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U.S. Growth Surge Could Unbalance Fragile Global Economy

Recovery in the States could unbalance the global scales.
(Al More)
(Al More)
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“The U.S. will drive a sharp rebound in the world economy this year, but the strength of the American bounce could unbalance weaker economies, particularly in the developing world,” WSJ writes.

Why It Matters: Research from the Organization for Economic Cooperation and Development projects that if U.S. government bond yields improve based on higher growth and inflation expectations, it could cause money to flow away from emerging economies. The issue here is that vaccine rollouts have barely begun in these places, and any other financial hurdles could significantly set back the economic recoveries of these regions.

Numbers To Consider (Change in Annual GDP Forecasts):

  1. Expected Global Output 2021: +5.6%
  2. Global Output in 2020: -3.4%
  3. Projected Global Growth 2021: +4.2%
  4. Expected U.S. Output 2021: +6.5%

The OECD predicts the world economy could hit pre-pandemic levels this summer, nearly six months earlier than its last guess. The main reason is a strong outlook for the U.S.

  • With vaccines rolling out and a new $1.9 trillion fiscal stimulus almost done, expectations are positive.
  • The OECD also said the U.S. economy could be larger in 2022 than it was pre-pandemic.
  • Turkey is in a similar position as the U.S., while India could see a massive GDP shortfall of more than 8%.

The Bottom Line: “The [OECD] said there was a risk that global growth becomes more unbalanced, leading to potentially disruptive flows of capital to high-growth countries from low-growth ones.”

  • OECD Chief Economist Laurence Boone said the ”best way to avoid that threat is to speed up vaccination programs in other parts of the world.”
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