The global fiscal response to COVID is $11.7trn, or almost 12% of GDP, according to the IMF’s latest Fiscal Monitor. Around half of this comprises spending or forgone revenues (including temporary tax cuts) and half is liquidity support. We take stock of where the policy response has been the largest and what stands out between EM and DM.
The US, Canada and Japan Have Seen the Largest Direct Fiscal Support
The service-orientated advanced economies (AEs) suffered deeper Q2 GDP contractions compared with emerging markets (EMs) based on Q2 GDP data (India and Mexico being the exceptions, Chart 1). The larger policy responses could therefore be justified and, of course, aided by AEs’ ability to finance larger fiscal deficits and extend central bank liquidity without jeopardizing commitment to inflation mandates.
The AE fiscal deficit is expected to increase from 3.3% of GDP in 2019 to more than 14% in 2020, with deficits in the US, UK, Canada and Japan all projected between 14 and 20% of GDP this year. Direct fiscal support is large in these countries, as is liquidity support in Japan and several European countries – the result of sizeable guarantee programmes (Table 1). Total fiscal support, according to the IMF estimates, is over 30% of GDP in Germany, Japan and Italy.

The global fiscal response to COVID is $11.7trn, or almost 12% of GDP, according to the IMF’s latest Fiscal Monitor. Around half of this comprises spending or forgone revenues (including temporary tax cuts) and half is liquidity support. We take stock of where the policy response has been the largest and what stands out between EM and DM.