Economy Recovery in the Post-Covid-19 World

Fiscal Policy & Monetary policy

About Policies
1. Fiscal Policy: the use of government revenue
collection (taxes or tax cuts) and expenditure to
influence a country's economy.
2. Monetary Policy: the policy adopted by the monetary
authority of a nation to affect monetary and other
financial conditions to accomplish broader objectives
like high employment and price stability (normally
interpreted as a low and stable rate of inflation).

QE & QT: Definition

1. Quantitative easing (QE) is a monetary policy action
where a central bank purchase predetermined
amounts of government bonds or other financial
assets in order to stimulate economic activity.

The QE interacted with the real economy through

multiple channels:
a. The liquidity channel, increasing money supply
and liquidity with a view to easing financial market
stress and preventing liquidity shortages particularly
during the immediate crisis phase.
b. The portfolio rebalancing channel, changing the
relative prices of financial assets and encouraging
 investors to hold long term assets by lowering their
yields.
c. The signalling channel, conveying the central
bank’s commitment to stabilising financial markets
and supporting the economy.

2. Quantitative tightening (QT) is a contractionary

monetary policy tool applied by central banks to
decrease the amount of liquidity or money supply in
the economy.
QT is the reverse of QE.

QE Pros
1. Increase market liquidity
2. Stimulate economic activity.
3. Relaxing bank funding constraints
4. Increasing risk appetite
5. Lowering liquidity premium
6. Lower bund yields
7. Increase credit supply in private sectors

QT Pros
1. Prevent inflation
2. Maintain financial stability

QE Cons
1. Debt sustainability risks
 2. Higher borrowing costs
3. Inflation

QT Cons
1. Imports more expensive.
2. Faster rate increase
3. Increase their borrowing costs
4. Exacerbate debt sustainability risks
5. Spiral of credit defaults
6. Increase financial risks.
7. Delay recovery (low growth path in the medium term)

Common Problems
1. Shortage of funds
2. High Inflation
3. Rising interest rates
4. The banking sector turmoil

Regional Economic Outlook

United States
Forecast of GDP: +1.1%
Change: +0.7%
Factors:
- Better than expected household spending and
economic resilience
Risk Challenges:
- Interest rates rise rapidly
 - Supply has not kept up with strong consumer
demand

Europe
Forecast of GDP: +0.9%/-0.1% (UK)

Change: +0.7%/+0.7% (UK)

Factors:
- High energy costs
- Persistent inflation
- Aggressive monetary tightening

Risk Challenges:
- The region’s baseline outlook faces significant
downside risks.
- International energy markets remain vulnerable to
deterioration.
- Tighter financial conditions could expose
vulnerabilities in the region’s commercial and
residential real estate markets.

Developed Asia and the Pacific

Forecast of GDP: +1.4%/+1.2% (Japan)

Change: Not Mentioned/-0.3% (Japan)

Factors:
- Monetary tightening and inflation (Australia and
New Zealand)
 - Monetary tightening and reduced fiscal support
(South Korea)
Risk Challenges:
- Inflation rate hikes and the risk of a sharp housing
market correction (Australia and New Zealand)
- Weakening external demand and the risk of a sharp
housing market correction (South Korea)
- More persistent than expected inflation (Japan)

Economies in Transition
Forecast of GDP: +0.6%/+0.6% (Georgia)/+2.0%
(South-Eastern Europe)
Change: Not Mentioned/Not Mentioned (Georgia)/+0.3%
(South-Eastern Europe)
Factors:
- Russian export revenues plummeted. Consumer
confidence remains low. Stronger enforcement of
restrictions on the import of sanctioned technologies
through third countries (Russia)
- Ukraine lost a large share of its industry capacity and
energy infrastructure to the war. (Ukraine)
Risk Challenges:
- the duration and intensity of the war and its ability to
finance reconstruction (Ukraine)

Africa
Forecast of GDP: +3.4%
Change: -0.4%
Factors:
- Monetary tightening
- Mining sector and mining-related investments will
support growth in several African economies
Risk Challenges:
- Balance-of payments constraints (Egypt)
- Power crisis (South Africa)
- Growing food insecurity (West and Central Africa)

East Asia
Forecast of GDP: +4.7%/+5.3% (China)

Change: +0.3%/+0.5% (China)

Factors:
- Lifting the COVID-19 related restrictions (China)
- Weakening external demand
- Tighter global financial conditions
- Geopolitical tensions
Risk Challenges:
- Uncertainties in the property sector (China)
- Elevated inflation rate (Indonesia, the Philippines
and Singapore)
- Civil conflict (Myanmar)
- Natural disasters (Pacific small island developing
states)
South Asia
Forecast of GDP: +4.7%/+5.8% (India)

Change: -0.1%/0.0% (India)

Factors:
- High inflation
- Tighter financial conditions
- Weaker private consumption
- External imbalances
Risk Challenges:
- Potential droughts and floods

Western Asia
Forecast of GDP: +3.1%
Change: -0.4%
Factors:
- Monetary tightening (GCC countries, Israel and
Jordan)
- Balance-of-Payment constraints (Syria, Türkiye and
Yemen)
Risk Challenges:
- High inflation (Syria, Türkiye and Yemen)
- Additional fiscal measures with international
cooperation, unstable oil prices and uncertain
geopolitical situations (Syria and Türkiye)
Latin America and the Caribbean
Forecast of GDP: +1.4%
Change: 0.0%
Factors:
- Subdued global growth
- Still-elevated inflation
- Structural vulnerabilities
- High borrowing costs
Risk Challenges:
- Elevated price pressures
- Slower growth hampers job creation
- Inflation
- Higher levels of poverty, informality and food
insecurity