How Have Central Banks and Governments Responded to the Global Pandemic?

How Have Central Banks and Governments Responded to the Global Pandemic?

How Have Central Banks and Governments Responded to the Global Pandemic?

The COVID-19 pandemic has created one of the most unprecedented global financial events in modern history. The human and social costs of the virus have been vast. The financial costs threaten economies worldwide.

Central banks have played a central role in mitigating the damage of the pandemic, with fiscal policy helping to offset a drop in consumer spending and the resulting decrease in gross domestic product.

Central banks, and their respective governments, have used several financial tools to help stabilize economic slowdown.

Stimulus in Major Economies

The European Union has created one of the largest stimulus packages in history to help offset the impact of the global pandemic. A $2.21 trillion (USD) package has been approved by all member states except Poland and Hungary. The package includes a long-term budget for Coronavirus recovery that would run from 2021 to 2027. It includes more than $815 billion (USD) that will go directly to recovery programs and reform in member nations.

Central bank rates, which influence the cost of borrowing at an institutional level (with a trickle-down effect on corporate and personal borrowing) have also been lowered during the pandemic [1].

  • In the United States, the rate is held at 0.250%.
  • In the United Kingdom, the rate is held at 0.100%
  • In Japan, there is a negative rate of -0.100%, intended to stimulate borrowing to prop up the economy.

All of the world’s major banks have implemented historic-low interest rates in 2020, excluding China and Russia. China’s central bank rate is currently maintaining at 3.850%, while Russia’s is at 4.250%. China was the first nation to be impacted and the first to recover from the pandemic, with its vast manufacturing economy helping to drive growth towards the end of the year.

The United States has also offered direct stimulus in the form of aid to businesses, as well as payments of $1,200 to individuals earlier in the year. The CARES Act was passed into law on March 27 and contained more than $2 trillion (USD) of economic relief [2].

The United States Congress is currently negotiating the terms of a new stimulus package which could include direct payments and unemployment subsidies for people who have been impacted by the pandemic. It is also likely to include paycheck protection loans for businesses that are struggling in 2020.

Keeping small businesses from failing during the pandemic is a key strategy for recovery in all developed nations.

Gaining Insight from Government Bonds

Government Bonds are an important measure of the current economic situation. Long-term interest rates on government bonds are implied by the prices of bonds as they are traded. Repayment of bonds is guaranteed by central governments, giving them strength, even in periods of economic uncertainty.

The lowering of global bond interest rates throughout 2020 is somewhat related to central bank rates, but they do deviate. Lower long-term rates can attract investment, helping to stimulate economic growth.

The following charts show government bond interest rates for members of the Group of Seven (G7), a highly influential group of nations with some of the largest regulated economies in the world [3]. Australia is included as a non-member but key global economy.

Global Economy is Still in Crisis

The global pandemic is far from contained, and major institutions predict that the global economy will decline, especially in emerging markets. Major economies have managed conditions well so far, but it’s yet to be seen how far interest rates, issuing of government bonds, and direct stimulus will go towards supporting a recovery.



  1. Global Rates Central Banks – Summary of Current Interest Rates –
  2. U.S. Department of the Treasury – The CARES Act Works for All Americans –
  3. OECD Data – Long-term Interest Rates –
GDP and Its Relationship with the Stock Market

GDP and Its Relationship with the Stock Market

GDP and Its Relationship with the Stock Market

The performance of the United States stock market and GDP (Gross Domestic Product) are two key financial indicators that can be used to aid decision making. While investors are often reminded that the stock market isn’t the economy, it does have a close relationship with economic performance. GDP is a direct measure of the economy. Performance across both indicators isn’t always aligned.

How Can the Stock Market Affect GDP?

The stock market has a small direct impact on GDP, but it is still a factor.

When stock market confidence is high, it can have a trickle-down effect, increasing consumer confidence and leading to an increase in consumer spending. When the stock market hits new highs, the news is featured in the major headlines. Even people that don’t follow the stock market can have their spending patterns swayed by the news.

The stock market also creates value for the economy in terms of investor returns. Returns through stock sales, trades, and dividends can inject more spending money into the economy. At an institutional level, big stock gains can lead to more capital for companies that then spend on products, services, and expansion outside of the market.

How Does GDP Affect the Stock Market?

Looking at it from the other side, current GDP can have a real and measurable impact on the stock market, although it isn’t always consistent.

Strong GDP performance indicates a strong economy, which can embolden investors. More activity in the markets can lead to share price gains, which then raises the major indexes. If GDP falls, investors have less confidence in the economy which can slow their trading activity.

However, contrarianism is a real phenomenon in the market. Some picks are made in complete opposition to economic signals. Investors can also buy during economic dips with the hope of finding discounted stocks that will recover when the economy picks back up.

Investor sentiment is complex and sometimes investors ignore GDP altogether. An example can be taken from earlier in the year.

Take a look at the following chart published by the U.S. Bureau of Economic Analysis [1].

It shows that real GDP fell -5% sequentially in the first quarter and then more than -25% sequentially in the second quarter of this year. Those quarters ran from January to July and represented one of the worst economic recessions in American history.

The next chart, which shows the growth of the Dow Jones Industrial Average stock market index, reveals that while there was some correlation of the dip when compared to GDP, it quickly recovered, despite GDP tanking throughout the second quarter [2].

The Cares Act of 2020 was passed on March 27. It was a $2 trillion economic relief package that included direct support for businesses and workers. It included $1,200 stimulus checks for individuals. This package, despite poor GDP performance, gave investors confidence for an economic recovery.

Should GDP Factor Into Investment Decisions?

The stock market is hitting record highs today. This is happening despite the massive declines in GDP due to the Coronavirus.  This can leads to the assumption that the current market prices are more a reflection of consumer confidence then actual market growth.

The stock market has outperformed all expectations this year despite America facing an economic downturn and a deadly pandemic in tandem.  How long will this trend continue? It can be assumed that this is closely correlated with the governments ability to inject capital into the markets and provide stimulus to the economy.  Major volatility should be expected.

GDP can influence stock markets and the reverse is also true, but the two don’t always have a direct and proportionate relationship.



  1. Bureau of Economic Analysis Gross Domestic Product Chart –
  2. Trading View Chart Tool –
Rental Asset Prices During the Coronavirus Pandemic

Rental Asset Prices During the Coronavirus Pandemic

Asset Prices During the Coronavirus Pandemic

Amidst a global pandemic and one of America’s most severe economic declines, asset prices have increased in 2020. The data shows that asset prices have increased despite many urban rent markets having lost growth momentum in the spring.

Rental Price Growth is Mixed Across the US

In the United States, year over year rent growth was tracking at 1.60% midway through the year, according to data from Zillow [1]. Some locales vastly outpaced the national average, with Phoenix, Arizona seeing a year-over-year rent increase of 6.30% in June. Detroit, Michigan, and Riverside, California saw increases of 4.40% and 4.90% respectively.

Experts believe that economic stimulus could be linked to rental price growth. While it would be logical to assume that rent prices would decrease during the peak of the pandemic while millions of people were out of work, federal unemployment subsidies and the $1,200 stimulus payments would have kept renters in the market.

The relative stability of the rental market during the height of the pandemic has likely contributed to the growth of apartment asset prices towards the end of this year.

Apartment Assets are Worth More

According to the Freddie Mac Apartment Investment Market Index® (AIMI), property price, operating income, and multifamily permits have all increased during 2020 [2].

Multifamily permit applications are filed by homebuilders and asset owners for compliance reasons. They can indicate growth in the demand for or at least the supply of multifamily properties like apartment complexes in America. According to the latest data, Multifamily permits have increased by 7.5% in the year so far.

Property price tracked by AIMI has increased by 2.8% in the year so far. While this is a decrease from the historical average growth rate of 6.6%, it still shows that apartment property prices have increased across the board in 2020.

Net operating income from apartments has underperformed the other figures. Incomes are up 0.4% in the year so far. This can still be seen as a positive considering the conditions.

Competition May Be Driving Asset Prices Up

The home market is competitive today, with low inventory and increased buyer activity. Mortgage rates are still low, which is driving people to engage in the market. With both move-in buyers and investors competing for a smaller inventory, it’s unsurprising that apartment asset price growth has occurred.

According to data from ValuePenguin, the average 15 years fixed mortgage rate today is 3.52%, while the average 30 years fixed mortgage rate is 3.99% [3]. Rates range from 2.50% to 8.50% across both classes.

Mortgages are typically low in times of economic uncertainty. America’s economic output has slowed in 2020 and the government and the central bank are working to restore the economy. A central bank interest rate of 0.025% is helping to keep consumer lending rates low, which is good news for mortgage borrowers.

A combination of Factors Contributing to the Current Conditions

It could be argued that asset prices are rising because they are continuing a trend of recent years when the economy was expanding. Although the economy has suffered a major reversal this year, the Coronavirus pandemic isn’t likely to be a long-term factor and the economic recovery is already underway.

Stimulus measures have kept renters in their homes, which has kept demand high. Demand from property investors is also high thanks to low inventory and low mortgage rates.

The slowed pace of growth may represent an opportunity for those looking to invest in an apartment asset. It could also aid sellers by limiting any lost potential in a listing price.



  1. Zillow – Urban Rent Slowdown –
  2. Freddie Mac Apartment Investment Market Index® –
  3. ValuePenguin – Average Mortgage Rate –