Health Crisis, Yes; Debt Crisis, No
Apr 07, 2020 | Frank Sakellariou
Global fiscal stimulus announcements over the last few weeks have been quite aggressive in both magnitude and the speed in which they’ve been deployed. We have been following these announcements diligently as we believe they will play a key role in the recovery.
Given the fluid nature of current events and the vast amounts of information being reported by the financial media, we have been updating clients in a much more frequent basis through regular emails and Blog Posts. On March 25th, we published COVID-19 Update: For every Action there is an Equal and Opposite Reaction, where we talked about the initial global monetary and fiscal responses to COVID-19, including interest rate cuts, asset purchase programs by central banks, government cash handouts, subsidies, tax/rent deferrals, etc.
Even though these government actions are justifiable and will help soften the economic shocks of COVID-19, this explosion in fiscal spending will lead to more public debt. Eric Lascelles, RBC Global Asset Management Chief Economist, points out that the U.S. government will need to borrow between $2 to $4 Trillion to get through this crisis and Canada’s public debt will rise by another third.
“We will probably be in a higher debt world for the foreseeable future” said Eric in an April 4th interview. “These are truly spectacular numbers”
Although this increase in debt could reduce the rate of future global growth, Eric explains that with a period of sustained low interest rates, we could slowly grow our way out of this.
To learn more about the debt burden of COVID-19 and how it could be managed, please click on the following link to access Eric Lascelles’ 10 minute interview: Health Crisis, Yes; Debt Crisis, No.
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