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How have different governments around the world responded to the health and economic crisis and what are some of the innovative responses that will stimulate the economy and ensure a sustainable recovery?[vc_quotes layout=”accordion” 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title=”Speakers” el_class=””][vc_quotes layout=”accordion” 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title=”Moderator” el_class=””][vc_empty_space height=”10px”]
Key takeaways
Randy Kroszner
Everyone wants to know whether we are setting ourselves up for a crash.
Companies who are raising equity or debt and holding the cash can build a stronger “fortress balance sheet” to make them more resilient.
The question is whether and when the Federal Reserve can pull back their additional support to avoid inflation. However, in the short run the major risk is deflation, not inflation, and the Fed will do everything possible to avoid a deflationary scenario.
Lucrezia Reichlin
Monetary and fiscal policies in response to COVID-19 have been very different to the GFC period. We are likely to see increased innovation in coordination between monetary and fiscal policy.
One key question is whether Europe will be able to cope with individual country national debt by transferring risk between countries.
We should not be complacent of the possibility of inflation, however central banks have several instruments to counteract the potential risk, assuming they act in a timely manner.
A reduction of stimulus too early could result in a deflationary spiral.
Central banks will eventually think about how broad their investment mandate should be including sustainable investing, but we are not there yet.
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Poll results
What do you think is the number one potential unintended long-term consequence from the policy responses to the crisis? (for example inflation, or inflated asset prices)
The Florida State Board of Administration has made some strategic moves to take advantage of opportunities in the dislocation, including in private equity, distressed debt and active listed equities.. But CIO, Ash Williams, is concerned about the underlying real economy.
This research studies the interaction between economic decisions and epidemics. The model implies that people’s decision to cut back on consumption and work reduces the severity of the epidemic, as measured by total deaths. These decisions exacerbate the size of the recession caused by the epidemic.
The global economic shutdown triggered by COVID-19 has put the North American private debt industry to its first major test. What lessons can be learned from the global financial crisis that are relevant today? What lessons are emerging as a result of COVID-19? And how might the industry evolve?
The global economy is projected to contract sharply by –3 per cent in 2020, much worse than during the 2008–09 financial crisis. In a baseline scenario--which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound—the global economy is projected to grow by 5.8 percent in 2021 as economic activity normalises, helped by policy support. The risks for even more severe outcomes, however, are substantial.
The PRI is working with signatories to further develop thinking on what the COVID-19 crisis means for investors. It is establishing two signatory participation groups to coordinate and develop investor responses, focusing on short term responses, and a future economic recovery phase.
This OECD note provides illustrative estimates of the initial direct impact of shutdowns, based on an analysis of sectoral output and consumption patterns across countries and an assumption of common effects within each sector and spending category in all countries.
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