With global COVID-19 cases approaching three-quarters of a million, policymakers the world over have acquiesced to the necessity of drastic stimulus, both monetary and fiscal.
The world is facing a massive demand shock, and that requires government action, even as the very same officials on whom the burden falls to act are also compelled to facilitate the shock by shuttering their economies in order to stop the spread of the pathogen.
For the past two weeks, the financial community has been awash with riffs on the old “There are no atheists in foxholes” adage.
Cliff Asness, for example, penned a characteristically colorful missive asserting that there is no purely libertarian solution to this epidemic.
“I’ve always hated the argument ‘there are no atheists in foxholes’ as just because you believe in God when terrified doesn’t mean there is one (it also doesn’t mean there isn’t one!)”, he wrote. “But I believe that most libertarians are not anarchists. Particularly in viral foxholes. Certainly I am not”.
For his part, TD’s Chief US Macro strategist Jim O’Sullivan borrows Ben Bernanke’s riff in a new note. “There are no ideologues in financial crises”, O’Sullivan reminds you.
Commenting on the biggest stimulus package in US history, O’Sullivan says it’s “large enough to boost growth significantly, albeit not by enough initially to prevent a fairly severe recession with sizable lingering effects on the unemployment rate and inflation”.
So, it’s nice, but nothing is going to save the US economy in Q1 and Q2. “Without the stimulus, our forecast would be much weaker than it is”, he goes on to say. TD sees the US economy contracting 3% in Q1 and 25% in Q2, with a 15% rebound in Q3 and a flat fourth quarter.
Tallying things up so far, Goldman’s Jan Hatzius notes that “following the passage of the ‘Phase 3’ package in the US, we estimate discretionary fiscal policy will ease by around 7½% of GDP in the US this year and by 3¾% of GDP globally”. That’s excluding capital for loans, loan guarantees and intra-year tax deferrals.
Here’s a handy visual that provides a kind of bird’s-eye view of the discretionary fiscal easing across economies in response to the outbreak:
For those interested in the more granular, detailed breakdown, the following two tables provide a pretty comprehensive assessment of the monetary and fiscal measures undertaken in developed markets over the past several weeks.
Again, that’s just developed markets. EMs have done quite a bit as well.
As for whether it will all be enough to placate nervous markets, that remains to be seen. Even after last week (the best week since 2009 for US equities), the S&P is on track for its worst quarter since the crisis, down some 21%.
This week brings a veritable deluge of key data and the coronavirus news stateside will likely get materially worse.
“Global policymakers have already rolled out an impressive response to the coronacrisis [and] we are about to find out whether it will be enough”, Goldman’s Zach Pandl said, in a Friday afternoon note.
“Markets may be able to look through some pretty horrible economic data but will likely be sensitive to news on the duration of shutdowns and any signs of second-round effects”, he went on to say, adding that while he does “see a light at the end of the tunnel” in the form of “a reasonably strong argument for a V-shaped recovery”, Pandl concedes that “without medical breakthroughs of some kind, the next few weeks could be challenging for markets as we price in a deep global recession”.