Here comes the cavalry: the US rides to the rescue of the world economy

A tidal wave of US cash – made up of government stimulus money worth almost $6 trillion, plus pent-up US consumer savings – is driving a global economic recovery following the pandemic, and giving businesses the confidence to invest.

Why it matters

Despite headlines about the growth of China, that country accounts for only 11% of consumption spending worldwide compared to 27% for the US. A strong US economy remains crucial for robust global trade and it is currently forecast to grow at 7% this year.

US consumers’ incomes have been rising despite the pandemic and households are thought to have built up some $2.6 trillion in “excess savings”, according to Moody’s, and much of this is now being spent on imported foreign goods, the Wall Street Journal reports.

 The details

• America is predicted to spend a record-breaking $876bn more on imports than it earns from exports this year.
• The most recent US spending boost alone is expected have ripple effects around the world, raising output by up to half a percentage point in Japan, China and the Eurozone during the next year, and by up to one percentage point in Canada and Mexico, according to the OECD.
• While the US maintains its pre-eminent economic position globally, China’s economy and its demand for goods, services and raw materials has huge and increasing importance, especially in Asia.
• The OECD expects China’s economy, which rapidly recovered from the pandemic, to grow 8.5% this year, and to grow by an amount the equivalent of the size of the entire Australian economy each year for the next five years.

Sourced from Wall Street Journal 

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