09 May 2021
Source: IMF, Statista, Momentum Global Investment Management
What this chart shows?
This chart shows how the fiscal stimulus introduced in response to the Covid-19 pandemic compares to what we saw in the aftermath of the 2008 Global Financial Crisis (2008-10 inclusive). We show the stimulus as a percentage of GDP for eight countries. Whilst the fiscal responses to the GFC were hugely significant at the time, in many cases they have now been dwarfed by the monumental government responses over the course of the past year. The largest disparity is seen in Japan, where the government injected the equivalent of 2.2% of GDP into the economy following the GFC, whereas their fiscal package in response to Covid-19 is now over 54% of GDP. The magnitude of response from governments has been unprecedented, and of course we are just considering fiscal policy here. There were also equally staggering statistics generated from monetary (central bank) policy too.
Why this chart is relevant?
In their latest World Economic Outlook last month, the IMF upgraded their global economic growth forecast for 2021 to 6.0%, up from 5.5% in January, along with their 2022 forecast to 4.4% against 4.2% in January. Both advanced and emerging economies were upgraded, though the bulk of the upward revisions were for the advanced economies, with the US forecast 6.4% in 2021 against 5.1% in January.There is no doubt that government aid over the past year has helped (and continues to help) economies steer through the challenges of the pandemic.
Who knows how far output would have fallen, or how delayed recovery would be, without it. Of course, these packages must be paid for and the scale of the response will have long lasting consequences. For example, President Biden has announced his intentions to hike corporation tax. Furthermore, debt has spiked (from already elevated levels), meaning interest rates will likely have to stay low long into the future. Then there is the topic on everyone’s minds: inflation, which is one way to help ease the debt burden but it might force the central banks’ hands with respect to interest rate policy if it becomes entrenched.
Research Date: May 2021
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