Natalia Gurushina, Economist, Emerging Markets Fixed Income
March 26, 2020
The global fiscal and monetary policy support now exceeds 3% of the world GDP on each side. Russia delivered an unusual revenue-neutral fiscal stimulus package.
We’ve been getting a lot of questions regarding the size of policy patches put in place globally. There are a lot of countries and an alphabet soup of measures, and this requires more substantial visual support—hence several charts in today’s daily. Authorities in major emerging (EM) and developed markets (DM) countries moved very fast to deal with the impact of the coronavirus. (1) Central banks cut policy rates—the first chart below shows that the aggregate global policy rate (we used GDP weights) dropped by nearly 40bps since the end of January. (2) Many central banks announced asset purchase programs expanding their balance sheets—the second chart below shows the results for major economies. The largest increase in the balance sheet as a share of GDP is expected in the UK (Bank of England), with the U.S. Federal Reserve (Fed) and the European Central Bank (ECB) trailing closely behind. The known portion of the global monetary stimulus now stands close to 3.4% of the world GDP. (3) Finally, many governments also announced sizable fiscal packages—the third chart below shows that the global fiscal stimulus is currently approaching 3.4% of the world GDP, with the UK’s stimulus looking the largest relative to GDP among DMs. Fiscal packages in several EMs (Poland, Singapore) are also very substantial (close to 10% of GDP). The global wall of liquidity is massive and it should provide healing and backstops, even though it will take a lot of time for some of these measures to filter through (especially to the real economy).
Two EM economies stood out in today’s newsflow as regards their fiscal responses—Russia and Singapore. Singapore is very much on a “whatever it takes” track—the fresh stimulus is about 10% of GDP. By contrast, Russia’s policy response lead to comments about fiscal…consolidation. It’s revenue-neutral, with emphasis on the redistribution of gross value added. State-owned Sberbank also announced that it will delay loan payments for companies in industries that were most affected by the crisis. This is most likely not the final version of the fiscal response, but it is quite incredible that some governments can afford to pay attention to good “house-keeping” in the current conditions (probably because they did a lot of “homework” before the crisis).
The IMF and the World Bank called on official bi-lateral creditors to suspend debt payments from poorer countries. This is the latest in the series of the IMF’s policy initiatives that include USD50B in the rapid-disburse emergency funds and a commitment to mobilize a USD1T lending capacity. One of the countries that appears to be ready to negotiate special SDRs1for ~USD3B is Argentina. This special disbursement is not unlike what IMF member-countries were getting during the global financial crisis of 2008.
Chart at a Glance: Quantifying the Global “Wall of Liquidity”
Source: VanEck Research; Bloomberg LP; central banks and governments’ press-releases
1. The Eurozone’s fiscal numbers includes GDP-weighted fiscal packages in Germany, France (with loan guarantees), and Spain 2. UK fiscal numbers include loan guarantees 3. China fiscal numbers include credit measures done through quasi-state entities
Monetary stimulus numbers include what is known/can be estimated; some details are not yet made public
1The SDR is an international reserve asset, created by the IMF in 1969, to supplement its member countries’ official reserves.
IMPORTANT DEFINITIONS & DISCLOSURES
PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.
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