1 1 (August 07, 2020)

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               Researh Sevice






Fiscal and Monetary Policy Initiatives by

Major Economies to Address COVID-19



August 7, 2020


Overview

In response to the pandemic-related collapse in global economic growth in the first half of 2020, national
governments, central banks, and international organizations adopted unprecedented fiscal, monetary, and
other measures to stabilize financial markets and stimulate growth. The policy responses directed at the
initial liquidity crisis in the financial sector have also significantly raised government debt levels, pushed
unemployment rates to their highest levels in a generation, and reduced global economic growth by an
estimated 3.0% to 6.0%. The human costs in terms of lives lost could permanently affect global economic
output in addition to the cost of rising poverty levels, lives upended, shuttered businesses, and increased
social unrest.
Given the evolving nature of the health crisis, the economic crisis may persist longer than most
forecasters previously have assumed. A resurgence of cases in the United States, Europe, Asia, and Africa
has pushed some policymakers to reimpose restrictions, delaying economic recovery. Second quarter U.S.
gross domestic product (GDP) data indicates that economic output fell by 33% at an annual rate.
The challenge for policymakers is one of implementing targeted policies that address what had been
expected to be short-term problems without creating distortions in economies that could outlast the impact
of the virus. Many policymakers, however, have been overwhelmed by the quickly changing nature of the
health crisis that has turned into a global trade and economic crisis.
The IMF recently concluded that a number of preexisting vulnerabilities could interact with the pandemic
to affect the timing and strength of the global economic recovery. These vulnerabilities include corporate
and household debt levels in developed and some emerging economies that could become unmanageable
in a prolonged recession; rising insolvencies testing the resilience of the banking sector; additional
stresses affecting nonbank financial institutions; and some developing economies facing high external
financing requirements.
Should these crises persist, policymakers may initiate additional fiscal and monetary measures. Such
measures, however, are likely to present policymakers with difficult choices given the economic resources
that already have been expended and could include weighing the demands of households, firms, and sub-
                                                                Congressional Research Service
                                                                  https://crsreports.congress.gov
                                                                                      IN11477

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