Japan, which unveiled a trillion-dollar stimulus to revive its Covid-19 and lockdown-hit economy in April, is reported to be planning another trillion-dollar stimulus. The new package includes direct subsidies for companies to help them cover cost of operations, health care aid for individuals, and financial assistance for local governments. The government of Prime Minister Shinzo Abe has said the total of the two packages will work out to around 40% of the country’s GDP. The fiscal cost of the package isn’t clear. HT’s analysis estimated that of the previous trillion-dollar package at around $454 billion or 9.13% of the country’s GDP.
The European Commission has also said it is working on a package of between €750 billion ($823 billion) and €1 trillion ($1.97 trillion) for the region, including a proposed 500 billion euro ($548 billion) fund that can be tapped by member-countries whose economies have been hit hard by the coronavirus disease pandemic.
The US Heroes Act, which promises $3 trillion in support, including another round of cheque payments to eligible Americans, is unlikely to be passed by the Senate, but there is talk that there will be a follow-up to the $2 trillion package announced in the CARES Act. Including monetary measures, HT’s Analysis calculates that the US has announced a total package of $6.8 trillion of which the fiscal cost is around $940 billion (this is a very conservative estimate and excludes loans and guarantees).
The consensus estimate for the fiscal cost of India’s $277 billion package is around $29 billion.
Plans for a second stimulus package underline a realisation in countries around the world that the impact of the pandemic and the lockdowns enforced by many countries to slow its spread – in the absence of a cure, a lockdown is the only way to break the chain of infections – will be harder than originally estimated. According to a Reuters poll of economists released on Wednesday, the global economy will shrink by 3.2% this year. A similar poll last month predicted that the decline would be 2%. The International Monetary Fund said in April that global growth would decline by 3% in 2020, and its managing director Kristalina Georgieva recently hinted that this could be revised down. But while this year will be worse than estimated, the economists polled by Reuters expect next year to be better. The poll said global growth could bounce back to 5.4% next year, up from the 4.5% predicted in April’s poll, although this is largely the base effect shining through.
In India too, the immediate impact on the economy is likely to be harder than expected. State Bank of India said in a research note on Tuesday that India’s GDP could contract 40% in the first three months of the year (April-June) and by 6.8% in the full year (2020-21). But it expects growth to bounce back once the country opens fully. Rating agency Crisil, which sees the country’s economy shrinking 5% in 2020-21, expects the first quarter to see a 25% fall in GDP.
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Much depends on when the country reopens fully. And much also depends on when India starts flattening the curve – in terms of new cases of Covid-19, and in terms of daily deaths. Neither is happening right now: both the number of new cases and that of daily deaths are continuing to rise. And at some point in the next few months, India is going to have to start thinking in terms of a new package that can revive demand, put more money in the hands of individuals, and financially support businesses. It’s probably too early to talk of it – the ink on the documentation of the first package is yet to dry and many of the notifications related to it are yet to be issued – but developments in the US, Japan, and Europe clearly indicate that the economy needs more.