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COVID Stimulus is Ending, Should We Worry?

Guest Post by Ned Davis Research

A Year of Extremes

2020 was a year of economic extremes, including a very short but deep global recession. The stimulus response was no exception. Fiscal stimulus among developed economies brought upon by the COVID pandemic exceedingly dwarfed the support in response to the Global Financial Crisis (GFC).

Is the Party Over?

But we haven’t seen much in the realm of new COVID-related emergency support in
the developed world since the U.S.’s American Rescue Plan in March. Having
peaked late last year, it’s now at its lowest point since after the GFC. Nonetheless, it remains elevated, indicating that there’s still a fair share of stimulus left. 

The concern, however, is that many COVID stimulus measures in the developed world
are starting, or are set, to expire in the coming months.

In the U.S., pandemic unemployment assistance has already expired in half of states,
the rest set to end in September. The federal moratorium on evictions, while was recently
extended, is also scheduled to finish in September. In the eurozone, the vast majority of
debt deferrals have expired. Meanwhile, wage COVID stimulus is ending, should we worry?
subsidy schemes in the U.K. and Canada are expected to end in the fall.

There is other stimulus in the making, such as the U.S. infrastructure plans and the Next
Generation EU recovery package. But these measures are projected to be distributed over
a longer period of time, as opposed to the front-loaded COVID stimulus.

But we believe that the global economy can survive with fading emergency support. In the following pages, we make the case that households are well positioned for an end to stimulus. However, the pandemic remains the biggest risk to this outcome.

Our Global Monetary Policy Index shows that we haven’t seen much in the realm of new COVID-related emergency support, as seen in the chart below.

More Income Support?

A distinct characteristic of the COVID stimulus in many parts of the developed world was that it provided direct income subsidies. This was particularly prevalent among economies that do not have as much built-in fiscal support (i.e., automatic stabilizers).

Indeed, some countries, such as the U.S., Canada, and Australia, actually saw disposable
incomes skyrocket during the worst of the COVID recession because of these direct payments (see chart at right). Base effects and a waning of these government checks have led to a deterioration in year-to-year disposable income growth.

Savings Surge

Nonetheless, savings have surged, further boosted by the lockdowns, which inhibited
spending. This creates a huge buffer for households. As shown in the chart at left, the household saving rate among G7 economies is significantly higher compared to pre- COVID levels. Not surprisingly, the economies that saw the largest boosts to disposable income in 2020, have also seen more noteworthy gains in their saving rates.

Moreover, not all the government transfer payments went to savings. Analysis by the NBER of the U.S. stimulus emergency checks found that a significant portion (around a third) of the funds were used to pay off debt, also a positive for household balance sheets.

The Household Saving Rate among G7 economies is significantly higher compared to pre-COVID levels, as seen in the chart below. 

Jobs, Jobs, Jobs!

Emergency support was a necessity due to job losses associated with the COVID pandemic. But as vaccine rollouts have gained pace and restrictions have been lifted, demand for workers has come roaring back.

Even though most major developed economies’ unemployment rates remain above
pre-COVID levels, all have made sizable improvements since their COVID peaks. Given the strong economic recoveries, the ongoing deficits in the job market have a lot to do with mismatches and churn in the labor market brought upon by the abrupt changes inflicted
by the pandemic, as opposed to a lack of demand for workers.

As shown in the chart below, Indeed job postings point to robust demand among employers.
All major developed economies are experiencing strong year-to-year growth, led
by Australia, Canada, and the U.S. The latest Manpower Employment Outlook survey also
points to unprecedented demand for workers, led by the U.S, Australia, and Germany.

With furlough schemes in Europe and Canada set to expire in the fall, there are some concerns that those individuals may be let go. But Australia, whose job-support program ended earlier this year, offers a positive example, as demand for workers continued to surge after the program’s expiration.

Indeed job postings point to a robust demand among employers, as seen in the chart below.

Uneven Recovery

Despite the healthy household balance sheets on aggregate, it’s important to emphasize
the difference between the aggregate and the individual. The recovery remains uneven, and particularly in the U.S. where automatic social safety nets are not as robust. Moreover, the way employment stimulus was implemented via generous unemployment benefits (as opposed to wage subsidies), led to a larger displacement of workers in the U.S., with low-income groups disproportionally impacted given their bigger role in the services and hospitality industry. According to the Department of Housing and Urban Development, this group is also more likely to experience foreclosures and rental evictions once the moratoria expire.

Business Healthy

Government protections, via loans and guarantees, among advanced economies prevented a potential onslaught of bankruptcies during the worst of the COVID crisis last year. Bank lending to the private sector jumped throughout most of 2020 because of these programs, led by the U.S., Japan, and the U.K. Since then, demand for loans have tapered off, also suggesting reduced need for government support.

As long as household balance sheets on aggregate remain healthy and financial conditions favorable, this should continue to support businesses, many of which have been reporting unprecedented earnings growth this year, and their ability to pay off debts. Of course, much of this hinges on the evolution of the COVID pandemic and how it impacts government stringency measures, which have bee easing , and human engagement in the economy. Despite some of
the recent COVID setbacks, the global economy is powering through. But we’ll continue to
watch the data closely for major changes.

© Copyright 2021 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at For data vendor disclaimers refer to

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