The International Monetary Fund (IMF) recently urged governments across the globe to consider introducing even bigger stimulus packages in the wake of the economic downturn caused by the coronavirus pandemic. The store of economic stimulus measures were put into place to help buoy consumer confidence, driving up consumption and helping to contribute to positive economic growth.

Without additional stimulus packages, the possibility of deflation in many economies is looking increasingly likely. During deflation, individuals and businesses tend to delay purchases due to the belief that prices will drop further, which effectively results in negated economic growth. Deflation is much harder to revive once it has taken hold, hence why it is vitally important to try and swim against the tide and boost confidence in the economy.

Vitor Gaspar, director of the IMF’s Fiscal Affairs Department, explained: “The risk of prolonged economic stagnation is still large. It is essential for governments to provide additional resources if needed, and to coordinate their policy responses to ensure that their economies can recover from the current crisis and that lasting damage is avoided.”

The IMF Chairwoman, Christine Lagarde, concurred and backed up the above sentiment. She suggested that governments need to remember that without the extra stimulus packages in place, the economy risks become trapped in a deflationary spiral which would be hard to fight back against.

Lagarde further added: “The recovery could be derailed if governments fail to respond forcefully. There is a risk that an initial rebound could be swift, as lockdowns are lifted, but this could be followed by a prolonged period of weak demand and fewer investment opportunities.”

In many countries, stimulus packages were already in place to aid the population through the pandemic and such measures should not be forgotten. Unemployment benefits, cashflow support schemes, and loan repayment holidays helped to prop up consumer confidence, something which needs to be maintained and improved.

The IMF also highlighted that tax relief has been a successful initiative during this period, enabling people to retain more of their income and use it on essential items, though more must be done to ensure individuals aren’t disadvantaged as a result of coronavirus. It is also suggested that governments need to pay even more attention to the labour markets and support SMEs, as they are often vital in times of economic hardship.

It is essential that bigger stimulus packages are introduced and constantly monitored and amended to help boost consumer confidence and drive up consumption and growth. Withstronger economic policies in place, the economy will be able to fight against the deflationary spiral and recover faster.