Economic Analysis of Major Countries in 2020
Published on October 20, 2020
Published by Economic Analysis Coordination Division, Economic Analysis Department
Ⅰ. Analysis Overview
As economic activities that were brought to a near-standstill and pushed the global economy into a prolonged downturn following the spread of COVID-19 in 2020, this report reviewed the economic and financial indicators of major developed and emerging countries and analyzed related issues in a systematic manner.
Ⅱ. Global Economic Environment
Despite large-scale fiscal and monetary policies implemented by many governments around the world in response to the spread of the Coronavirus, the International Monetary Fund (IMF) lowered its global economic growth rate estimates for 2020 by 7.2%p to –4.4% YoY, and the global trade volume growth rate by 11.4%p to –10.4% YoY. The 10-year treasury bond yields have seen a decline in major economies due to concerns over the economic recession: the US dollar and Japanese yen temporarily strengthened, while stock prices recovered after a sharp decline. Meanwhile, with the exception of crude oil and iron ore, prices of non-ferrous metals, corn and soybeans fell after demand slowed due to the spread of COVID-19, while prices of iron ore and wheat, whose supply decreased, have risen.
Ⅲ. Economic Status of Developed Countries
In the United States, the economic growth rate in 2020 sharply declined due to the impact of the Coronavirus pandemic, while its financial markets showed mixed trends in stock prices and dollar value, and interest rates declined. By economic entity, with the overall deteriorating economic conditions of 2020, net household assets and corporate profits have been on a downward trend. As the U.S. government boosts spending in order to deal with the pandemic, its debt ratio has increased.
The Japanese economy has recorded negative (-) growth for the second consecutive quarter as it was adversely affected by the coronavirus, etc. in 2020. The overall economic conditions by economic entity have also been deteriorating, with household net assets and corporate profits on the decline. Making matters worse, the ratio of the Japanese government's fiscal deficit had been escalating since 2019.
The German economy has experienced a decline in economic growth due to the impact of COVID-19 in 2020, and as for its financial markets, stocks continued to be mixed while interest rates are in negative (-) ranges. By economic entity, the net worth of German households and the volume of profits generated by German companies fell at the first half of year. Additionally, government spending has increased and its fiscal balance is now a deficit.
Meanwhile, private consumption in major developed countries in 2020 significantly decreased due to the virus, but individual disposable income was found to demonstrate differing patterns by country due to different policies implemented by each country, among other reasons. Although the unemployment rate in major developed countries has risen due to COVID-19, etc., the extent of the increase varies depending on the employment security policies and industrial structure of each country.
Ⅳ. Economic Status of Emerging Countries
In China, while major economic indicators have been worsening due to the recent trade conflict between the(삭제) US and China, as well as the impact of the coronavirus disease starting in late 2019, financial soundness of its internal sector seems to have weakened as well.
The Indian economy continued to grow rapidly until 2019, but major economic indicators (industrial production, private consumption, unemployment rate, stock prices, etc.) have been affected negatively by Coronavirus in 2020.
Brazil saw positive (+) economic growth since 2017, but its economic growth rate has declined, and its base interest rates have been at a record low since the spread of Coronavirus.
Russia's economic growth rate slowed in 2019, and it took a nosedive in the first and second quarters of 2020 due to Coronavirus.
Ⅴ. International Comparative Analysis of Major Economic Policies
As the first analysis of current issues, policy responses of major countries related to the pandemic have been ascertained. In response to the spread of the virus, major countries around the world have implemented social distancing and economic stimulus measures which have resulted in greatly heightened levels of government policy response mechanisms. It turned out that the more advanced a country was, the more proactive it was in implementing measures that improved liquidity such as loans, equity acquisitions, and guarantees through state-owned banks and businesses; in addition to the measures involving budget allocations. Furthermore, in response to the crisis, policy flexibility illustrated by fiscal rules, monetary policy stances, financial supervision standards, etc. has also improved. Once the coronavirus crisis is addressed, identifying the risks of the rapidly increasing fiscal deficit and the size of fiscal debt following the expanded flexibility in fiscal rules as well as concerns regarding lending insolvency caused by relaxed monetary and financial policies will then take precedent.
Comparisons of monetary policies of individual countries, following the spread of COVID-19, were also analyzed and found that these policies shared three common traits. First, in the first half of 2020, policy interest rates in major countries fell sharply in relation to Coronavirus. Such interest policies may be interpreted as efforts put forth by major countries to avoid the negative effects imposed on their economies since the volatility of capital flows between countries was exacerbated in the midst of elevated external uncertainties. Second, interest rates were cut further pursuant to the easing of monetary policies that were expanded to better respond to the virus. From the beginning of 2020, a trend of long-term government bond yields turning negative intensified and became more prominent, and the term spreads of major countries' bonds expanded mostly in Japan and the Eurozone, because of cuts in base interest rates and greater preference for safe assets in major countries. Third, while the velocity of money in major countries continued to decrease after the Global Financial Crisis, the rate of increase in the money supply in major countries in 2020 has risen significantly compared to the previous year.
Last, effective interest rates of government bonds in major countries were compared. A discussion was held as to whether there is room for issuing deficit-financing government bonds without increasing government debt ratios which might result from implementing more proactive fiscal policies than in the past, as governments had to address the COVID-19-induced economic crisis. To test this scenario, effective interest rates on government bonds in major countries were estimated, which found that effective interest rates increased sharply before and after the outbreak of COVID-19 due to a drop in economic growth rates that fell significantly below interest rate burdens of government bonds. If the effective interest rate on government bonds is negative (-), the government debt ratio may be maintained, even if it means fiscal expenditures will increase temporarily. Thus, efforts to drive down effective interest rates on government bonds should be made by improving economic growth rates and issuing conversions on government bonds.