Nations pledge trillions in fiscal stimulus to boost their economies

A perspective from our Global Market Strategist

The European Union, Japan, and China propose a variety of spending initiatives to help businesses and workers. The European Union announced a proposal to offer $823 billion (750 billion euros) in fiscal stimulus, part of an approximately $2 trillion package.1 If implemented, this would mark the first time the EU has borrowed any significant amount in order to provide fiscal stimulus; historically the EU only issued debt in order to offer loans.

Last week in Japan, Prime Minister Shinzo Abe’s Cabinet approved an additional $1.1 trillion in fiscal stimulus. The package includes subsidies for companies facing hardship and for firms to pay rents. And, among other measures, it also increases compensation for workers who are absent from work due to coronavirus-related issues.

China announced at the National People’s Congress last week that it will provide a $559 billion fiscal stimulus package.2 The obvious goal of this stimulus is to tamp down the level of Chinese unemployment and therefore stimulate growth. Much of this stimulus will take the form of infrastructure spending, including “new infrastructure” projects such as 5G networks, data centers, and electric car charging facilities.

Stimulus is harder to provide in emerging markets. Many emerging nations are at a disadvantage in terms of their health care infrastructure and their ability to provide massive fiscal stimulus. And unfortunately, we are seeing the number of COVID-19 infections rising in some emerging markets countries — particularly Brazil and India — which means an economic recovery is even further off.

The reality is that during a pandemic, it is hard to divine the future — even in the very near term. That’s why China, for the first time, has decided it will not release a GDP growth projection for this year. And that’s why more than one in three S&P 500 companies have decided not to provide earnings guidance for this year. There are so many variables impacting the macroeconomic outlook — from monetary policy to public health policy to developments around therapies and a vaccine. But when it comes to fiscal stimulus, the past two weeks have provided more reasons for optimism about the global economic outlook.

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1 Source: Wall Street Journal, “European Union plans $2 trillion coronavirus response effort,” May 27, 2020

2 Source: South China Morning Post, “China pledges largest-ever economic rescue package to save jobs and livelihoods amid coronavirus,” May 28, 2020