Outlook 2021: Fiscal and Monetary Measures Were Applied to Cope With the Effect of COVID-19

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Saturday, January 30, 2021   /06:30 AM / By Proshare Research/ Header Image Credit: EcoGraphics

 

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Global Economy

The global economic growth in 2020 was shaped by a couple of events prominent of which was the COVID-19 pandemic, US-Sino trade war, talks about Brexit negotiations, etc. The global world was stunned by the advent of the COVID-19 pandemic which disrupted economic activities and growth. The adverse effect of the COVID-19 pandemic was largely sensed by most advanced, emerging, and frontier economies in the second and third quarters of the year (see Table 1).

 

Table 1: Events Which Shaped the Year 2020

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Most advanced and emerging economies except for China recorded a contraction in their GDP in the second and third quarters of the year. Most countries recorded their worst recession in over a long time e.g., India plunged into recession for the first time in nearly a quarter of a century, Japan slipped into recession in the second quarter of 2020 which was the biggest decline since comparable figures became available in 1980. Due to the disruption in global economic activities caused by the COVID-19 pandemic, IMF forecasted that most economies except for China would likely record a contraction in 2020 (see Table 2).

 

Table 2: World Economic Outlook Growth Projections

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The pandemic negatively affected corporates, individuals, and governments of economies all over the world who had to re-adjust lifestyles, operations, and outlooks to adapt to the "new normal". The virus created some winners and losers in the economy. Some businesses and sectors gained in popularity and sales because of the COVID-19 pandemic they include technology sector, health sector, entertainment sector, etc. On the flip side, some sectors, and activities such as restaurants, hospitality, transportation, etc were at the receiving side of the divide as their operations were largely affected by the virus (see Table 3).

 

Table 3: Winners and Losers from the Pandemic

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Different fiscal and monetary measures were applied by various countries to cope with the negative effect of the COVID-19 virus. Advanced nations were able to provide more fiscal and monetary stimulus to the economy because of their robust fiscal structure e.g., the U.K coronavirus job retention scheme was extended until 30 April 2021, the American congress recently passed a $900bn stimulus bill to help revive growth, the Australian government fiscal stimulus of A$300bn. On the other hand, most frontier economies struggled in financing their weak economy because of already huge fiscal debt and poor revenue structure e.g., Zambia became Africa's first coronavirus-era default (see Table 4).  


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Table 4: Snapshot of Fiscal and Monetary Policies Adopted by Some Selected Countries

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Global Debt Worrisome

Many nations resorted to borrowing to finance their fiscal responsibilities to support the recovery of their battered economy. According to the Institute for International Finance, the global debt levels rose to a new high of over $272trn in the third quarter of 2020 while emerging-market debt is forecast to rise to 210% of GDP in 2020 from 185% in 2019. It has been forecasted that global debt could rise further to reach $277trn, or 365% of GDP by the end of 2020. Most nations are battling weak economic growth and are racking up debt to support these low levels of economic growth.

 

To help relieve poor countries from their huge debt size and obligations, leaders of the world's 20 biggest economies endorsed a plan to extend a freeze in official debt service payments by the poorest countries to mid-2021 and backed a common approach for dealing with their debt problems.

 

It remains unclear as to what steps China is taking to help relieve poor countries that are highly indebted to it. Although China has noted that it is fully implementing a temporary suspension to help indebted countries, mostly in Africa, however, it will likely refrain from working closely with Western governments in debt restructuring to keep its upper hand in negotiations with b0rrower countries (see Table 5).

 

Table 5: Major Advanced Economies: General Government Fiscal Balances and Debt (Percent of GDP)

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Downloadable Version of Goodbye 2020, Hello 2021, Understanding the Mega Trends of a Crucial Year for an Economy Report (PDF)

1.     Complete Report: Outlook 2021: Understanding the Mega Trends of a Crucial Year for an Economy- Jan 28, 2021

2.     Executive Summary: Outlook 2021: Understanding the Mega Trends of a Crucial Year for an Economy- Jan 28, 2021


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