The COVID-19 pandemic has imposed an enormous and intensifying impact on the global society and economy. Major economies have been responding to the worldwide outbreak with extraordinary economic policies. In this regard, the team of China Academy of Financial Research (CAFR) at Shanghai Jiao Tong University (SJTU) recently released a report to systematically review and analyze the characteristics and development of the pandemic, its mechanism, transmission and actual impact on the global economy, as well as the policy responses, objectives and measures of major economies. It also provides a preliminary assessment and discussion of the effects and results of such policies.
The report indicates the following findings:
1. COVID-19 is a unexpected global disaster. Unlike the endogenous economic recessions such as the Great Depression in 1929 and the global financial crisis in 2008, the pandemic is exogenous, while its development depends on global prevention and control, which reflects the transformation from an exogenous event to an endogenous one as well as the interaction between exogenous and endogenous elements.
2. The impact of COVID-19 on the society and its normal operation has caused the real economy to halt and has led to direct, comprehensive and enormous effects: (1) The demand has dropped significantly; (2) The supply has been greatly affected; (3) The financial market is in extensive tension and turbulence; and (4) All macroeconomic indicators have deteriorated, with increasing uncertainties.
3. During the evolution from a local outbreak to a pandemic, the responses of major economies have rapidly changed from "normal management" focusing on financial and economic stabilization, to "unusual responses" with the priority of COVID-19 prevention and control, while maintaining financial and economic stability.
4. The monetary, financial and fiscal policies of major economies concentrate on the goals of "1+5", that is: (1) to fight against COVID-19; (2) to protect people's livelihood; (3) to bail out businesses; (4) to stabilize the finance market; (5) to minimize the risk of an economic crisis; and (6) to guide the market to anticipate and prepare for economic recovery. These policies show the characteristics of "global emergency management", featuring continuous introduction, clear objectives, unprecedented intensity, abundant instruments (both conventional and unconventional), comprehensive coverage and national policy linkage.
5. Initial effects of the policies: (1) Direct financial supports for medical and healthcare resources, local finance, citizen assistance and corporate bailouts will extend 2-3 months, or even longer if necessary; (2) Financial markets are gradually stabilizing; (3) The effects of stabilizing the real economy and preventing economic crises will depend on the effectiveness of COVID-19 prevention and control efforts; and (4) The economic and financial policies of the governments have now played the expected role in stabilization to an extent. It is widely recognized that economic stability and recovery can only be possible after COVID-19 is completely under control, which will become the priority goal afterwards.
6. Specific and unusual responses call for direct intervention of the policies in the market, but in the long run, these interventions, including how they “exit”, will affect financial stability, macro leverage, fiscal policies, economic restructuring and to a deeper extent, conflicts in social structure, global spillover, macroeconomic policies and the relationship between the government and the market in many ways.