Policy responses, the analysts explain have either little or no precedent. “The Fed and ECB, already low on ammunition, have gone pretty much all out on their responses,” they said. The Fed has cut interest rates to zero from 0.25% and both central banks have injected large amounts of liquidity into the money and credit markets to in an effort to diminish the prospects for another major financial crisis.”
They note that stimulus packages of 1.5% of GDP are already underway in Italy and France, and 1% in Germany, which is “engaging in substantial liquidity provision to private firms via loan guarantees”. In the US they foresee the fiscal action picking up once the scope of the crisis worsens, and that “automatic stabilisers plus demand stimulus measures could well exceed 5% of GDP and be implemented sooner than in the European Area.” China’s fiscal stimulus, including automatic stabilisers is expected to reach 3% of GDP, and Japan’s scope for stimulus might reach a similar level.
Other specific measures include:
- US: US$7.8bn emergency spending bill announced on 6 March to fund a response to the outbreak, with lawmakers set to vote on a package of measures including paid sick leave for hourly workers staying at home.
- UK: The UK Chancellor announced £330bn in loans and £20bn in other aid, a business rates holiday and grants for retailers and pubs. Also included was a £5bn National Health Service emergency response fund, statutory sick pack for the self-quarantined, and aid for businesses, and a scheme where the government pays 80% of salary for staff who are kept on by their employer, covering wages of up to £2,500 a month.
- Italy: The Italian government is ready to spend as much as €25bn on virus-related stimulus; provisions could include aid for workers facing temporary layoffs and compensation for affected firms.
- Australia: The Australian government has announced a A$17.6bn rescue package, including A$1.3bn to safeguard the jobs of 120,000 apprentices, one time cash payments to welfare recipients and lower-income households, wage subsidies for SMEs, and a A$1bn fund for tourism operators and some China-exposed exporters.
- Japan: A second package was rolled out bring the total allocation so far to ¥2.03trn (US$19.bn). This total includes ¥1.1trn in loan support and ¥430.8bn in aid for medical professionals and those affected by school closures
Furthermore, on 18 March, the European Central Bank announced it would spend €750bn in bond purchases to calm sovereign debt markets. “Extraordinary times require extraordinary action…we are determined to use the full potential of our tools, within our mandate,” tweeted ECB President Christine Lagarde.