Economics & Strategy Global Economics & Strategy: Mulling Macro: The State of Global Stimulus

Our big data tracking for COVID-19 suggests 2020 fiscal stimulus has increased to nearly 2.6% of global GDP - exceeding that approved in 2009 during the global financial crisis. How should investors react?

20 Mar 2020

Essay: The State of Global Stimulus

We provide an overview of the global monetary and fiscal stimulus that has thus far been announced, along with regulatory and liquidity measures. Our updated Global Fiscal Stimulus Tracker (now also available in Excel on UBS Neo) suggests 2020 fiscal stimulus has increased to nearly 2% of global GDP—exceeding that approved in 2009 during the global financial crisis. This excludes promises of credit guarantees, which are off budget but in some countries are in excess of 10% of GDP. On the monetary side, 60% of central banks have cut policy rates since January 20 and three have launched QE (plus we expect BoE and RBA to follow at their next meeting). The largest QE program (as a % of GDP) is now that of the ECB, having launched a new Pandemic Emergency Purchase Program overnight. But more important than its size is perhaps the strong hint in its press release that it will not be bound by the self-imposed issuer limits. We detail, the various liquidity, regulatory and term funding reliefs that have been announced by 31 central banks, as well as the efforts by the Fed, in particular, to restore functioning in the Treasury and corporate funding markets.

The Sketch that Emerges

  1. Infections inflecting up in Europe; not yet at zero in Asia
  2. Markets are pricing-in global growth more than five StDevs below its 10-year mean
  3. It is urgent that the Fed fixes the CP market to ease pressure on banks and SMEs
  4. BTPs saw a seven-StDev weekly move, but it does not mean Italy cannot finance itself
  5. VaR-shocks-induced cash demand is hurting hedges' correlation with risk assets
  6. China has beaten every major equity market, with Financials atypically in the lead

Authorized clients of UBS Investment Bank can log in to UBS Neo to read the full report.