Governments must spend to support coronavirus-hit economy, S&P says

A worker wearing a protective mask and gloves assembles face shields at the Cartamundi-owned Hasbro manufacturing facility in East Longmeadow, Massachusetts, U.S., on Wednesday, April 29, 2020.

Adam Glanzman | Bloomberg | Getty Images

With the coronavirus pandemic exacerbating a slowdown in the global economy, governments around the world may have no choice but to increase spending to support businesses and households well into the next year, according to an economist from S&P Global Ratings.

Many governments have announced large amounts of fiscal support in the wake of the pandemic. But some countries, including the U.S., have shown “a degree of fiscal fatigue” and are considering rolling back some of the stimulus, said Shaun Roache, the ratings agency’s chief economist for Asia Pacific.

“We’re seeing some fiscal policymakers think about pulling back some of their measures or maybe letting them expire without renewing them, and that’s quite a dangerous thing to do when demand in the rest of the economy still remains quite suppressed,” he told CNBC’s “Squawk Box Asia” on Monday.

“So we expect and we hope to see some of those fiscal measures being renewed, pushed forward into the next year. That is going to mean more fiscal easing but at the moment there is no alternative to that,” he added.  

Roache explained that additional spending will worsen the balance sheets of governments, but it’s necessary to “prevent things from getting even worse.” That’s especially so when authorities have to take actions that suppress economic activity to contain the virus given the absence of an apparent medical solution to the outbreak, he added.

S&P Global Ratings earlier this month downgraded its forecast for the global economy. It now expects global gross domestic product to shrink by 3.8% this year — worse than the 2.4% contraction it previously projected.   

The global economy is forecast to bounce back to an average 4% growth in 2021 to 2023, but the level of economic output in nearly all economies is expected to remain below 2019 levels — before the virus spread globally — for several years, the agency said in a report.

“So we’re not going back to where we would have been in the absence of the virus and to a very large extent this reflects a lot of the damage that’s been caused … to labor markets but particularly to balance sheets and that’s not going to be fixed easily or quickly,” said Roache.

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