US Stimulus Package Delays Relative Decline, EU Leadership Accelerates Economic Marginalisation

Strategic Insights -

The global economy's shift towards emerging countries has accelerated, with the US's fiscal stimulus package delaying its relative decline, while European Union leaders look set to accelerate theirs. The US's $1.9tn stimulus package has boosted growth forecasts, with the OECD predicting a 6.5% increase in 2021, up from 3.3% previously. This is more than doubling the growth forecast for the US itself, and President Biden's administration expects US output to return to its potential three to four years faster because of the stimulus.

Key Takeaways:

  • The US's fiscal stimulus package has added one whole percentage point to projected global growth, according to the OECD.
  • The eurozone will trail more than 2% behind its pre-pandemic path by the end of next year, while the UK's shortfall will be twice as large.
  • Emerging economies, including China, are accelerating their catch-up with the US and Europe.
  • China's GDP has doubled its speed of convergence during the pandemic, with the country managing to contain the virus quickly and avoid lockdowns.
  • Rich countries are expected to produce nearly 10% less on average than they would have previously, while China's economic size relative to the big western economies has increased due to their shortfall.
  • The OECD forecasts put China a mere 1% off its pre-pandemic trajectory, while the eurozone and the UK are projected to be 2% and 4% poorer, respectively.
  • The Biden stimulus will delay China's economic catch-up with America, and a promised infrastructure investment package may further boost US growth.
  • Several big emerging economies, including Mexico, India, and Indonesia, look set to fall even deeper below their earlier paths than Europe.
  • Europe's recovery stimulus and public investment boost look set to be dwarfed by what Washington has achieved with the US stimulus package.

Statistics:

  • $1.9tn: The size of the US's fiscal stimulus package.
  • 6.5%: The OECD's predicted growth rate for the US in 2021, up from 3.3% previously.
  • 1%: The expected shortfall in the eurozone's GDP by the end of next year.
  • 10%: The average shortfall in rich countries' GDP production since the 2008 financial crisis.
  • 50%: The ratio of China's GDP to the US's and EU's combined GDP in 2014.
  • 1%: The expected shortfall in China's GDP relative to its pre-pandemic path.
  • $1.9tn: The size of the US stimulus package in billions.
  • 2021: The year in which the OECD predicts the US will experience a 6.5% growth rate.
  • 2%: The expected shortfall in the eurozone's GDP by the end of next year.
  • 4%: The expected shortfall in the UK's GDP by the end of next year.
  • 1%: The expected shortfall in China's GDP relative to its pre-pandemic path.

Sources:

  • "Martin Sandbu: US stimulus package sets out a grim future for Europe", The Financial Times, March 2021.
  • OECD Economic Outlook, March 2021.
  • "Lockdowns on both sides of the Atlantic have created a chance for China to accelerate its catch-up", The Financial Times, March 2021.