Production and exports have come to near-paralysis in many countries, while shrinkages of up to 10-14% are expected in some of the world’s most developed economies in the first quarter. Many countries, particularly the US and European states, have announced unprecedented crisis packages to fight back. The sizes of the fiscal stimulus packages announced by governments include a crisis package of 1 trillion dollars in the US, 614 billion dollars in Germany, 412 billion dollars in the UK; 373 billion dollars in France; 216 billion dollars in Spain, and 27.3 billion in Italy. On 18 March, Turkey’s President Recep Tayyip Erdoğan announce a 21-point package of 100 billion lira (15 billion dollars). Although the package was mostly appreciated by business circles, it is been criticized for only assisting businesses and not providing any real relief to average citizen. Putting those discussions aside; below is an analysis of whether the fiscal stimulus packages will help salvage the economy’s wounds caused by the virus.
From a supply crisis to a crisis of demand and finance
Looking at the situation retrospectively, the start of the current crisis started with the new type coronavirus hitting China. From the perspective of the world of economy, this was initially a crisis in supply which, as the outbreak spread onto other countries, transformed into a crisis of demand. Amidst all this, war over oil prices between Russia and Saudi Arabia followed by travel restrictions, the problem eventually turned into a financial crisis and policy makers across the globe are struggling to stop it from turning into a full blown economic crisis.
Following major central banks’ steps to boost liquidity, the gigantic stimulant packages announced by governments are the most obvious indicator of the situation. Economists think that after steps taken in monetary policy, financial support and profit guarantees, the COVID-19 curve will peak and then life will return to normal. Experts highlight that financial markets are craving confidence, adding that it is impossible to fight this crisis alone.
How deep is the bottom? Experts, however note
that the steps so far taken to reverse the tide might prove to be too small and assurances of high amounts of capital, minimized costs and fiscal support are necessary to restore confidence in the markets. Economists note that a dollar-swap line should be launched the US Federal Reserve, noting that so far 14 countries, including emerging economies, have started such liquidity swaps. Experts also suggest reaching out to an international agency to restore confidence and then move down to details and specific sectors and have micro-level discussions. Otherwise, Turkey, with a projected budget deficit of 3 percent and a remarkably low real exchange rate, might have a very tough time in this battle. Experts also note that inflation still remains very high. Stressing that countries such as the US, EU states and Japan are fast on their way to recession, experts say that although the coronavirus crisis is short-term, it will nevertheless be extremely harsh. When it is all over, Turkey will have a young population with an increased appetite for consumption with the added advantage of low commodity prices. However, they warn that nobody really knows how far along that is.
