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Economic fight against coronavirus: Policymakers take action across globe

by Başak Ceylan - bceylan@chemorbis.com
  • 24/03/2020 (04:08)
First identified in China, in December 2019, the ongoing pandemic of coronavirus disease (COVID-19) has brought on a tremendous threat against global health and welfare. With more than 370,000 cases reported and more than 16,000 deaths as of March 23, the pandemic remains a public health emergency on a global scale. It also presents a challenge to the global economy.

Governments and central banks across the globe have been engaged in several monetary measures to mitigate the potential economic impact from the fallout of the virus and speed up the recovery.

Unprecedented move from Fed

In an unscheduled meeting, the US Federal Reserve announced on March 15 that it slashed its benchmark rate by a full percentage point to zero. This marked the most dramatic action taken by the Fed since the financial crisis of 2008. In an attempt to blunt the impact of the outbreak, the US central bank also announced a bond purchase program worth at least $700 billion and established temporary dollar liquidity-swap lines with nine foreign central banks.

In addition to the steps above, the Fed announced a lending program to support lending to eligible small-and-medium-sized businesses in the US. These programs aimed at businesses hit by the coronavirus are expected to be worth around $4 trillion.

China injects billions for virus-hit economy

The outbreak not only brought a terrible human tragedy in China but also a severe shock to its economy. The outbreak hampered supply and demand dynamics, and as shown in the country’s January-February data, industrial production and retail sales significantly reduced. The decline in the Chinese production sector was felt around the world, as a result of China’s major role in global supply chains.

The People’s Bank of China (PBOC), the central bank, injected a total of CNY100 billion ($14.3 billion) into the financial system to maintain liquidity. The Chinese central bank also cut reserve requirements for banks to release an additional CNY550 billion ($78.8 billion) in funds.

East Asian economies brace for impact

Bank of Japan rolled out a new lending program to support businesses hit by the coronavirus pandemic and announced a new stimulus package amounting more than 15 trillion yen ($137 billion) on March 23.

South Korean financial regulators and banks signed a memorandum of agreement on March 23 to closely cooperate in the provision of the COVID - 19 financial support programs. Banks also agreed to contribute to the bond market stabilization fund, assumed worth more than 10 trillion won ($7.9 billion).

ECB rolls out program worth €750bn

The European economies have also been severely affected as cases outside of China have started to notably accelerate, with a particularly sharp rise in cases in Italy. Outside of China, Italy has the highest number of deaths at the time of writing.

In response to the spreading coronavirus, the European Central Bank (ECB) on March 18 launched an emergency private and public bond purchase scheme worth €750 billion ($820 billion).

In Europe’s worst-affected country, the Italian authorities on March 16 pumped €25 billion ($28 billion) into its worsening economy while France announced on March 17 a financial package of €45 billion ($28 billion) for its virus-hit sectors. Germany was also reported to have been preparing a €356 billion stimulus package, which includes boosting borrowing by €150 billion ($160 billion).

Turkey to provide relief for SMEs

On March 18, Turkey announced a financial relief package worth TRY100 billion ($15.5 billion) to mitigate the effects of the coronavirus outbreak. The stimulus package also included increasing the Credit Guarantee Fund limit to TRY50 billion ($7.6 billion) to provide liquidity for small and medium-sized enterprises.

Will policy changes help reduce uncertainty?

Despite the various measures taken by global institutions and governments, growth prospects are still uncertain. In a recent report, the OECD projected the annual global GDP growth to drop to 2.4% in 2020 while warning that growth could be weaker if downside risks materialise.
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