SOGEI website background

Global Macro views: COVID-19 and EM policy space

Global Macro views: COVID-19 and EM policy space

The COVID-19 shock has prompted a historic policy response in the US. Fiscal stimulus will likely take government debt from 80 to 110 percent of GDP. Meanwhile, unprecedented Fed easing is helping keep Treasury yields at low levels. What makes this policy space possible is the Dollar, which tends to appreciate in crises, giving policy makers confidence that foreign demand for US assets remains solid for now. This Global Macro Views documents a very different picture across emerging markets, where falling currencies and rising bond yields severely limit governments’ policy space. Limited policy space may exacerbate the stagnant growth picture prior to COVID-19.