christine lagarde : economic, financial and monetary impact of covid - 19 pandemic, and post - crisis options for policies and tools remarks by ms christine lagarde, president of the european central bank, at the annual meeting of the council of governors of the arab central banks and monetary authorities, contribution during the session “ economic, financial and monetary impact of covid - 19 pandemic, and post - crisis options for policies and tools ”, frankfurt am main, 11 september 2020. * * * the global economy underwent a deep and synchronised contraction in the second quarter of this year that was unprecedented in both speed and extent – far exceeding the declines witnessed during the global financial crisis. the ecb ’ s september projections for global growth excluding the euro area are for - 3. 7 % in 2020, 6. 2 % in 2021 and 3. 8 % in 2022. global economic activity has begun to recover since mid - may as various measures put in place to contain the spread of the pandemic were eased. the recovery has been substantial – but it remains uneven, uncertain and incomplete. the unevenness of the recovery partly reflects the timing of the spread of the pandemic across the globe and the measures that were put in place to contain it. for example, the economic contraction in china was concentrated in the first quarter of this year, and the chinese economy rebounded strongly in the second quarter, just as other economies were entering a downturn. yet that rebound is itself uneven across sectors. industrial production in china in july was up 4. 4 % on a year ago, but retail sales were down. this divergence between sectors also results in an uneven impact on countries that extends beyond the direct impact of the pandemic. for example, the sharp fall in tourism and oil prices has notable economic implications for arab countries, even if they have been relatively successful in containing the outbreak. the imf ’ s latest forecasts for gdp growth in the arab world are for a steeper decline and shallower recovery than in the rest of the world : - 5. 7 % in 2020 and 3. 5 % in 2021. 1 the uncertainty of the global recovery relates mainly to the path of the pandemic, and the timing of an effective medical solution. while the global rate of new cases has somewhat stabilised since the start of august, albeit at high levels, a number of countries are witnessing a renewed increase in cases following initial success at containment

##lstered globally by substantial support from both fiscal and monetary policy. the imf estimates that, relative to its projections in january 2020, fiscal deficits this year will be more than five times higher in advanced economies and more than twice as high in emerging market economies. in the euro area, countries have taken unprecedented steps to stabilise and support their economies, with national fiscal measures taken thus far amounting to around 4. 5 % of euro area gdp. those national efforts have been reinforced by policy moves at the european level. 2 / 4 bis central bankers'speeches the €750 billion next generation eu recovery fund has the potential to make a significant difference to europe ’ s economic trajectory over the next few years. the size of the financial support envisaged is macro - economically meaningful, totalling almost 5 % of gdp for the euro area. but it is important to ensure that agreement is reached on the outstanding details of the package so that the funds can start flowing on schedule in january 2021, and it is crucial that those funds are used productively to modernise our economy, helping reduce uncertainty about structural change. monetary policy has also reacted strongly to the pandemic. at the ecb, our first step was mainly focused on stabilising financial markets and addressing fragmentation. the measures we have introduced – notably our pandemic emergency purchase programme ( pepp ) – have largely succeeded in offsetting the harmful tightening in financial conditions we saw earlier in the year. this is visible, for example, in the dispersion of long - term government bond yields, which is now close to its lowest level since the outbreak of the global financial crisis. low benchmark yields have in turn helped support credit growth for firms and households : the annual growth rate of loans to firms reached 7 % in july, up from 3 % in february. but we are now moving more into the second step, which is about returning the inflation path to its pre - pandemic trajectory and ensuring that it continues to re - converge with our aim in a sustained manner. to achieve this, the pepp is fundamental, since – alongside its market stabilisation function – it is also a powerful tool for easing the overall monetary policy stance in the euro area. this was an important rationale for the expansion and extension of the pepp in june. going forward, it is clear that an appropriate macroeconomic policy mix is crucial for the recovery : faced with significant downside risks and unprecedented uncertainty, monetary,