#Fiscal and #Monetary #Policy Initiatives by Major #Economies

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 re-impose 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 pre-existing 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 non bank 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-national governments seeking public assistance. In particular, liquidity constraints in the pandemic’s initial phase could be succeeded by such challenges as firm bankruptcies, rising unemployment as short term wage supplements expire, home foreclosures and evictions, and lost tax revenues for state and local governments.
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Fiscal Policy Response
Monetary Measures
Prudential Measures