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3 Apr 2020

International Economy

Governments worldwide boost economies through biggest stimulus packages on record in wake of COVID-19 Pandemic (Business Brief No.3854)

The novel coronavirus or COVID-19 pandemic continues to grow in severity, with most parts of the world seeing no signs of easing or control of viral spread in the near future. The pandemic has plunged the world economy into a state of higher negative risk, as it enters a recession this year. Governments and central banks worldwide have issued stimulus packages - in the forms of monetary and fiscal measures - to mitigate the impact of the COVID-19 pandemic via massive amount of funds. Generally, fiscal measures accentuate reduction of household and business debt burdens as well as ensuring that households and businesses continues to generate income. On the other hand, monetary measures place emphasis on enhancing liquidity, including the launch of soft loan schemes and relief of debt burdens.

The figures taken from stimulus packages as reported by the authorities are simply the amount which the authorities have specified as being in force; although some measures have yet to be implemented or  are otherwise, lacking in immediate cash injection. In addition, the actual amount of funds spent may be less than the amount specified, which is partly just loan guarantees that may not be entirely tapped into. Meanwhile, monetary measures tend to involve a considerably high amount since the massive size of the financial asset base in the economic system makes it impossible to interpret the results of such stimulus packages by figures alone. Moreover, the stimulus packages may not always reflect their true effectiveness.

Based on the present situation of the COVID-19 pandemic which appears unlikely to be brought under full control any time soon, the world economy is exposed to higher negative risk with a tendency to contract more sharply this year, even though many countries have announced stimulus measures amounting to more than 10 percent of GDP. The actual effectiveness of such measures remains to be determined, and should the situation fail to improve, the authorities are expected to be prepared to issue further measures as deemed necessary in the future.

In summary, the execution of such measures to ease the impact of the COVID-19 pandemic that requires tremendous amount of money may, in the end, prove futile in rescuing the economies of many countries from recession, but they are at least expected to lessen the shrinkage of those economies compared to scenarios where no such measures are taken. More importantly, other measures that are being enforced during the present state of emergency have been taken to ensure that the economic mechanisms will continue to function normally.​