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Global Stimulus: Investment & Economic Implications

In the aftermath of the 2008-09 global financial crisis, governments and central banks tackled macroeconomic instability and weak demand by introducing a range of monetary and fiscal stimulus measures. The COVID-19 pandemic has further forced countries around the world to implement emergency stimulus measures in order to mitigate the economic impact of the pandemic. Data from McKinsey, for example, shows that the $10 trillion of stimulus packages announced in the first two months of the pandemic was three times more than the response to the 2008–09 financial crisis. To date, governments and policymakers have played a pivotal role in curtailing the depth and breadth of the economic shock resulting from the crisis. The implementation of these policies has resulted in trillions of dollars being channeled into the world economy, but what will be the medium- and long-term economic and investment impact of these measures and how will the world move towards a sustained recovery?

The 2021 MASIC Annual Investment Forum will assess global monetary and fiscal policy during the past decade -- with a particular emphasis on government intervention amidst the COVID-19 pandemic -- and discuss the outlook for the future. As government borrowing peaks to unprecedented levels, the International Monetary Fund predicts that wealthy, developed countries have increased their debt burden by 17% to help cushion the economy. Conventional economic theory indicates, however, that when governments increase their overall borrowing and when central banks increase liquidity into the economy, then we should also expect an increase in inflation.

Despite the macroeconomic uncertainty, financial markets have rebounded quickly. The U.S. stock market lost 34% as the pandemic worsened in March 2020, but the sudden crash was followed by the best 50-day rally in the history of the S&P 500. Overheated technology stocks and geopolitical uncertainty are creating immediate-term headwinds, but continued government and central bank intervention and the early signs of an economic recovery may well push equity markets higher. According to The Economist (2020), the invisible hand's role in the economy’s self-correction is still in question. Government interventions through fiscal and monetary policies have tried to safeguard economy growth and activity, but what will be the long-term impact of this substantial increase in government borrowing and who will ultimately pay the price?