What the world’s biggest economies are doing to fight coronavirus, and fend off recession
At a time when the world is crying out for coordinated action by governments and central banks to prevent the coronavirus pandemic from turning into a global recession, the international economic response has been distinctly patchy, uneven and in some cases inadequate.
During the 2008-09 financial crisis, leaders of the G20, made up of governments and central bank governors from 19 leading economies and the European Union, held summits in Washington and London, drawing up a coordinated international response to the crisis that was credited with stopping the panic, and laying the basis for bank reform.
It made the likes of then-U.S. Treasury Secretary Timothy Geithner and his counterpart in France, Christine Lagarde, household names.
But this time around, with nationalism on the rise and global cooperation in retreat, there has been little sign of a coordinated response.
Despite plunging global stock markets, finance ministers and central bank governors from the Group of Seven leading economies announced no concrete actions last week despite pledging to “use all appropriate policy tools to … safeguard against downside risks.”
Businesses, particularly small firms, face cashflow problems as cautious consumers stay away from shops and leisure activities and shun foreign travel. And it’s leading to cutbacks and layoffs. Norwegian Air on Thursday announced it was set to lay off half its staff and slash thousands of flights.
The danger is that temporary supply and demand constraints could create debt problems and drive fundamentally sound companies out of business, tipping economies into recession. Workers who are not entitled to sick pay face hardship.
Here is how some countries and trading blocs have responded to the pandemic.
Markets were hugely disappointed by the response to the pandemic outlined by President Trump in an address to the nation on Wednesday evening. Global stock markets took another downwards lurch Thursday with some analysts saying that Trump’s 30-day ban on travelers from Europe entering the United States would compound the economic damage. The European bourses ended the day with record losses, and the U.S. indices weren’t far behind.
Trump said he would ask Congress to approve an additional $50 billion of funding for a Small Business Administration program to provide low-interest loans for small businesses affected by the virus. He also promised financial help for workers who were ill, quarantined, or caring for others due to coronavirus, plus a tax payment holiday for workers and businesses affected by coronavirus.
Congress moved swiftly last week to pass an $8.3 billion bill to expand testing for the virus, and to fund research into a vaccine. The Trump administration had initially proposed just $2.5 billion in funding.
The U.S. Federal Reserve cut interest rates by a half-point on March 3 to cushion the economic impact of the outbreak, but critics believe the effect will be minimal.
The British government and the Bank of England were the most foreful of the bunch. They announced a coordinated package of measures to help businesses and workers get through the coronavirus crisis that new finance minister Rishi Sunak said could have a significant, but temporary, impact on the British economy.
Sunak announced a 30 billion pound ($38 billion) package, including refunding small businesses for the cost of paying sick pay to people with coronavirus, and helping small companies via tax breaks and loans. The package included an extra 5 billion pounds for the state-run National Health Service and 18 billion pounds in fiscal stimulus.
Sunak also announced more than 600 billion pounds ($750 billion) worth of infrastructure spending over the next five years.
Separately, the Bank of England cut interest rates by half a percentage point to 0.25%, and cut the cushion of capital that British banks must hold to absorb losses, a move that should support up to 190 billion pounds ($240 billion) of bank lending to businesses.
French Finance Minister Bruno Le Maire urged the EU to come forward with a “massive” economic stimulus plan to tackle the economic effects of the outbreak, and said this will be discussed by EU finance ministers on March 16, according to Reuters. But so far, the EU’s response has been mainly a patchwork of measures taken by its 27 individual member states.
EU leaders did likely agree in a video conference Tuesday to use 25 billion euros ($28 billion) of existing EU funds to help healthcare systems, small businesses and labor markets weather the crisis.
The European Central Bank, with Lagarde now its president, backed up their efforts by announcing a stimulus package Thursday that included asset purchases and loans for banks, but it held back from cutting already rock-bottom interest rates.
The markets were unimpressed, selling off sharply on the news. “Of course, the adverse market reaction may not be just a market verdict on the ECB’s package,” analysts at Berenberg analysts said in an investor note shared with Fortune. “It could also reflect a growing realization that monetary and fiscal policy cannot be the genuine circuit breakers in a medical emergency.”
All eyes in the EU are on Germany. Its governing coalition agreed this week to increase investment in infrastructure by 12.4 billion euros ($13.8 billion) between 2021 and 2024, to provide liquidity support to companies suffering a virus-related cash crunch and to expand access to a government-subsidized short-term work scheme, the Financial Times reported.
Italy, the country worst hit by the coronavirus outbreak outside China, has announced economic stimulus measures worth up to 25 billion euros ($28 billion) to cushion the impact of the crisis. With the government locking down the entire country and nearly shutting down the business sector, there are big concerns the teetering economy will fall into recession and sink the weak government in Rome.
Spain, another hard-hit country, is planning financial aid and a moratorium on tax payments for small- and medium-sized companies to lessen the economic impact of the coronavirus, Bloomberg reported.
Economic measures taken by China include cutting interest rates and lowering the rate on loans to banks. In addition, firms in Hubei province, where the coronavirus outbreak began, will not have to pay pensions, unemployment and work-injury insurance until June, Reuters reported.
The Japanese government this week approved a financial aid package worth 1 trillion yen ($9.5 billion) for small and medium-sized businesses and self-employed workers affected by the coronavirus outbreak, bringing total financial support to 1.6 trillion yen, according to the Nikkei Asian Review.
Australia, which has not suffered a recession in nearly 30 years, announced a A$17.6 billion ($11 billion) fiscal stimulus package Thursday to help the economy cope with the coronavirus outbreak. The program includes funding to protect the jobs of 120,000 apprentices, cash payments to welfare recipients and lower-income households and money to support the cashflow of small- and medium-sized firms, Bloomberg reports.
More must-read stories from Fortune:
—Is this your first stock market crash? Some advice for young investors
—Here are two of the biggest losers from the Saudi Arabia oil price war
—Why investors suddenly turned on pot stocks
—Here are some of the most extreme ways companies are combating coronavirus
—Why it’s so hard to find the next Warby Parker
Subscribe to Fortune’s Bull Sheet for no-nonsense finance news and analysis daily.