LONDON: Central banks and governments have unveiled an estimated US$15 tril (RM65.3 tril) of stimulus already to shield their economies from the coronavirus pandemic – record sums that will swell balance sheets and deficits to peacetime highs.
The sum equates to about 17% of an US$87 tril global economy last year.
Shaken by turmoil on financial markets in March, with their economies heading into freefall and a decade of job creation wiped out, policymakers have seized upon tool after tool to rescue their economies – including taboo policies such as cash handouts and buying “junk” bonds.
The US$15 tril covers the “G10” group of major economies plus China, where total stimulus is harder to track.
In reaching that number, Reuters has included the increase in central bank balance sheets since the crisis erupted, new government cash injections and spending pledges, as well as about US$7 tril worth of quasi-fiscal loan and credit guarantees. Much of the latter may never be drawn upon, which would reduce the size of the fiscal stimulus.
Central banks will also buy more bonds, with some saying there is no cap on purchases, inflating the US$15 trillion number between now and end-2020.
Monetary bazooka
Central banks have slashed interest rates, with nearly all developed economies now with policy rates at or near zero.
But with rate-cutting running out of runway, central banks have aggressively scaled up money printing schemes first deployed in the aftermath of the 2009 financial crisis.
Assessing the scale of this stimulus can be tricky, as the rate at which central banks buy bonds to inject money into the system changes over time.
Morgan Stanley economists forecast that the G4 economies plus China will have increased their balance sheets by US$13 tril by end-2021, with the Federal Reserve and European Central Bank balance sheets topping 50% of GDP.
But to get to a number on the stimulus deployed so far, Reuters has included only asset purchases already made, where this is known and with the latest available data.
Based on that, the biggest central banks have already expanded their balance sheets by an estimated US$4 tril, led by more than US$2.4 tril from the Fed between the end of February and April 22.
The rate of further bond-buying will likely accelerate too: the ECB and central banks in Japan, Britain and Australia will expand schemes as they see fit.
Fiscal firepower
The budget firepower unleashed by the biggest economies is eye-popping. JP Morgan economists estimate that tax and spending policies will reach 2.7% of global GDP in 2020, bigger than the 2.3% seen in 2009.
The United States has pledged some US$2.6 tril of fiscal expenditure and its budget deficit is projected to hit around 20% of GDP or higher, with public debt as a percentage of GDP reaching levels last seen during the Second World War.
Even Germany with its dedication to balanced budgets is opening the taps.
The fiscal measures announced so far range from conventional health and welfare spending, to the United States handing out cash to individuals and Britain paying the wages of more than 6 million workers put on temporary leave.
Government responses also include quasi-fiscal measures such as loan guarantees – many economists point out that corporate loan guarantees will not turn into cash if there is no default.
The guarantees have been vast – according to Goldman Sachs estimates the United States could backstop as much as US$4 tril of credit, while in the euro zone the likes of Italy have pledged to guarantee hundreds of billions of euros. – May 12, 2020, Reuters
