The spread of coronavirus around the globe has prompted governments to impose unprecedented shutdowns and offer billions in financial aide to companies and individuals struggling in what is expected to be the worst economic downturn since the Great Depression.
In figures released by the IMF, since the start of the year governments have approved more more than £3.6tn ($4.5tn) worth of emergency measures, and that figure continues to rise.
Ceyhun Elgin, an economics professor at Columbia University, has been tracking the fiscal responses of 166 countries to the global pandemic and found that the responses have varied widely. According to his research, Japan and Malta have been the most generous in terms of government bailouts, with stimulus worth more than 20 per cent of each country’s gross domestic product (GDP). These figures compare with rescue spending estimated at around 14% in the United States, 11% in Australia, 8% in Canada, and 5% in the UK.
However, these figures around rescue spending do not take into account alternative measures of stimulus from central banks, such as guaranteeing loans. In the US and many European countries, including the UK, central banks have guaranteed up to 100 per cent of loans from banks to businesses in an effort to keep money flowing and companies afloat during these unprecedented times. This means that whilst businesses may looks to compare business loans at crediful.com in the US or Moneysupermarket in the UK, the banks offering the loans will be incentivised to lend as the government could taking some or all of the financial risk.
Another frequent approach to supporting businesses has been for the government to help cover employee wages in an effort to reduce layoffs. The idea is that if a company is forced to reduce or suspend trading because of the shutdown, the government will pay part of their wage bill so that the company will have a better chance of bouncing back once the situation improves and lockdown starts to lift.
Many European countries have offered some form of wage support, although the implementation and scale varies significantly by country. The UK’s scheme has been a welcome relief to both businesses and employees, with support for 80 per cent of wages for furloughed workers up to a maximum of £2,500 per month. This is a higher percentage of wage cover than countries like Germany (67%) and France (70%), but the maximum figure is significantly less with Germany offering up to €6,700 and France up to €6,927.
In the US, the Coronavirus Aid, Relief, and Economic Security (CARES) Act is designed to give direct support to the population rather than offering support through their employers and has paid out between $1,200 and $2,400 to every household directly. Alongside this direct household support, Washington has also dedicated more than $650bn to business loans that will not have to be repaid if the recipients spend the money on wages and maintain staffing levels, in a plan called the Paycheck Protection Program. This program was supposedly designed to support SMEs, but in reality the complexity of the policy has resulted in the majority of the funds going to large corporations with little left over for smaller firms.
Every country has taken a slightly different approach to supporting its business community and propping up its economy during the Covid-19 shutdown in the hope that their unique combination of policies will cause the least pain for employers and employees and give companies the best chance of bouncing back. As economies around the world begin to tentatively reopen we will see how successful these strategies have been.