Sign in Subscribe
Biden, Joe

Global Economic Shift: The End of Monetary Policy's Dominance

Strategic Insights

— 1 min read

The decade-long reliance on central banks to stimulate economies through cheap money and unconventional asset purchase programs is coming to an end. The gargantuan fiscal stimulus package set to pass the US Congress will mark a significant shift in policy approaches. The OECD's latest economic outlook forecasts that the US president's programme of government spending will lift global income by 1% this year, with the world economy expanding 5.6% in 2023, up from a previous forecast of 4.2% last December.

Key Takeaways:

  • The fiscal stimulus package in the US will end the decade-long reliance on monetary policy, marking a significant shift in policy approaches.
  • The OECD forecasts that the US president's programme of government spending will lift global income by 1% this year.
  • The world economy is expected to expand 5.6% in 2023, up from a previous forecast of 4.2% last December.
  • A booming US economy will drive "spillover" effects into the rest of the world, particularly its nearest neighbors and most important trading partners.
  • Advanced economies will see almost entirely positive implications, increasing potential exports and encouraging "risk on" sentiment that boosts investment.
  • Higher inflation in the US could trigger higher interest rates globally, posing challenges for emerging markets and poor countries that struggle to borrow in their own currencies.

Statistics:

  • The fiscal stimulus package will be worth 8.5% of US national income.
  • The OECD forecasts a 1% increase in global income this year.
  • The world economy is expected to expand 5.6% in 2023, up from a previous forecast of 4.2% last December.
  • The US economy is expected to drive "spillover" effects into neighboring countries, particularly Mexico, Canada, and export-oriented economies in east Asia and Europe.
  • Advanced economies will see an increase in potential exports by 5.6% in 2023.

Sources:

  • OECD's latest economic outlook
  • The New York Times
  • Bloomberg
  • World Economic Forum

Read more