FlyTitle: The economic emergency

Governments are spending big, and trying new tricks, to keep the world economy from falling dangerously sick


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A  CHARACTER IN a novel by Ernest Hemingway once described bankruptcy as an experience that occurs “two ways: gradually, then suddenly”. The economic response to the covid-19 pandemic has followed this pattern. For weeks policymakers dithered, even as forecasts for the likely economic damage worsened. But in the space of just a few days the rich world has shifted decisively. Many governments are now on a war footing, promising massive state intervention and control over economic activity.


The new phrase on politicians’ lips is “whatever it takes”—a line borrowed from Mario Draghi, president of the European Central Bank (ECB) in 2011-19. He used it in 2012 to convince investors he was serious about solving the euro-zone crisis, and prompted an economic recovery. Mr Draghi’s promise was radical enough. Politicians are now proposing something of a different magnitude: sweeping, structural changes to how their economies work.

政客们挂在嘴边的新说法是“不惜一切代价”,这是从2011至2019年担任欧洲央行行长的马里奥·德拉吉(Mario Draghi)那里借来的一个表述。他在2012年用这句话来向投资者证明自己对解决欧元区危机这桩事是认真的。这在当时促进了经济复苏。德拉吉的承诺已经足够激进了,但政客们现在提议的东西是另一个量级的——对经济运作方式实施大范围的结构性改变。

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There are unprecedented promises. On March 16th President Emmanuel Macron of France declared that “no company, whatever its size, will face the risk of bankruptcy” because of the virus. Germany pledged unlimited cash to businesses hit by it. Japan passed a hastily compiled spending package in February, but on March 10th supplemented it with another one that included over ¥430bn ($4bn) in spending and almost four times as much in cheap lending. Britain has said it will lend over £300bn (15% of GDP) to firms. America may enact a fiscal package worth well over $1trn (5% of GDP). The most conservative estimates of the total extra fiscal stimulus announced thus far put it at 2% of global GDP, more than was shovelled out in response to the global financial crisis of 2007-09.


That sinking feeling


In part this radical action is motivated by the realisation that the coronavirus, first and foremost a public-health emergency, is also an economic one. The jaw-droppingly bad economic data coming out of China hint at what could be in store for the rest of the world. In the first two months of 2020 all major indicators were deeply negative: industrial production fell by 13.5% year-on-year, retail sales by 20.5% and fixed-asset investment by 24.5%. GDP may have declined by as much as 10% year-on-year in the first quarter of 2020. The last time China reported an economic contraction was more than four decades ago, at the end of the Cultural Revolution.


Grim numbers are starting to pile up elsewhere, not so much in the official statistics, which take time to be published, as in “real-time” economic data produced by the private sector. Across the world, attendance at restaurants has fallen by half, according to OpenTable, a booking platform. International-passenger arrivals at the five biggest American airports are down by at least 30%. Box-office receipts have crumpled (see chart 2).


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The disruption to international travel will hurt trade, since over half of global air freight is carried in the bellies of passenger planes. The combination of disrupted supply chains and depressed demand from shoppers should hit trade far harder than overall GDP, if the experience of the last financial crisis is anything to go by. Already, the American Association of Port Authorities, an alliance of the ports of Canada, the Caribbean, Latin America and the United States, has warned that cargo volumes during the first quarter of 2020 could be down by 20% or more from a year earlier.


Official data are now starting to drip out. The Empire manufacturing index, a monthly survey covering New York state, in March saw its steepest drop on record, and the lowest level since 2009. In February Norway’s jobless rate was 2.3%; by March 17th it was 5.3%. State-level numbers from America suggest that unemployment there has been surging in recent days.


All this is fuelling grim forecasts. In a report on March 17th Morgan Stanley, a bank, estimated that GDP in the euro area will fall by an astonishing 12% year-on-year in the second quarter of the year. The Japanese economy is forecast to contract by 2% this quarter and 2% next. Most analysts see global GDP shrinking in the first half of the year, with barely any growth over 2020 as a whole—the worst performance since the financial crisis of 2007-09.


Even that is likely to prove optimistic. On March 17th analysts at Goldman Sachs noted that they had “not yet built a full lockdown scenario” into their forecasts for advanced economies outside Europe. Forecasts for America, which is at an earlier stage than Europe and Asia when it comes to the outbreak, remain Panglossian; very slow growth in China and a big recession in Europe could by itself be enough to send the world’s largest economy the same way. Steven Mnuchin, America’s treasury secretary, warned last week that the country’s unemployment rate could reach 20% unless Congress passes a stimulus package. A negotiating ploy? With shopping malls emptying, factories grinding to a halt and financial markets buckling, lawmakers may be loth to challenge the claim.


Despite stomach-churning declines in GDP in the first half of this year, and especially the second quarter, most forecasters assume that the situation will return to normal in the second half of the year, with growth accelerating in 2021 as people make up for lost time. That judgment is in part informed by China’s experience. More than 90% of its big industrial firms are officially back in business. Its stockmarket had been one of the world’s worst performers in early February but is now the best (or rather, least bad). There remains, however, a risk that global containment and suppression of the virus will need to continue for a year or longer. If so, global economic output could be dragged down for much longer than most people expect.


Perhaps the greatest lesson of the global financial crisis was that it paid to act decisively and to act big, convincing markets and households that policymakers were serious about countering the slump. If done right, central banks and governments can end up doing a lot less than they actually promised. A pledge to bail out banks makes it less likely savers will withdraw deposits and make a rescue necessary.


This time around, central banks sprang into action. Since February the Federal Reserve has cut interest rates by 1.5 percentage points. Other central banks have followed suit. Further deep rate cuts are not possible, though; interest rates were very low long before the virus began to spread.


Let’s get fiscal


Not all central banks are acting as boldly as they can. China has room to cut interest rates—its benchmark rate is 1.5%—but has held back in part because inflation is quite high (largely as a result of African swine fever, which hit pig stocks, raising prices). Central banks could try more creative policies. On March 19th the ECB’s governing council agreed to launch a €750bn bond-buying programme, covering both sovereign and corporate debt. But the real action is now taking place on the fiscal front.


Governments are falling over each other to offer bigger and better stimulus packages. All countries are spending more on health care, both in an effort to find vaccines and cures and to increase hospital capacity. However, the bulk of the extra spending is on companies and people.


Take companies first. China, where the outbreak has slowed, is now trying to get people out and buying things. Foshan, a city in Guangdong province, has launched a subsidy programme for people buying cars. Some cities have started giving out coupons that can be spent in local shops and restaurants. Nanjing this month gave out e-vouchers worth 318m yuan ($45m).


Most countries, however, are in or about to enter the worst part of the outbreak. As customers dry up, many firms will go bust without government help. Calculations by The Economist suggest that 40% of consumer spending in advanced economies is vulnerable to people shunning social situations. Firms in leisure and hospitality are especially rattled. The Moor of Rannoch hotel, in about as rural a part of Scotland as it is possible to find, says its insurer will not be paying out a penny for lost custom, since covid-19 is a new disease and thus not covered under its policy.

但是,大多数国家正在或即将进入疫情最严重的阶段。随着客户枯竭,没有政府帮助的话会有许多企业破产。本刊的计算表明,人们避开社交场合会影响发达经济体中40%的消费者支出。休闲和招待类企业首当其冲。位于苏格兰乡村最偏僻地区的兰诺克沼地酒店(Moor of Rannoch)说,它投保的保险公司不会因酒店无人光顾而赔付一分钱,因为新冠肺炎是一种新疾病,不在其保险范围内。

One approach is to reduce firms’ fixed costs, largely rent and labour. China’s finance ministry will exempt companies from making social-security contributions for up to five months. The government has also temporarily cut the electricity price for most companies by 5% and enacted short-term value-added-tax cuts. The British government has extended a one-year business-rates holiday to all companies operating in the retail, hospitality and leisure sectors. Yet for many firms, no matter how much the government helps them reduce costs, revenues are likely to fall further.


So measures may be needed to allow firms to maintain cashflow. Many banks are offering hefty overdrafts to tide corporate clients over. To encourage banks to keep lending, Britain has promised them cheap funding and state guarantees against losses. For very small firms, many of which do not borrow at all, it is offering non-repayable cash grants of up to £25,000.


Other countries are enacting similar plans. The Japanese government is helping small firms by mobilising its state-owned lenders to provide up to ¥1.6trn of emergency loans, much of it free of interest and collateral requirements. Small firms qualify for help if their monthly sales fall at least 15% below a normal month’s takings. Bavaria, a rich state in Germany, announced on March 16th that small and medium-sized companies with up to 250 employees could receive an immediate cash injection of between €5,000 and €30,000. The European Commission has already relaxed state-aid rules so that governments can channel help to ailing companies.


The second part of the fiscal response is about helping people, and in particular protecting them from being made unemployed or suffering a drastic drop in income if that does happen. Ugo Gentilini of the World Bank counts more than 25 countries that are using cash transfers as part of their economic response to the virus. Brazil will give informal workers, who make up roughly 40% of the labour force, 200 reais ($38) each. Small businesses will be allowed to delay tax payments and pensioners will get year-end benefits early. Australia is instituting a one-time cash payment of A$750 ($434) to pensioners, veterans and people on low incomes.

财政对策的第二部分是帮助民众,特别是保护人们免于失业或收入剧减的冲击(如果发生的话)。世界银行的乌戈·吉蒂利尼(Ugo Gentilini)称,有超过25个国家把现金转移支付加入了针对病毒的经济对策。巴西将给约占劳动力的40%的非正式工人提供每人200雷亚尔(38美元),小企业可以延迟纳税,退休人员将提早拿到年终福利。澳大利亚将向退休人士、退伍军人和低收入人群一次性发放现金750澳元(434美元)。

Northern Europe has led the way on implementing policies that make it less likely firms lay off workers. Germany has relaxed the criteria for Kurzarbeit (“short-time work”), under which the state pays 60-67% of the forgone wages of employees whose hours are reduced by struggling firms. Applications are going “through the roof”, according to the federal labour agency. The use of Kurzarbeit probably halved the rise in unemployment during the recession of 2008-09. More firms are now eligible to use it, temporary workers are covered, and the government will also reimburse the social-security contributions companies make on behalf of affected workers.


Bringing home the Danish bacon


In Denmark firms that risk losing 30% or more of their workforce will see the government pay 75% of the wages of employees who would otherwise be laid off, until June. Norway’s government has beefed up unemployment benefits, guaranteeing laid-off workers the equivalent of their full salary for the first 20 days. Freelancers whose work vanishes for more than a fortnight will get payments equivalent to 80% of their previous average income. In Sweden the state will cover half of the income of workers who have been let go, with employers asked to cover most of the rest.


So far America has passed more modest legislation. Federal funding for Medicaid, which provides health care for the poor, is likely to boost spending by about $30bn, assuming it remains in place until the end of December, reckons Oxford Economics, a consultancy. America also has a new paid-sick-leave policy for some 30m workers, including 10m who are self-employed, worth just over $100bn. But in that regard America is merely catching up with other rich countries, which have far more generous sick-leave policies. America also has fewer automatic economic stabilisers, such as generous unemployment insurance, than most other rich countries. As a result, its discretionary fiscal boost needs to be especially large to make a difference.

到目前为止,美国通过的立法更温和。咨询机构牛津经济研究院(Oxford Economics)估计,为穷人提供医疗服务的医疗补助计划(Medicaid)所获的联邦资助如果持续到12月底,可能会增加约300亿美元的支出。美国还对大约3000万工人实行新的带薪病假政策,其中包括1000万自雇人士,总价值略高于1000亿美元。但在这方面,美国只是在追赶其他富裕国家,那些国家的病假政策要慷慨得多。与大多数其他富裕国家相比,美国也没有多少自动化经济稳定器,比如慷慨的失业保险。其结果是,它见机行事的财政刺激需要特别庞大才能有所作为。

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It might be. The Trump administration’s plan to funnel money directly to households, if approved by Congress, is the most significant policy. It bears some resemblance to a scheme that was introduced in February in Hong Kong, in which the government offered HK$10,000 ($1,290) directly to every permanent resident. Mr Mnuchin is thought to favour a cheque of $1,000 per American—roughly equal to one week’s average wages for a private-sector worker—with the possibility of a second cheque later. Some $500bn-worth of direct payments could soon be in the post.


Some economists are leery about such a policy. For one thing, it would do little to prevent employers from letting people go, unlike the plans in northern Europe. Another potential problem, judging by Hong Kong’s experience, is administration of the plan: the territory’s finance secretary hopes to make the first payments in “late summer”, far too far away for people who lost work last week. Mr Mnuchin promises that payments will happen much sooner.


Chequered past


America has done something similar before, with results that were not entirely encouraging. The government sent out cheques in both 2001 and 2008 to head off a slowdown. The evidence suggests that people saved a large chunk of it. The psychological reassurance of a bit of extra cash could be significant for many Americans, but the sums involved are not especially impressive. Bernie Sanders, a Democratic presidential contender, is not known for his smart economic policymaking, but his suggestion of $2,000 per household per month until the crisis is over is probably closer to what is required.

美国以前也做过类似的事情,结果并没有多么鼓舞人心。政府在2001年和2008年都发放了支票来阻止经济放缓。证据表明人们存下了很大一部分。对于许多美国人来说,增加一点儿现金的心理安慰意义重大,但金额并不是很可观。民主党总统候选人伯尼·桑德斯(Bernie Sanders)并不以精明的经济政策闻名,但他建议在危机结束前给每户每月发放2000美元,倒可能更接近所需的水平。

Indeed, more fiscal stimulus will be needed across the world, especially if measures to contain the spread of the virus fall short. After the Japanese government passes the budget for next fiscal year at the end of this month, it can begin work on a supplementary budget that takes the virus into full account. Britain’s Parliament has given Rishi Sunak, the chancellor of the exchequer, carte blanche to offer whatever support he deems necessary, without limit.

确实,全世界都将需要采取更多的财政刺激措施,尤其是在遏制病毒传播的措施不力的情况下。日本政府在本月底通过下一个财政年度的预算后,可以开始制定一项补充预算来充分考虑病毒的影响。英国议会已授予财政大臣里什·萨纳克(Rishi Sunak)全权来提供他认为必要的任何支持,没有上限。

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How much further can fiscal policy realistically go? Last year the 35-odd rich countries tracked by the IMF ran combined fiscal deficits of $1.5trn (2.9% of GDP). On the not-unrealistic assumption that the average deficit rose by five percentage points of GDP, total rich-country borrowing would rise to over $4trn this year. Investors have to be willing to finance that splurge. The yield on ten-year Treasury bonds, which had fallen as low as 0.5% as fears of the virus took hold and traders sought havens, has recently risen above 1%. This is probably due to firms and investors selling even their safest assets to raise cash, but might reflect some anxiety over the scale of planned government borrowing.


Still, 1% is still extremely low by historical standards. For a variety of reasons, including population ageing, there is—in normal times, at least—unprecedented demand for low-risk government securities. The Bank of Japan has promised to buy as many bonds as necessary to hold the yield on its government’s ten-year bonds close to zero. Investors remain queasy over some rich countries’ bonds, especially slow-growing European states. The ECB’s latest intervention should allow heavily indebted economies viewed with suspicion by markets, such as Italy, to borrow more cheaply—though it does not fully dispel doubts around the euro zone’s willingness to act to avert crisis.


The question of financing the spending splurge may be more one of practicalities than of feasibility. America’s Treasury cannot issue trillions of dollars of new bonds overnight. It can, however, issue notes and bonds to the Federal Reserve, which could then credit the Treasury’s account, allowing vast sums to be spent immediately, points out Ian Shepherdson of Pantheon Macroeconomics, a consultancy. The bonds could then be sold to investors at a later date. This approach amounts to money-printing, but with little risk of runaway inflation in these straitened times.

为大笔支出提供资金的问题可能不仅仅是理论上的,而更是实际操作上的。美国财政部不可能在一夜之间发行数万亿美元的新债券,但它可以向美联储发行票据和债券,后者将其记入财政部的账户,从而可以立即动用大量资金,咨询公司万神殿宏观经济(Pantheon Macroeconomics)的伊恩·谢泼德森(Ian Shepherdson)指出。债券可以在日后再出售给投资者。这种方法等同于印钞,但在当前困境中,通胀失控的风险很小。

The economic hit from covid-19 will be bad enough for rich countries, in both human and economic terms. But they are in a relatively fortunate position, with strong health-care systems, and investors who, for now, remain willing to lend to them on cheap terms. Poorer countries, where the threat posed by the virus is also growing rapidly, have less room to borrow and job markets with a higher share of informal workers who are ineligible for many protections. The rich world faces tough times, but will get through the crisis. The prospects of poorer places are far less certain. ■