contain the
spread of COVID-19.
Government of Indonesia
February 25: Announced a stimulus package worth 10.3 trillion rupiah ($742.6
million) to protect its economy from the impact of the COVID-19 outbreak. It
includes 4.6 trillion rupiah in subsidies for basic needs for poor households, 1.5
trillion rupiah for the state property financing program, 443.4 billion rupiah for
airlines and travel agents, 298.5 billion rupiah to bring in foreign tourists, 3.3 trillion
rupiah cover for shortfalls in regional budgets, and fiscal transfers (147 billion rupiah).
March 13: Announced a 120 trillion rupiah ($8.1 billion) stimulus package to support
the economy, of which 22.9 trillion rupiah will be tax breaks, lasting six months
starting in April. The government is also exempting companies in 19 manufacturing
sectors from having to pay import taxes, while giving them a 30% corporate tax
discount, relaxing rules for exports (e.g., fisheries and forestry products) and imports
(e.g., steel, sugar, flour and salt), and easing rules on loan restructuring for small- and
medium-sized companies.
March 17: Ordered the Finance Minister to divert 40 trillion rupiah ($2.7 billion)
from the non-urgent government budget to increase spending in programs that could
provide direct support to household consumption or increase people’s purchasing
power.
March 31: Announced a national public health emergency and that it would spend
405.1 trillion rupiah ($24.85 billion) more on COVID-19 response, social welfare
programs, and economic stimulus, including a 3 percentage point cut in corporate tax
rates to 22%.
Iran Central Bank of Iran
February/March: Indicated that it would help small businesses affected by the
COVID-19 outbreak by providing tax breaks and allowing defaults on bank loans for
several months.
March 12: Requested $5 billion emergency funding from the International Monetary
Fund’s Rapid Financing Instrument to help Iran fight the COVID-19 outbreak.
March 17: Allocated at least 250 million euro to import medicine and medical
equipment required to fight COVID-19.
Government of Iran
March 12: Asked the United Nations to allocate resources to help it tackle COVID-
19 and facilitate imports as a way of boosting the country’s sanctions-hit healthcare
system.
March 15: Announced a series of banking, welfare and tax relief measures to
support businesses and families as the COVID-19 outbreak puts severe strain on the
economy. Employees will be able to defer health insurance, tax and utility bill
payments for the next three months, while the 3 million poorest Iranians will receive
an additional cash subsidy starting March 17, 2020.
March 23: The European Union’s High Representative of the Union for Foreign
Affairs and Security Policy (Josep Borrell) announced that the EU would provide 20
million euros in humanitarian aid to Iran to help alleviate the COVID-19 and support
Iran’s request for IMF financial help.
March 26: President Hassan Rouhani wrote to Supreme Leader Ayatollah Ali
Khamenei requesting permission to withdraw $1 billion from the country’s sovereign
wealth fund (the National Development Fund) to support the healthcare system,
which is overstretched by the COVID-19 outbreak.
March 28: Announced that it would allocate 20% of its annual state budget to
fighting the pandemic in the country. The budget allocation, amounting to about 1,000
trillion rials, would include grants and low-interest loans to those affected by COVID-
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19, Rouhani said. While the allocated amount is worth some $6.3 billion at the rial’s
free market exchange rate of about 160,000 rials per dollar, the government may
decide to allocate some of the funds at the official rate of 42,000 (which is used to
subsidize food and medicine).
Ireland March 9: The government announced that it will set aside 3 billion euros ($3.44
billion) to provide additional funding to the health service (435 million euros), boost
workers’ sick pay and benefits (2.4 billion euros), and offer liquidity assistance to
businesses affected (200 million euros).
Israel Bank of Israel
March 18: Announced it would allocate up to $15 billion for swap transactions
between currencies for domestic banks, part of a move aimed at shoring up the
Israeli economy amid the COVID-19 pandemic.
April 6: Cut its benchmark interest rate to 0.1% from 0.25%, its first rate cut in five
years, expanded its repo transactions so that the agreements can include corporate
bonds—in addition to government bonds—as security, and will provide loans to
banks for a term of three years (with a fixed interest rate of 0.1%) with the goal of
increasing the supply of bank credit to small businesses. The size of the plan will be 5
billion shekels.
Government of Israel
March 9: The Finance Ministry announced that it was opening a 4 billion-shekel
credit line for banks to lend money to small and medium-sized businesses facing a
cash crisis with a high-level government guarantee.
March 11: Will expand an aid package (for a second time) to help the country deal
with the COVID-19 outbreak by 6 billion shekels to a total of 10 billion shekels ($2.8
billion). Of that, 8 billion shekels will be in a fund to provide cheap loans to
businesses, 1 billion shekels will boost the health system by increasing medicine
stocks and preparing hospitals to receive a larger number of patients, and 1 billion will
be earmarked for needs such as the police force.
March 16: Will expand its aid package (for a third time) to help businesses hurt by
the COVID-19 crisis by another 5 billion shekels ($1.3 billion).
March 30: Announced that it will spend 80 billion shekels ($22 billion) to help the
economy weather the COVID-19 crisis—70 billion shekels in addition to 10 billion
already promised to boost welfare services for those who have lost their jobs or are
on unpaid leave and to assist the private sector. It includes a 20-billion-shekel social
safety net, with stipends for those who lost income; 40 billion shekels earmarked to
assist businesses with tax breaks, loans, and other services; about 10 billion for the
healthcare system; and nearly 8 billion will be spent to speed up the recovery.
Italy Government of Italy
March 11: 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.
April 6: Announced a new emergency decree aimed at granting liquidity and bank
loans worth more than 400 billion euros to companies hit by COVID-19. The new
legislation, combined with a previous stimulus package in March, would allow banks
to offer credit totaling over 750 billion euros ($809.78 billion).
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
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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).
Government of Japan
February 13: Unveiled a set of measures worth 15.3 billion yen ($140 million) to
fight the spread of COVID-19; 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 COVID-19 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.
March 23: Announced that it is working on a package of measures to combat the
widening economic fallout from the COVID-19 that will involve direct fiscal spending
exceeding 15 trillion yen ($137 billion). Including loans and other steps that does not
include direct spending, the size of the package may exceed 30 trillion yen.
April 6: Announced a 108 trillion yen ($989 billion, equivalent to 20% of gross
domestic product) stimulus package, Japan’s largest ever, to rescue the COVID-19-hit
economy. It will include cash handouts worth 6 trillion yen for households and small
businesses hit by the virus and offers businesses deferrals on tax and social service
costs worth 26 trillion yen. The first phase of the package aims to stop job losses and
bankruptcies, while a second round of aid, after the virus is contained, will try to
support a V-shaped economic recovery.
Kazakhstan National Bank of Kazakhstan
April 3: Cut its policy rate to 9.5% from 12.0% in an unscheduled move aimed at
boosting economic growth.
Government of Kazakhstan
March 23: The president ordered state-owned companies to start selling part of
their foreign currency revenue on the domestic market to support the local tenge
currency (and to pay out up to 100% of last year’s profits in dividends) in order to
soften the impact of the oil price crash and the COVID-19 outbreak on the economy.
He also ordered a standstill on bank loan repayments by individuals and small- and
medium-sized businesses for the duration of the state of emergency, announced that
the government would pay 42,500 tenge ($95) per month to people who have lost
their source of income, was delaying tax payments for small businesses, and stood
ready to more than triple spending on a program to provide temporary employment
through infrastructure maintenance and construction projects. Together with soft
loan program and other spending, the volume of the stimulus package is expected to
reach $10 billion.
April 2: Announced that it plans to borrow $3 billion on foreign capital markets to
finance its budget deficit this year, due to the collapse in energy prices and the
additional stimulus spending amid the COVID-19 outbreak.
Kenya Central Bank of Kenya
March 23: Cut its benchmark lending rate by 100 basis points to 7.25% and lowered
the cash reserve ratio for commercial banks to 4.25% from 5.25%. The move to
lower the cash ratio is expected to release an extra 35.2 billion shillings ($330.83
million) for banks to lend to customers trying to deal with the outbreak.
Government of Kenya
March 16: The World Bank announced that it is making $60 million available to
Kenya’s health sector to help it deal with the COVID-19 outbreak.
March 24: Announced that it will seek emergency assistance from the IMF of up to
$350 million, and $750 million from the World Bank, release 49 billion shillings ($460
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million) to pay pending bills to suppliers, and expedite the payment of close to 10
billion ($94 million) shillings in value-added tax refunds to businesses in the next two
to three months.
March 25: Announced that the value-added tax rate would be cut to 14% from 16%
and corporation tax would be reduced to 25% from 30% under plans scheduled to
come into force by April, and that there would be 100% tax relief for Kenyans
earning a monthly income of up to 24,000 Kenyan Shillings ($226) to increase their
disposable income.
Kuwait Central Bank of Kuwait
March 16: 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.
April 2: Announced a stimulus package to support vital sectors and small and
medium enterprises (SMEs) amid the fallout from the COVID-19 pandemic. It cut
capital adequacy requirements by 2.5%, eased the risk weighting for SMEs to 25%
from 75%, raised the maximum lending limit to 100% from 90%, and increased the
maximum financing for residential real estate developments to the value of the
property or the cost of development. The measures are expected to raise banks’
lending capacity by 5 billion dinars ($16 billion).
Government of Kuwait
April 1: Announced measures aimed at shoring up its economy against the pandemic,
including soft long-term loans from local banks to provide liquidity for small and
medium-sized enterprises and directing government agencies to pay obligations to the
private sector as soon as possible.
Malaysia Government of Malaysia
February 27: Announced the “Economic Stimulus Package 2020” to mitigate the
economic impact of COVID-19, improve the cash flow of affected businesses,
stimulate private consumption, and accelerate domestic investment activities. It
includes exempting accommodation services from services tax, providing sales tax
exemptions, and lifting duties on certain imports.
March 27: Announced a stimulus package worth 250 billion ringgit ($58.28 billion),
its second in a month, to help cushion the economic blow from the pandemic. It
includes a 25 billion ringgit direct fiscal injection by the government aimed at helping
families and business owners; one-off payments and discounts on utilities for people
whose livelihoods have been affected; 1 billion ringgit for a food security fund; and a
50 billion ringgit loan scheme for larger companies, which will offer guarantees of up
to 80% of the sum borrowed to shore up working capital in the corporate sector.
Mauritius March 10: The Bank of Mauritius cut its key repo rate by 50 basis points to 2.85%
amid the COVID-19 outbreak, which is expected to have a significant impact on the
domestic economy.
Mexico Banxico (Bank of Mexico)
February 13: Cut its key rate by 25 basis points to 7.0%.
March 19: Lowered its benchmark interest rate by 50 basis points to 6.50% in an
out-of-cycle cut in a bid to support the country’s financial markets, reduced the rates
on its additional ordinary liquidity facility, and cut by 50 billion pesos ($2.06 billion)
the monetary regulation deposit that private banks must observe.
Moldova National Bank of Moldova
March 4: Cut its main interest rate by 100 basis points to 4.50%, citing the domestic
disinflationary trend and global economic concerns related to the COVID-19
outbreak.
March 20: Cut its main interest rate for the second time in March to 3.25% from
4.50% in order to support banking system amid markets volatility due to the COVID-
19 spread.
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Mongolia March 11: The Central Bank of Mongolia cut its policy rate 100 basis points to
10.0% in response to increased uncertainties in connection with the spread of
COVID-19. It also lowered the reserve requirement on banks..
Morocco March 15: Morocco’s King Mohammed VI ordered the creation of a 10 billion-
dirham ($1 billion) fund to upgrade health infrastructure, help vulnerable economic
sectors such as tourism, maintain jobs, and mitigate the social repercussions of the
outbreak.
March 17: Bank Al-Maghrib (Central Bank of the Kingdom of Morocco) cut its
benchmark interest rate by 25 basis points to 2% in order to help shore up economic
activity following a drought and the outbreak of COVID-19.
Netherlands Government of the Netherlands
March 12: Announced that it would expand loan guarantees for small and medium
sized enterprises, from 50% to 75%.
March 12: The Tax Authority will allow companies affected by COVID-19 to defer
income, corporate, turnover, and wage taxes for the time being.
March 17: Announced measures to support companies, ranging from tax
exemptions to having up to 90% of wages lost for work hour reductions paid by the
government.
New Zealand 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.
March 22: Announced that it will purchase up NZ$30 billion ($17 billion) of
government bonds in the secondary market over the next 12 months. It will seek to
buy NZ$750 million bonds a week across a range of maturities, via an auction
process.
March 24: Reduced banks’ core funding ratios to 50% from 75% to help banks make
credit available.
March 30: Announced that it was deploying more tools to provide additional
liquidity to the corporate sector and support market functioning to offset the impact
of the pandemic. A new weekly Open Market Operation—to be held each Tuesday—
will provide liquidity in exchange for eligible corporate and asset-backed securities by
offering up to NZ$500 million ($300 million) for terms out to approximately three
months, starting on March 31. The bank also will offer to purchase government bonds
maturing on May 15, 2021, for liquidity management purposes.
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.
March 24: Announced that retail banks will offer a six-month principal and interest
payment holiday for mortgage holders and small business customers whose incomes
have been affected by the economic disruption from COVID-19. The government and
the banks will also implement a NZ$6.25 billion ($3.62 billion) Business Finance
Guarantee Scheme for small and medium-sized businesses. It will include a limit of
NZ$500,000 per loan and will apply to firms with a turnover of between
NZ$250,000 and NZ$80 million per annum (the government will carry 80% of the
credit risk, with the other 20% to be carried by the banks).
Norway Norges Bank
March 13: Cut its key interest rate to 1% from 1.5%, as it seeks to counter the
economic impact of the COVID-19 pandemic. It indicated that it would offer funding
to banks to help counter the volatility in financial markets and announced that banks’
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countercyclical capital buffer would be reduced from 2.5% to 1%, to help banks
continue to lend money.
March 20: Cut its key policy rate by 75 basis points to 0.25% from 1.0% in a bid to
alleviate the economic impact from the COVID-19 outbreak. It also offered a third
batch of extraordinary loans to the banking industry to ensure it has enough for the
months ahead.
March 30: Increased its planned issuance of government bonds this year to between
70 billion and 85 billion Norwegian crowns ($6.68 billion-$8.11 billion) from an
original plan of 55 billion crowns, following the government’s decision to offer loans
worth tens of billions of crowns in emergency funding to companies hurt by the
coronavirus outbreak.
March 31: Will increase further its daily purchase of Norwegian currency to 2 billion
crowns ($190 million) per day from 1.6 billion crowns in order to make funds
available for the government’s fiscal budget. (On March 18, it announced that it would
increase it to 1.6 billion Norwegian crowns per day from 500 million crowns.)
Government of Norway
March 13: Announced that it would pay a greater part of the bill for all companies
seeking to make temporary layoffs, suspended all airport fees for the first six months
of 2020, and lifted for a period of 10 months the tax charged for each passenger.
March 15: Announced that it would offer companies at least 100 billion Norwegian
crowns ($9.7 billion) in funding in the form of loan guarantees (50 billion crowns to
small and medium sized companies seeking bank loans) and bond issues (50 billion
crowns to large firms issuing corporate bonds). In addition, payments of payroll taxes
will be postponed.
March 20: Presented legislation that would temporarily reduce the value-added tax,
postpone tax filing deadlines and add worker and business protections under a 280
billion kroner ($24 billion) plan to boost the economy amid the pandemic. Along with
the tax provisions, the legislative package includes two previously announced lending
programs that the government said would provide up to 100 billion kroner in support
for Norwegian businesses, improving their access to credit to ensure liquidity.
March 27: Proposed new measures to support businesses hit by the viral outbreak
and a sharp fall in the price of oil. They include, among other things, covering fixed
costs for companies affected by the coronavirus outbreak at a cost of 10 billion to 20
billion Norwegian crowns ($958 million to $1.92 billion) per month for two months.
Oman March 18: The Central Bank of Oman announced that it will provide about 8 billion
Omani rials ($20.8 billion) in extra liquidity to banks as one of several measures
aimed at supporting the economy. It also asked banks to cut banking fees, adjust
capital and credit ratios, allow repayment postponements for up to six months, and
facilitate lending, particularly in sectors affected by the COVID-19, including
healthcare, travel and tourism.
Pakistan State Bank of Pakistan
March 17: Cut its key interest rate by 75 basis points to 12.50% in response to the
anticipated slowdown due to COVID-19, provided additional support to investment,
offering a new package of 100 billion rupees ($630.5 million) for investment in the
manufacturing sector to fund investors at 7% for 10 years., and announced that it
would refinance banks to provide 5 billion rupees ($31.5 million) at a maximum of 3%
for the purchasing of equipment used to fight the COVID-19.
March 24: Cut its benchmark interest rate for the second time in a week, lowering
it by 150 basis points to 11% amid considerable uncertainty about how the COVID-
19 outbreak would impact the global economy and Pakistan.
Government of Pakistan
March 24: Announced a financial-relief package of more than 1 trillion rupees ($6.3
billion) to support the economy and poorer workers. It will include help to the
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export and industry sectors, tax breaks, procurement of medical and other
equipment required to fight the pandemic, and the distribution of a monthly cash
stipend among the poor.
Paraguay Central Bank of Paraguay
March 13: Cut its benchmark interest rate by 25 basis points to 3.75%, as part of a
series of measures aimed at dealing with the impact of the COVID-19 outbreak.
Banks’ reserve requirements will also be reduced to help the financial sector
refinance debts.
Government of Paraguay
March 13: Announced tax relief measures, as well as $150 million of credit lines in
state banks and loans from multilateral agencies.
Peru Central Reserve Bank of Peru
March 19: Cut its benchmark interest rate by 100 basis points to 1.25%, from 2.25%
to counter the economic impact of the COVID-19 pandemic and announced that, if
necessary, could employ other additional liquidity injection instruments to alleviate
the crisis.
March 29: Announced that that as part of the 90 billion soles stimulus plan
announced on March 29, the Bank would inject 30 billion soles into banks for loans to
mainly smaller companies to help cover their working capital.
April 2: Announced that it is preparing a major bond issuance to help underwrite an
unprecedented stimulus package to counter the economic impact of the fast-
spreading pandemic.
Government of Peru
March 29: Announced that it is planning an economic stimulus package worth
around 90 billion soles ($26.41 billion or 12% of gross domestic product) to support
citizens and the key mining sector that have been impacted by COVID-19. It will have
three phases of 30 billion soles each: containing the disease, ensuring companies’
payment chains by granting credit guarantees, and reactivating production, particularly
in the copper industry.
Philippines Central Bank of the Philippines (Bangko Sentral ng Pilipinas)
March 19: Cut the rate on its overnight reverse repurchase facility by 50 basis
points to 3.25%, authorized a temporary relaxation of regulations on compliance
reporting by banks, calculations of penalties on required reserves and single borrower
limits, and approved a temporary reduction to zero of the term spread on
rediscounting loans relative to the overnight lending rate.
March 23: Revealed it would purchase up to 300 billion Philippine peso ($5.9 billion)
worth of short-term securities under a repurchase agreement with the Bureau of the
Treasury in a bid to inject a fresh round of liquidity into the market and to keep a lid
on interest rates in the process.
March 24: Announced a 200 basis points reduction in the reserve requirement ratio
(RRR) to calm financial markets and boost lending. The cut, effective March 30, will
bring the ratio to 12% and ensure there is sufficient liquidity to counter the economic
impact of the COVID-19 outbreak.
Government of the Philippines
March 13: 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 16: The government announced a 27.1-billion peso package to help fight the
COVID-19 pandemic and provide economic relief to affected sectors.
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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”.
March 22: The Philippine Congress is reportedly drafting a stimulus package of at
least 200 billion pesos ($3.9 billion) as part of a supplemental budget to shore up the
economy from the impact of the COVID-19 outbreak.
March 19: The Philippine Stock Exchange reopened with shortened hours.
Poland National Bank of Poland
March 17: Cut its benchmark interest rate by 50 basis points to 1.0% from 1.5% in
response to the COVID-19 pandemic; it also lowered its lombard rate to 1.50% from
2.50% and the rediscount rate to 1.05% from 1.75%, reduced banks’ required reserve
ratios to 0.5% from 3.5%, announced plans to boost banking sector liquidity (through
the extension of repo operations), and offered “large-scale” purchases of government
bonds as part of its open-market operations.
Government of Poland
March 18: Announced an economic stimulus package of 212 billion zloty ($52 billion,
or approximately 9% of gross domestic product) to assist entrepreneurs and
employees during the COVID-19 crisis. It consists of 5 pillars: employee safety,
company financing, health protection, strengthening the financial system, and a public
investment program. Specific measures include holidays in debt repayments and social
contributions, loan guarantees, as well as payments of salaries to those unable to
work.
March 26: Announced that the state bank BGK will issue bonds worth around 16
billion zlotys ($3.9 billion) in 2020-2021 as part of a wider plan to combat the
coronavirus impact on the economy. The state will buy the bonds back in 2021-2025,
spending around 2.5 billion zlotys a year in the first year and then around 3.7 billion
zlotys annually.
Portugal Government of Portugal
March 13: Announced a 2.3 billion-euro package that will include delaying some tax
payments and granting soft loans. Companies will be allowed to suspend social
security payments and maintain employees’ contracts with payments equal to two-
thirds of salaries, funded largely by the state, and workers who have to stay at home
to care for school children of up to 12 years of age will receive 66% of their base
salaries.
March 18: Announced a 9.2 billion-euro package to support workers and provide
liquidity for companies affected by the COVID-19 outbreak. It consists of 5.2 billion
euros in fiscal stimulus, 3 billion in state-backed credit guarantees, and 1 billion
related to social security payments. (Just over half of the 3 billion euros in credit lines
announced is aimed at companies working in tourism, hotels and restaurants. The
other half goes to industries like textiles, clothing and wood. Around a third is set
aside for micro and small enterprises.)
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 COVID-19, 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
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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.
Romania March 20: The National bank of Romania cut its benchmark interest rate by 50 basis
points to 2.0% in order to curb the economic fallout from the COVID-19 outbreak. It
also cut its lending rate facility to 2.50% from 3.50% and will provide liquidity to banks
via repo transactions and purchase leu-denominated debt on the secondary market.
Saudi Arabia Saudi Arabian Monetary Authority
March 15: 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
COVID-19; it also lowered by 75 basis points both its repo rate to 1%, and its
reverse repo rate to 0.5%.
Government of Saudi Arabia
March 20: Introduced an additional stimulus package worth 120 billion riyals ($32
billion) to aid businesses, including the postponement of value-added tax (VAT),
excise tax, and income tax payments for a period of three months and exemptions of
various government levies and fees.
March 30: Announced that it will finance treatment for anyone infected with
COVID-19 in the country, and took steps to boost wheat and livestock supplies amid
global fears of a food shortage.
Serbia National Bank of Serbia
March 11: Cut its reference interest rate by 50 basis points to 1.75% to help
minimize economic disruption caused by the COVID-19 outbreak.
Government of Serbia
March 29: Announced that it plans to offer about 5 billion euros ($5.54 billion) in
loans and subsidies to businesses to help them cope with the economic impact of
COVID-19 and make a one-time payment of 100 euros to every citizen older than
18. The president indicated that the state would use 700 million euros to pay
minimum wages of 30,367 dinars ($288.58) and allow tax delays for micro and small
enterprises for the three months after the end of the state of emergency to avoid job
loss.
Seychelles March 24: The Central Bank of Seychelles cut its monetary policy rate by 100 basis
points to 4.0%, indicating that this was the first phase of its response to the challenge
from the spread of the COVID-19, which is expected to lower this year’s earnings
from tourism by 70% and trigger a double-digit drop in economic growth.
Singapore Monetary Authority of Singapore
March 30: Announced that it would adopt a 0% per annum rate of appreciation of
the policy band starting at the prevailing level of the Singapore Dollar Nominal
Effective Exchange Rate (S$NEER), currently slightly below the mid-point of the
policy band.
Government of Singapore
February 18: Announced around $4.5 billion in financial packages to help contain
the COVID-19 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.
March 26: Unveiled stimulus plan worth around S$48 billion ($33.7 billion) to deal
with the economic fallout from COVID-19 (of which S$17 billion will be drawn from
the national reserves). A key part of the stimulus package involves ramping up a jobs
support scheme first announced in February. The government will now offset up to
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25% of the first S$4,600 of workers’ monthly wages for a nine-month period (up from
the 8% quantum and S$3,600 cap announced in February), while self-employed
workers will be eligible to receive monthly payments of S$1,000 for nine months.
Some hard-hit sectors will receive additional support: the government would offset
up to 50% of wages in the food services sector and up to 75% of wages in the aviation
and tourism sectors. A previously announced cash payout to all adult Singaporeans
would be tripled and low-income families will also receive grocery vouchers.
Slovakia Government of the Slovak Republic
March 29: Announced plans for an aid package of up to 1 billion euros a month to
help firms and employees hurt by the pandemic. Under the plan, the state would (1)
pay 80% of wages for employees at firms forced to shut, (2) help self-employed
people and employees in firms that suffer falling revenue, with payments linked to the
size of the revenue drop, (3) allow employers to postpone their contributions to
state social and health systems and delay some tax payments if they suffer a 40% drop
in revenue; (4) allow firms to offset accumulated losses from past years going back to
2014 against corporate income tax, and (5) offer firms bank guarantees of up to 500
million euros a month.
South Africa South African Reserve Bank
March 19: Cut its main lending rate by 100 basis points to 5.25% as it sought to
offset the drag from the COVID-19 outbreak and the plunge in oil prices.
March 20: Announced measures to inject liquidity into local markets, including
intraday overnight supplementary repos to provide liquidity support to clearing banks,
lowering the standing facilities’ borrowing rate by 100 basis points to 200 basis point
below the benchmark repo rate, and lowering the standing facilities’ lending rate to
the repo rate from the previous rate of repo plus 100 basis points.
March 25: Announced that it would begin buying an unspecified amount of
government bonds as part of additional emergency policy measures aimed at easing a
severe liquidity crunch triggered by the COVID-19.
South Korea Bank of Korea
March 16: Cut the seven-day repurchase rate by 50 basis points to 0.75% in an
effort to soften the impact of the COVID-19 pandemic on the Korean economy. It
also lowered borrowing costs for the bank’s low interest rate loan programs and
relaxed collateral rules of its repurchasing operations, to ensure companies can easily
and cheaply access credit.
March 19: Announced that it will buy government bonds worth 1.5 trillion won
($1.2 billion) to bolster liquidity in the bond market and back short-term liquidity in
banks under increased loan demand due to fallout from COVID-19.
Government of the Republic of 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.
March 17: The National Assembly approved a supplementary budget worth 11.7
trillion won ($9.4 billion) to help contain COVID-19 and cushion the economic
fallout. The government has indicated that it plans to execute at least 75% of its
spending within the next two months.
March 18: Pledged 50 trillion won ($40 billion) in emergency financing for small
businesses and other stimulus measures to help the economy. Some highlights of the
package include 12 trillion won in low-interest financing for small firms, 5.5 trillion
won in loan guarantees, easing loan terms and suspending interest payments for small
businesses. The Bank of Korea reportedly will actively provide liquidity support for
around half of the new package.
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March 20: South Korea’s financial authorities and local banks agreed to set up a
bond market stabilization fund worth more than 10 trillion won ($7.9 billion) as part
of the country’s efforts to calm financial markets roiled by the spread of COVID-19.
March 24: Announced that it would double the planned economic rescue package
announced on March 18 to 100 trillion won ($80 billion) to save companies hit by the
COVID-19 and put a floor under crashing stocks and bond markets. It includes 29.1
trillion won in loans to small- and medium-sized companies and 20 trillion won will be
used to buy corporate bonds and commercial paper of companies facing a credit
crunch. As part of the rescue package, the Financial Services Commission will
establish a 10.7 trillion won facility set up to stabilize stock markets. It will also
commence a bond buying facility in April that will be funded by 84 institutions,
including the Bank of Korea, commercial banks and insurers.
March 29: Announced that an “emergency disaster relief payment” of up to 1 million
won ($820) would be made to all households (except the top 30% by income),
totaling some 9.1 trillion won ($7.44 billion). It is also preparing another extra budget
worth 7.1 trillion won ($5.80 billion) for parliamentary approval in April, and will
exempt some small and medium-sized companies from paying utility bills.
Spain Government of Spain
March 12: Approved the creation of a 2.8 billion euro ($3 billion) aid package to
help regional authorities mitigate the economic impact from COVID-19, and
announced a 1 billion euro contribution to the health ministry’s budget and 14 billion
euros ($15.1 billion) in liquidity for small and medium companies (e.g., small
businesses affected by the outbreak would be exempt from paying taxes for six
months). It also announced that it would open a 400 million euro credit line to aid
the tourism industry.
March 17: Unveiled a package of 200 billion euros ($219 billion) to mitigate the
effects of COVID-19 (117 billion euros will be mobilized by the state, with the rest
coming from private companies). It will include state-backed credit guarantees for
companies, loans and aid for vulnerable people, a moratorium on mortgage payments
and evictions; the government will also guarantee water, electricity and internet to
for people adversely affected.
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 COVID-19 in
the country.
April 3: The Central Bank of Sri Lanka cut by a further 25 basis points its benchmark
interest rates (the Standing Deposit Facility Rate and Standing Lending Facility Rate to
6.00% and 7.00%, respectively), its second such reduction in three weeks, in a move
to support the economy amid the coronavirus pandemic.
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 COVID-19, 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.
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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 COVID-19 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).
Switzerland Swiss National Bank
March 23: Hiked its foreign currency interventions to their highest level since the
Brexit referendum in 2016 in an effort to stem the rise in the franc, which has
appreciated as investors sought safe assets while stock markets have plunged during
the coronavirus pandemic.
Government of Switzerland
March 13: Unveiled an emergency economic-aid package of roughly 10 billion francs
($10.5 billion) for workers and small businesses. It includes 8 billion francs for
“Kurzarbeit,” or short-time work, and 580 million francs in guaranteed bank loans.
March 20: Announced a new 32 billion franc ($32.56 billion) aid package to support
companies and workers hit by the widening COVID-19 outbreak. The bulk of the
cash (20 billion francs) will go into guarantees for bank loans to companies at “very
modest” interest rates. Firms will be able to get loans worth up to 10% of their
revenue, to a maximum of 20 million francs. Amounts of 500,000 francs will be paid
out immediately and guaranteed by the government. The government’s short-time
working scheme would also be extended to fixed-term, temporary workers, and
trainees. The package follows one worth 10 billion francs announced on March 13,
bringing the total stimulus to 42 billion francs ($42.8 billion).
March 31: Announced that it is stepping up its funding plans in response to
government measures to cushion the economic impact of the pandemic, doubling the
volume of outstanding short-term money market instruments. The Federal Finance
Administration (FFA) will increase the outstanding volume of short-term money
market instruments, from around 6 billion francs ($6.24 billion) to 12 billion francs,
and will once again step up sales of its own Confederation bond holdings.
Taiwan Central Bank of the Republic of China (Taiwan)
March 19: Cut its benchmark rate by 25 basis points to 1.125%, and announced that
it would expand the scope of repurchase facility operations and provide banks with
T$200 billion ($6.6 billion) of financing to support small and medium sized companies
which have been hard hit by the COVID-19 outbreak.
Government of Taiwan
February 25: Approved a T$60 billion ($2 billion) package to help cushion the
impact of the COVID-19 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: 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.
March 19: The president said that the government would help its hard-hit airline
industry access T$50 billion in financing, and did not rule out further economic
stimulus.
March 19: Authorized its National Stabilisation Fund to intervene and buy stocks on
the market, as the island’s bourse continues to fall on COVID-19 worries.
Thailand Bank of Thailand
March 20: Cut its key interest rate by 25 basis points to 0.75%, as the spread of
COVID-19 exerted further pressure on the Thai economy.
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March 22: Together with the Ministry of Finance and the Securities and Exchange
Commission, announced three measures to address liquidity concerns and ensure the
functioning of local financial markets: (1) setting up a special facility that allows
commercial banks that purchase units in high-quality money market funds or daily
fixed-income funds to use them as collateral for liquidity support (initial estimate is 1
trillion baht); (2) creation of a 70-100 billion baht “Corporate Bond Stabilization
Fund” that invests in high-quality, newly issued bonds by corporates that cannot fully
rollover maturing corporate bonds, and (3) Bank of Thailand will continue to
purchase government bonds to provide liquidity to the market.
Government of Thailand
March 10: Approved a stimulus package worth an estimated 400 billion baht ($12.74
billion) to help alleviate the impact of the COVID-19 outbreak. It includes 150 billion
baht of soft loans, a 20 billion baht fund to help firms and workers affected, and tax
benefits and support for utilities costs.
March 24: Approved a package of stimulus measures worth at least 117 billion baht
($3.56 billion) to try to mitigate the impact of the coronavirus outbreak. The
measures include cash handouts worth 45 billion baht for 3 million workers outside
the social security system; soft loans worth 60 billion baht; and tax breaks. Separately,
small firms will be offered 10 billion baht of loans and business tax payments will be
delayed.
March 30: Announced that it is preparing a third stimulus package, worth more than
500 billion baht ($15.3 billion), to alleviate the impact of the coronavirus crisis.
March 31: Agreed to triple the number of workers receiving cash handouts to nine
million to help ease the impact of the spreading coronavirus. It had previously planned
to provide cash handouts of 15,000 baht ($458) each to 3 million workers, taking the
total to 45 billion baht ($1.38 billion). Now its total handout will reach 135 billion
baht ($4.13 billion).
Tunisia Central Bank of Tunisia
March 17: Cut its key interest rate by 100 basis points to 6.75%, as it responded to
the negative impact of the COVID-19 on the global growth outlook.
April 1: Asked banks and financial institutions to suspend the distribution of 2019
dividends and allow customers to defer loan payments for three months as part of a
package to ease the social and economic effects of the coronavirus.
Government of Tunisia
March 21: Announced that it would allocate 2.5 billion dinars ($850 million) to
combat the economic and social effects of the COVID-19 health crisis. Among new
measures, the government will delay tax debts, postpone taxes on small- and
medium-sized businesses, delay repayment of low-income employee loans, and
provide financial assistance to poor families and those who have lost their jobs due to
the crisis and loans and aid to help companies affected.
March 23: The finance minister announced that the International Monetary Fund will
disburse $400 million to help the country face the effects of COVID-19.
March 28: The European Union granted Tunisia 250 million euros in aid to help it
cope with the economic and social effects of the viral outbreak.
Turkey Central Bank of Turkey
March 17: Lowered its benchmark one-week repo rate by 100 basis points to 9.75%,
as it responded to the negative impact of the COVID-19 on the global growth
outlook.
March 31: Announced emergency measures to stem the fallout from a growing
pandemic. It would (1) allow primary dealers to sell to the Bank (for a temporary
period) debt they purchased from the Unemployment Insurance Fund, (2) extend 60
billion lira ($9 billion) worth of rediscount credits, (3) add more lending options well
below its 9.75% policy rate, (4) hold swap auctions with six-month maturities for lira
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against dollars, euros, or gold at an interest rate 125 basis points lower than the
policy rate, and (5) allow lenders to use mortgage- and asset-backed securities as
collateral for foreign exchange operations.
Government of Turkey
March 18: Unveiled a 100 billion-lira ($15.4 billion) plan to help businesses affected
by the COVID-19 pandemic. It includes measures from tax cuts and payment
deferrals for businesses to an increase in minimum pension payouts.
Ukraine March 19: The government published a new law that will exempt taxpayers from
paying the land and property taxes from March 1 to April 30, introduced a
moratorium on tax audits from March 18 to May 31, and suspended some tax-related
penalties from March 1 to May 31.
Uganda Bank of Uganda
March 24: Sold dollars in the interbank market to support the local currency, which
has been experiencing sharp depreciation due to COVID-19-related disruptions.
April 6: Cut its policy rate by 100 basis points to 8.0% to support the economy
which has been hit by the impact of COVID-19. It also announced that it had
“directed” commercial banks to defer all discretionary payments, such as dividends
and bonus payments, for at least 90 days from March.
United Arab Emirates Central Bank of the UAE
(UAE) March 15: Announced a 100 billion dirham ($27 billion) stimulus package to deal
with the economic effects of the COVID-19 pandemic; it cut the rate on one-week
certificates of deposit by 75 basis points and will also ease regulatory limits on loans.
April 5: Announced new measures to guarantee liquidity in the banking system in the
face of the pandemic, boosting its stimulus to a total of 256 billion dirhams ($70
billion) from a previously announced 100 billion dirhams ($27 billion) package. It also
halved banks’ reserve requirements for demand deposits to 7% from 14%, which will
inject about 61 billion dirhams of liquidity to support banks’ lending and liquidity
management, extended the duration of a previously announced deferral of loan
principal and interest payments for customers until the end of the year, and said
banks participating in the scheme can benefit from a capital buffer relief of 50 billion
dirhams until December 2021, among other measures.
Government of the UAE
March 30: Announced that it would inject funding into state-owned Emirates
Airlines to help it deal with the impact of COVID-19 on its business.
April 5: Announced that it would reinforce its stockpile of strategic goods and waive
residency visa fines for the rest of the year in response to the viral outbreak.
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.
March 19: Cut its benchmark rate by 15 basis points to 0.1% to try to mitigate the
impact of COVID-19 on the British economy, added 200 billion pounds ($232 billion)
to its asset purchase program (including sovereign and private debt), increased its
banks’ borrowing allowance under the Term Funding Scheme for Small and Medium
Enterprises from 5% to 10% of participants’ stock of real economy lending, and
cancelled its 2020 stress test of the 8 major UK banks.
April 2: Announced that it will double the size of its corporate bond purchase
program to at least 20 billion pounds ($24.7 billion), part of a previously announced
stimulus package to help the economy. It will begin ramping up its corporate bond
purchases through a series of reverse auctions starting on April 7, holding three a
week, and it will be able to buy 20 million pounds of any single bond—double the
previous amount.
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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.)
March 17: Unveiled a package of 350 billion pounds ($424 billion) to support the
economy; it includes 330 billion pounds of guaranteed loans for businesses that need
cash to pay rent or suppliers, 20 billion pounds of tax cuts and grants for businesses
in 2020, a three-month mortgage payment holiday for borrowers affected by the
virus, and a one-year “business rates” holiday for businesses in the retail, leisure, and
hospitality industry.
March 28: Will ease regulations for affected businesses, including simplifying the
insolvency system to keep companies trading, easing administrative requirements and
barriers to the import of personal protective equipment, and helping new companies
produce and distribute hand sanitizer within a matter of days.
Vietnam State Bank of Vietnam
February 24: Ordered commercial banks to eliminate, cut, or delay interest
payments on loans to companies facing losses due to the coronavirus outbreak.
March 16: 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%).
Government of Vietnam
March 3: Announced measures worth 27 trillion dong ($1.16 billion) to help
businesses cope with the coronavirus epidemic and help the economy stick to its
6.8% growth target this year. They include tax breaks, delayed tax payments, and a
reduction in land lease fees. The government will also speed up state spending on
infrastructure projects.
Zimbabwe Reserve Bank of Zimbabwe
March 26: Cut its main lending rate to 25% from 35% and set a fixed exchange rate
(at 25 Zimbabwe dollars to the U.S. dollar) as part of measures to support the
economy. It indicated that it had suspended the managed floating exchange rate
system to provide for greater certainty in the pricing of goods and services in the
economy.
Government of Zimbabwe
March 29: Published new exchange control regulations making it legal for
Zimbabweans to use electronic and cash foreign currencies in domestic transactions,
as the country readies for a 21-day lockdown to prevent the spread of COVID-19.
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Multi-Country and March 4: The International Monetary Fund (IMF) made $50 billion in loans
International available to deal with the COVID-19 through its rapid-disbursing emergency financing
Institutions’ facilities, including $10 billion of zero-interest loans to the poorest IMF member
Responses countries. On March 16, the IMF announced that it “stands ready to mobilize its $1
trillion lending capacity to help our membership" and that it has “40 ongoing
arrangements—both disbursing and precautionary—with combined commitments of
about $200 billion,” some of which could be used for this crisis, and that it is aiming
to boost its debt relief fund to $1 billion from its current level of $400 million.
March 3: The World Bank announced an initial package of up to $12 billion in
loans for countries to help countries cope with the effects of the COVID-19
outbreak. Specifically, it comprises up to $2.7 billion new financing from IBRD, $1.3
billion from IDA, complemented by reprioritization of $2 billion of the Bank’s existing
portfolio, and $6 billion from IFC, as well as policy advice and technical assistance ($8
billion is new funding and the remaining $4 billion is redirected from current lines of
credit).
March 11: The Inter-American Development Bank (IADB) announced that it
has up to $2 billion in resources that can be programmed to countries requesting
support for disease monitoring, testing and public health services, and that it could
work with countries that have undisbursed loan balances to redirect resources to
pandemic-response efforts.
March 13: The European Bank for Reconstruction and Development
(EBRD) unveiled an emergency €1 billion “Solidarity Package” of measures to help
companies across its regions deal with the impact of the COVID-19 pandemic. Under
the emergency program, the EBRD will set up a “resilience framework” to provide
financing for existing EBRD clients with strong business fundamentals experiencing
temporary credit difficulties, comprising emergency liquidity, working capital and
trade finance.
March 15: The Bank of Canada, the Bank of England, the Bank of Japan, the
European Central Bank, the U.S. Federal Reserve, and the Swiss National Bank
agreed to lower the pricing on the standing US dollar liquidity swap arrangements by
25 basis points, so that the new rate will be the US dollar overnight index swap (OIS)
rate plus 25 basis points.
March 16: The European Investment Bank Group (EIBG) proposed a 40
billion euro financing package consists of dedicated guarantee schemes to banks based
on existing program for immediate deployment (20 billion euros), liquidity lines to
banks to ensure additional working capital support for SMEs and mid-caps (10 billion
euros), and asset-backed securities purchasing programs to allow banks to transfer
risk on portfolios of SME loans (10 billion euros).
March 16: The Islamic Development Bank (IsDB) Group announced that it is
setting-up a special “Strategic Preparedness and Response Facility” of $730 million to
mitigate the negative health and socio-economic impact of the COVID-19 pandemic.
It will include $280 million from the Bank and Islamic Solidarity Fund for
Development (ISFD) for sovereign projects and programs, $300 million from
International Islamic Trade finance Corporation (ITFC) for trade finance and $150
million from the Islamic Corporation for the Insurance of Investment and Export
Credit (ICIEC) for insurance coverage.
March 16: The Central American Bank for Economic Integration (CABEI)
granted a nonreimbursable financial package worth $8 million to the eight countries
of the Central American Integration System in order to combat the widening
economic fallout from the COVID-19 (Guatemala, El Salvador, Honduras, Nicaragua,
Costa Rica, Panama, Belize, and the Dominican Republic will each receive $1 million).
March 18: The Asian Development Bank (ADB) announced a $6.5 billion initial
package to address the immediate needs of its developing member countries (DMCs)
as they respond to the COVID-19 pandemic. The initial package includes
approximately $3.6 billion in sovereign operations for a range of responses to the
health and economic consequences of the pandemic, $1.6 billion in non-sovereign
operations for micro, small, and medium-sized enterprises, domestic and regional
trade, and firms directly impacted, about $1 billion in concessional resources through
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reallocations from ongoing projects and assessing possible needs for contingencies,
and $40 million in technical assistance and quick-disbursing grants. (Since February
2020, ADB has provided more than $225 million to meet urgent needs of both
governments and businesses in DMCs.)
March 19: The U.S. Federal Reserve announced the establishment of temporary
U.S. dollar liquidity arrangements (swap lines) with 9 central banks to help lessen
strains in global U.S. dollar funding markets. These new facilities will support the
provision of U.S. dollar liquidity in amounts up to $60 billion each for the Reserve
Bank of Australia, the Banco Central do Brasil, the Bank of Korea, the Banco de
Mexico, the Monetary Authority of Singapore, and the Sveriges Riksbank, and $30
billion each for the Danmarks Nationalbank, the Norges Bank, and the Reserve Bank
of New Zealand.
March 19: The Board of Directors of the New Development Bank approved
RMB 7 billion ($1 billion) Emergency Assistance Program Loan to the People’s
Republic of China. The Program will help finance urgent and unexpected public health
expenditures in Hubei, Guangdong, and Henan.
March 20: The Development Bank of Latin America (CAF) announced that it
has opened an additional $2.5 billion line of credit to support the measures that
member countries are taking to mitigate the effects of COVID-19. On March 3, it
approved a credit line worth $300 million to manage emergencies related to COVID-
19 and the possibility of granting technical help of up to $5 million for initiatives
related to the outbreak in countries across the region.
March 26: The Group of 20 (G20) announced that it would inject “over $5 trillion
into the global economy, as part of targeted fiscal policy, economic measures, and
guarantee schemes to counteract the social, economic and financial impacts” of
COVID-19.
Source: Congressional Research Service based on information from news articles and press releases.
Author Information
James K. Jackson, Coordinator Andres B. Schwarzenberg
Specialist in International Trade and Finance Analyst in International Trade and Finance
Martin A. Weiss Rebecca M. Nelson
Specialist in International Trade and Finance Specialist in International Trade and Finance
Acknowledgments
The authors would like to thank and acknowledge the expert assistance provided by Amber Wilhelm,
Visual Information Specialist, CRS, in the preparation of this report.
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
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Global Economic Effects of COVID-19
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