G20 — Policy stimulus will support return to growth once virus recedes

The Group of 20 nations (G20) agreed in late March to spend an unprecedented US$5 trillion (5.5% of global GDP), or “whatever it takes”, to ease the economic impacts of COVID-19. This is much higher than fiscal stimulus of US$2 trillion implemented during the GFC in 2008-09. So far, the IMF estimates countries have gone further, taking fiscal actions amounting to about US$8 trillion (see Table). Besides necessary virus containment measures and increased spending on healthcare, policymakers have taken measures to help cushion the economic harm to business and households. In many countries, this includes cash transfers to affected workers, wage subsidies, tax relief, and extension or postponement of debt repayments for businesses and households.

Central banks have moved swiftly to ensure continued flow of credit to the real economy and limit financing strains in countries facing external funding shocks. Many central banks have cut interest rates, though this response has been constrained because policy rates in many countries remained at or close to the zero bound. Beyond that, central banks have significantly expanded asset purchase programs, and introduced new lending facilities for businesses, especially small and medium-sized businesses. The activation and broadening of US dollar swap line agreements between some advanced and emerging market central banks can be utilised to improve access to external liquidity.

Once the virus recedes, such fiscal and monetary actions will help facilitate a return to global growth in 2021 according to the IMF. They will also impose significant fiscal costs, particularly in advanced economies. But the combination of very low interest rates and growing economies will put debt on a gradually declining trajectory and limit the rise in debt servicing costs. This will ensure authorities can continue to support the global economy during the recovery phase in coming years.