Breaking Down the G20 Covid-19 Fiscal Response: June 2020 Update
Confirmed cases of Covid-19 exceed 10 million globally as of July 1 and continue to climb. To combat the virus’s spread, governments have implemented restrictions on economic activity unprecedented in peacetime. The International Monetary Fund (IMF) now projects the global economy will contract by 4.9 percent in 2020, a downward revision of 1.9 percentage points since their previous forecast in April. In the United States, the economy is forecast to contract by 8 percent this year, as compared with a forecasted 5.9 percent contraction in April. While the IMF forecasts a return to positive growth for U.S. and global economies in 2021, this “baseline” forecast depends critically on containing the virus’s spread.
In response to this unprecedented shock, governments have pledged massive policy support, from direct payments to individuals to “limitless” loans for struggling businesses. At a March 26 virtual summit, leaders of the Group of Twenty (G20) major economies said they were spending over $5 trillion, equivalent to 7.4 percent of 2019 G20 countries’ GDP, to “counteract the social, economic, and financial impacts of the pandemic.” Since then, G20 governments have added to this figure as the extent of the economic fallout has become clearer.
Data updated through June 29, 2020 and available for download here.
The CSIS Economics Program has been analyzing and categorizing major fiscal actions taken by G20 countries since January to mitigate the economic fallout of Covid-19. Updated data as of June 29 show several trends:
- We estimate fiscal support from G20 countries now exceeds 11 percent of 2019 G20 GDP. As of June 29, we estimate G20 countries have announced $7.6 trillion in fiscal support, representing 11.2 percent of 2019 G20 GDP. This is an increase of about $600 billion since our last update in May, which reflects higher direct government spending ($4.1 trillion, up from $3.5 trillion as of May 29). The other components of support are tax relief ($0.8 billion) and credit enhancements ($2.6 trillion).
- G20 advanced economies (AEs) continue to boost spending, but G20 emerging market (EM) peers remain constrained. G20 EM fiscal support averages 4.7 percent of GDP, well below the average of 13.8 percent for AEs. Notably, Mexico and Russia, both of which have been severely impacted by the virus, have announced “only” 1.0 and 2.5 percent of GDP in fiscal support, respectively, despite forecast 2020 economic contractions of 10.5 and 6.6 percent, respectively. Brazil, which faces a forecast contraction of 9.1 percent, has announced support worth 8.6 percent of GDP, the highest among G20 emerging markets, although nearly half of this is in credit enhancements, including loan guarantees. India, where new cases are approaching nearly 20,000 per day, has announced 5.2 percent of GDP in fiscal support, while its economy is forecast to contract 4.5 percent this year.
- G20 loan guarantee frameworks exceed $3 trillion but have had limited usage. G20 economies, led by European countries and Japan,have announced loan guarantee frameworks worth $3.2 trillion, representing 4.8 percent of 2019 G20 GDP. Given that many guarantee frameworks do not quantify ex ante fiscal outlays, we assign a 50 percent “fiscal cost” to guarantee figures resulting in our headline figure of $7.6 trillion. Assigning a 100 percent “fiscal cost” to loan guarantees would boost our headline figure to $9.2 trillion, or 13.6 percent of G20 GDP. Guarantee programs have reportedly faced rollout issues and uneven demand, and a Bloomberg analysis found that less than 15 percent of guaranteed loans made available by Europe’s seven largest economies had been deployed as of June 18.
- In some countries, fiscal support is transitioning from immediate health spending and income assistance to longer-term investment. Countries have adapted their fiscal policies to fit stages of the pandemic response. Initial actions focused on shoring up health systems, acquiring necessary medical equipment, and providing income support for individuals and businesses. G20 countries that have begun to emerge from lockdowns, including Germany and South Korea, have announced broad-based fiscal stimulus to support growth, green infrastructure projects, and advanced technology research.
- The United States faces an “income cliff,” or a sharp drop in personal earnings, at the end of July when key fiscal support expires. The United States has not announced new fiscal support since April, and several programs will expire by the end of July, in particular expanded unemployment insurance. A surge in confirmed new cases and persistent labor market weakness have built expectations for another fiscal package in the near term.
- The European Union has announced several fiscal responses: a 37 billion euro ($40 billion) Coronavirus Response Investment Initiative and a 540 billion euro ($586 billion) aid package to support member states. Both are not included in our G20 total. The European Union is currently debating a landmark 750 billion euro ($843 billion) fiscal support package unveiled on May 27.
- This analysis focuses on major, national, discretionary responses in G20 countries and thus does not reflect the full extent of support deployed by these countries in response to Covid-19, such as monetary and regulatory tools (rate cuts, repurchase operations, quantitative easing), automatic spending mechanisms, and additional support from subnational governments. We include tax cuts and cancellations in tax relief but do not assign a monetary value to tax deferrals, where possible. For further information on responses from 196 economies, please see the IMF’s tracker.
- Foreign currency conversions are based on average 2019 exchange rates; all GDP calculations use the IMF’s October 2019 World Economic Outlook figures for 2019. The data are updated through June 29, 2020 and reflect publicly available information and are subject to ongoing revision. We welcome feedback and additional inputs at Economics@csis.org.
The CSIS Economics Program would like to thank the medical professionals, health care personnel, volunteers, delivery and grocery store workers, and others at the front line of the Covid-19 pandemic who work tirelessly to provide essential services to the public.
Stephanie Segal is a senior fellow with the Economics Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Dylan Gerstel is a research assistant with the CSIS Economics Program.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2020 by the Center for Strategic and International Studies. All rights reserved.