14 May 2020
US Democrats propose $3 trillion stimulus
US House Democrats have proposed another $3 trillion Covid-19 fiscal stimulus package, which if passed would stand as the largest relief package in history - dwarfing the $2 trillion stimulus measure enacted in March. While the legislation is expected to be voted on this week, Republicans have already dismissed the package, stating that another round of emergency funding is not yet needed.
The proposal for further stimulus came as the US Treasury announced that it would borrow $3 trillion this quarter alone to fund its existing stimulus packages, taking total government debt above $25 trillion. Additional borrowing is expected to push the US fiscal deficit to 19 per cent of GDP, nearly double the 10 per cent it hit during the peak of the global financial crisis ten years ago.
However, Powell said: “Additional fiscal support could be costly, but worth it, if it helps avoid long-term economic damage and leaves us with a stronger recovery." The severe decline in economic activity and in employment had already erased all the job gains of the past decade with the unemployment rate spiking to 14.7 per cent as more than 20 million jobs were lost in April. The unemployment rate peaked during the Great Depression at an average of 24.9 per cent in 1933.
UK contracting at the fastest pace since the financial crisis
Meanwhile, the UK economy shrank by 2 per cent in the first three months of 2020, with GDP declining by 5.8 per cent in March alone. With the lockdown only imposed in the final week of March, the economy is expected to deteriorate at a much faster pace in the second quarter. The realities of a prolonged recession in the UK are now settling in and the government faces a monumental task as it begins to take “baby steps” towards easing the lockdown and helping the country recover.
FLI weakens further
With parts of the global economy in severe recession, Fidelity’s leading indicator (FLI) plunged further into the bottom-left quadrant of growth below-trend and decelerating. The three-month growth rate is now below its nadir during the global financial crisis. Weakness was seen across the board, with all underlying sectors deeply entrenched in the bottom-left quadrant. Every single component showed negative growth, reflecting a global economy where services activity has been almost entirely shut down, and manufacturing largely disrupted.
This document is for Investment Professionals only and should not be relied on by private investors.
This document is provided for information purposes only and is intended only for the person or entity to which it is sent. It must not be reproduced or circulated to any other party without prior permission of Fidelity.
This document does not constitute a distribution, an offer or solicitation to engage the investment management services of Fidelity, or an offer to buy or sell or the solicitation of any offer to buy or sell any securities in any jurisdiction or country where such distribution or offer is not authorised or would be contrary to local laws or regulations. Fidelity makes no representations that the contents are appropriate for use in all locations or that the transactions or services discussed are available or appropriate for sale or use in all jurisdictions or countries or by all investors or counterparties.
This communication is not directed at, and must not be acted on by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. Fidelity is not authorised to manage or distribute investment funds or products in, or to provide investment management or advisory services to persons resident in, mainland China. All persons and entities accessing the information do so on their own initiative and are responsible for compliance with applicable local laws and regulations and should consult their professional advisers.
Reference in this document to specific securities should not be interpreted as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. The research and analysis used in this documentation is gathered by Fidelity for its use as an investment manager and may have already been acted upon for its own purposes. This material was created by Fidelity International.
Past performance is not a reliable indicator of future results.
This document may contain materials from third-parties which are supplied by companies that are not affiliated with any Fidelity entity (Third-Party Content). Fidelity has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content.
Fidelity International refers to the group of companies which form the global investment management organization that provides products and services in designated jurisdictions outside of North America Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. Fidelity only offers information on products and services and does not provide investment advice based on individual circumstances.
Issued in Europe: Issued by FIL Investments International (FCA registered number 122170) a firm authorised and regulated by the Financial Conduct Authority, FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier) and FIL Investment Switzerland AG. For German wholesale clients issued by FIL Investment Services GmbH, Kastanienhöhe 1, 61476 Kronberg im Taunus. For German Institutional clients issued by FIL (Luxembourg) S.A., 2a, rue Albert Borschette BP 2174 L-1021 Luxembourg.
In Hong Kong, this document is issued by FIL Investment Management (Hong Kong) Limited and it has not been reviewed by the Securities and Future Commission. FIL Investment Management (Singapore) Limited (Co. Reg. No: 199006300E) is the legal representative of Fidelity International in Singapore. FIL Asset Management (Korea) Limited is the legal representative of Fidelity International in Korea. In Taiwan, Independently operated by FIL Securities (Taiwan ) Limited, 11F, 68 Zhongxiao East Road., Section 5, Xinyi Dist., Taipei City, Taiwan 11065, R.O.C Customer Service Number: 0800-00-9911#2 .
Issued in Australia by Fidelity Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”). This material has not been prepared specifically for Australian investors and may contain information which is not prepared in accordance with Australian law.
ED20 - 164