COVID-19 Governmental Response

April 13, 2020

 

 

The COVID-19 pandemic has proven to be one of the most economically devastating events to ever be experienced. Across the globe, countries are being ravaged by the virus, causing families to retreat into their respective homes and, incidentally, destroy the supply chain in many markets. Furthermore, as the global recession continues to darken, consumers are inherently decreasing their expenditure, breaking down the necessary demand for goods that keeps the economy running. Thus, governments internationally are implementing massive economic stimulus plans to lessen the damage on smaller businesses and people whose jobs are directly affected by this outbreak. 

 

On Thursday, the Federal Reserve announced a 2.3 trillion dollar plan to provide smaller to midsize businesses and struggling governmental bodies with much needed relief. The Fed plans to do so through the execution of segmented programs, such as the Payroll Protection Program, in hopes that the relief will allow these organizations to mitigate the drastic fall-outs of the virus and allow for a speedy economic recovery. Along with other programs, the Fed plans to purchase up to 600 billion dollars in loans ranging between 1 million and 25 million dollars for smaller to midsize businesses at their Secure Overnight Financing Rate (0.01% in addition to 250-500 basis points with a 4 year maturity). Although these loans won’t be enough to replicate the cash flows for businesses prior to the virus, it will be a saving grace for many companies struggling to maintain their position during the outbreak.

 

Other countries across the globe are implementing their own variety of economic stimulus policies as well. As expected, most consist of cash injections for struggling sections of society in attempts to allow these groups to survive the duration of the pandemic. Already, Germany has pledged over 30 percent of their GDP to economic support, Japan has dedicated over 10 percent of their GDP, and other countries are following suit. 

 

The aggressive nature of these financial policies has been spectacular to see, as countries across the globe mobilize their legislation at unprecedented rates to provide immediate relief to those who need it. As COVID-19 continues to grow at an inconceivable pace, governments need to respond even faster to diminish the drastic economic fallout caused by this worldwide crisis. 

 

Keith Knutsson of Integrale Advisors commented that, “The economic fallout of COVID-19 will be devastating. However, if countries manage to effectively and immediately mobilize their legislative bodies to combat the virus financially, we should expect to see a quick, global economic recovery."

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