Anti-crisis policies: America immediately focuses on demand, the EU architects investments with the Recovery Plan
As the Financial Times noted, if the US administration took less than two months to pass its mammoth stimulus bill in Congress, Europeans are still negotiating for the Recovery Plan. The point of Agi, the press agency headed by Mario Sechi
The US stimulus package will, in the words of OECD economist Laurence Boone, "welcome spillover" on the demand that US trading partners will benefit from once Biden's plan becomes reality.
In fact, the largest economy in the world seems to be at a turning point, and not only thanks to the acceleration of vaccination campaigns, but also to the economic support of the activities so far penalized by the economic emergency due to Covid. It is a turning point, a change of direction.
THE US CHANGE OF PACE TO ADDRESS THE CRISIS
If in order to face the crisis of 2008-2009, the central bankers had been entrusted almost entirely with the task of trying to stimulate the economy through cheap lent money and unconventional asset purchase programs, this time the US is leading the way and recovery seems to be based on a more aggressive aid policy.
A policy that according to observers must also serve as an example to advanced economies.
THE COMPARISON WITH THE EU RECOVERY PLAN
As the Financial Times noted, if the American administration took less than two months to pass its mammoth stimulus law to Congress, Europeans are still negotiating for the Recovery Plan, a stimulus package on which already in July last they had found an agreement in principle.
WHAT THE BIDEN AID PROGRAM IS WORTH ACCORDING TO THE OECD
The OECD has estimated that Biden's aid program, which is worth 8.5% of US national income, coupled with the rapid launch of vaccination efforts, will raise global income by 1% this year. And it is precisely for vaccines that according to the Paris organization, Germany and Italy, given the difficulties they are encountering in distribution, risk arriving late, as well as France.
THE CONSEQUENCES
A booming US economy means that economic demand will "spill over" to the rest of the world, particularly its closest and most important trading partners, Mexico and Canada, as well as the export-oriented economies of East Asia and of Europe.
ALSO FOR ITALY
Obviously Italy will also undergo a positive impulse, if we calculate that towards the USA according to the latest data relating to January-November last year, albeit down compared to previous years, we have exported products for 38.6 billion of which 8, 3 billion of machinery and equipment, and 4.2 billion of food goods. Imports from the United States are far less, 13.7 billion. If consumption will restart with the turbo in the overseas country, in short, Italy can only celebrate.
THE POSITIVE IMPLICATIONS OF FASTER GROWTH IN THE US
In other words, for advanced economies, the implications of faster growth in the United States are almost entirely positive, as increasing potential exports would encourage the feeling of "risk" that stimulates investment.
THE OTHER SIDE OF THE COIN
However, there is also the downside, and this is what the markets are realizing, showing some nervousness in recent weeks. A turbo-charged US economy with skyrocketing demand for goods and services could, in fact, trigger higher interest rates globally.
INCREASE IN INTEREST RATES
Investors are betting that the Fed will be forced to raise rates to keep inflationary pressure at bay or will see fit to tighten monetary policy (read higher rates) when the economy returns to close to full employment.
THE FARS OF THE ECB
For this reason, the ECB board fears that this could increase funding costs, essentially reducing the effectiveness of their stimulus efforts in a region, Europe, where monetary policy remains by far the largest form of stimulus. .
REVERSAL OF SOME CAPITAL FLOWS
The rate hike will reverse some of the capital flows that funded fragile economies and led to a stronger dollar, especially if the U.S. recovery diverges from that of other advanced countries. The most exposed countries are in a better position today. that during the "taper tantrum" of 2013, when the Fed suggested it would begin slowing the pace of asset purchases, and emerging market currencies plummeted. Many have taken cover to build reserves and thus protect themselves from such outflows by reducing their reliance on dollar-denominated external financing. But then the pandemic broke up the cards. Especially for the more dependent economies, rising commodity prices – lifted by stimulus efforts from China and the United States – will help exporters but add to the woes of importers.
DRIVE TO PERSONAL SAVINGS
Although economists also hope that a boost to personal savings can act as a support to the global economy: consumers will return to spend, with all due respect to the supply of goods and services. And this next trend has been anticipated by the oil markets in recent weeks, as prices have soared to peaks never seen in recent months, with Brent back to running above $ 70.
POSITIVE ECONOMISTS COMPARED TO POST-2008
Ultimately, however, as economists point out, the policy mix is an improvement over the post-2008 reliance on monetary policy. A stronger US economy will thus help drive the global recovery.
EUROPE MUST ACCELERATE ON VACCINES
And in Europe it will be necessary to accelerate vaccines, which have so far suffered physiological slowdowns while Covid-19 cases have rebounded perhaps faster than expected.
2021: YEAR OF ECONOMIC AND FISCAL EXPANSION
The market has realized that the US will in short push the global economy but also that a widespread economic recovery could be slower and more difficult than previously expected, without, however, the expectations that 2021 will be changed for the moment. a year of economic and fiscal expansion, leaving behind 2020 – the year of Covid – as a bad memory.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/politiche-anti-crisi-lamerica-punta-subito-sulla-domanda-lue-architetta-investimenti-col-recovery-plan/ on Thu, 11 Mar 2021 13:35:51 +0000.