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No Alternative, Governments Must Support the Economy, S&P Says

Economic News: Coronavirus has exacerbated the slowdown in the global economy, and governments worldwide have no alternative but to support businesses and households into the next year.

An economist from S&P Global Ratings said many governments have set large amounts of fiscal support in the wake of the pandemic.

But some countries, such as the US, have shown “a level of fiscal fatigue” and are considering rolling back some stimulus, said Shaun Rache S&P’s chief economist, the Asia Pacific.

According to Shaun, some fiscal policymakers are thinking about pulling back some measures or expiring without renewal. Shaun said that it was a dangerous move when demand in the economy was suppressed.

He hoped to see more fiscal measures having renewals and pushing forward into next year. It meant more fiscal easing, but now there was no alternative, he added.

Shaun explained that additional spending would worsen governments’ balance sheets. However, this was necessary to prevent the economic slowdown from getting worse.

That is especially the case when governments take measures that suppress economic activities to contain the coronavirus – given the absence of an apparent medical solution to the pandemic, Shaun added.

 

Global economic forecast

Earlier this month, S&P Global Ratings downgraded its global economic forecast. It expects global GDP to shrink by 3.8% this year – worse than its previous prediction of 2.4% contraction.

S&P Global Ratings has forecast the global economy to bounce back to an average of 4% growth from 2021 to 2023. However, they expect the economic level output to remain below 2019 levels in nearly all economies. That is, before the virus became a global pandemic.

The agency said we were not going back to where we would have been before the pandemic. The forecast, to a large extent, reflects the coronavirus’s damage to the labor markets but particularly to the balance sheet. Shaun said that it would not be a quick and easy fix.

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