Another day, another stimulus

Posted by: Paul Donovan

22 Apr 2020
  • The US Senate unanimously passed stimulus 3.5, of just under half a trillion dollars. It is mainly focused on funding small firm payroll protection, with some healthcare funding. The House should vote on Thursday. The US budget deficit looks likely to rise to around a fifth of the GDP.
  • If all of the last round of US payroll protection has been spent, it signals the money is getting through (though not necessarily where it was intended). This is a positive signal, and may help to bring unemployment down. That is critical for the second economic phase – the recovery.
  • Oil prices continue to decline. OPEC held a call yesterday, but appears to have decided little. The decline in the oil price is unlikely to be noticed by consumers in lockdown. Ultimately, it may benefit companies (not in the oil industry) by lowering costs and helping to lower the real cost of capital. The decline should not be considered a force for deflation – inflation rates will be lower, but deflation is a general fall in prices, not one price falling.
  • Despite the bad news, there have been some areas of consumer spending that have increased (e.g. television streaming), and some firms are looking to increase employment.

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