OECD says the Biden plan will bring about an increase of 1% to the global economic growth

V.R.
English Section / 12 martie

OECD says the Biden plan will bring about an increase of 1% to the global economic growth

Poorer countries will find it difficult to adjust to rising interest rates and the strong dollar

The US economic stimulus plan, proposed by President Joe Biden, was passed on Wednesday after receiving the final vote in the House of Representatives, creating a success for Joe Biden, 50 days after his appointment into office, but only Democrats voted in favor. The plan had received the vote of the Congress on Saturday, after certain amendments made to the version previously passed by the House of Representatives.

The $ 1.9 trillion plan was approved by 220 votes, with 211 deputies voting against, including a Democrat. No Republican has given his approval to the stimulus package, which former US President Donald Trump's party officials say is not a rescue plan and does not meet the needs of American families. The new plan is the sixth aid bill passed by the United States in the context of the Covid-19 pandemic.

The $ 1.9 trillion plan was approved by 220 votes, with 211 deputies voting against, including a Democrat. No Republican has voted in favor of the stimulus package, which former US President Donald Trump's party officials say is not a rescue plan and does not meet the needs of American households. The new plan is the sixth aid bill passed by the United States in the context of the Covid-19 pandemic.

President Joe Biden is expected to pass the plan today.

After Wednesday's vote, the chairman of the House Budget Committee, John Yarmuth, said: "I am extremely proud that we will be sending this bill to President Biden's Office for promulgation. We have acted with the urgency that this pandemic requires."

We recall that Democrats wanted to pass the incentive package by March 14, when the payment of the unemployment benefits extended by the previous aid plan of the Republican Trump was going to expire.

The final plan, passed this week, includes direct payments to Americans worth $ 1,400, weekly payments of $ 300, through Sept. 6, $ 350 billion for central and local authorities, about $ 130 billion for the reopening of schools, $ 49 billion for Covid-19 testing and research, $ 14 billion for vaccine distribution.

The proposal to raise the national minimum wage from $ 7.25 to $ 15 an hour was discussed in the Senate, but did not enter the final version of the bill.

According to the White House, this package, considered "historic", will create more than 7 million new jobs in 2021, will make healthcare more accessible, while saving lives thanks to the aid for widespread vaccination.

The stimulus package - "cheap money"

The fiscal stimulus package recently passed in the United States will end support policies through "cheap money and unconventional asset purchase programs," Financial Times (FT) writes, noting that in the decade since the 2008-2009 financial crisis, monetary policy had become the sole choice of decision makers. According to the source, this change will have a significance beyond the borders of America.

The latest estimates released by the Organization for Economic Co-operation and Development (OECD) show that President Biden's government spending program, which accounts for 8.5% of US national revenue, along with expanding vaccination efforts against Covid, will increase global GDP by 1% this year. The OECD anticipates that the world economy will expand by 5.6% this year, following last year's decline caused by the effects of the pandemic. The previous OECD forecast, released in December last year, was predicting a 4.2% increase for the world economy in 2021.

FT: Open door for the rise in interest rates all over the world

A booming US economy will "spill over", through demand, to the rest of the world, especially to its neighbors, which are the US's largest trading partners - Mexico and Canada - but also to export-oriented economies in East Asia and Europe, FT notes.

According to the source, for advanced economies, which borrow in their own currencies, the implications of faster growth in the US are almost entirely positive, namely: increased potential exports and sustained risk sentiment, which stimulates investment.

However, overheating in the United States - if high demand for goods and services leads to capacity constraints and leads to higher inflation - could lead to higher global interest rates. According to FT, investors are betting that the US central bank (Federal Reserve - Fed) will either have to raise interest rates to eliminate inflationary pressures, or it will feel comfortable and remove stimulus as the economy and the labor market recover.

FT points out that the European Central Bank (ECB) is already concerned that such a Fed policy could increase borrowing costs, reducing the effectiveness of stimulus efforts in a region where monetary policy remains by far the largest form of support.

At the same time, according to the source, poorer countries, which strive to borrow in their own currencies, will find it more difficult to adapt to rising interest costs. Rising interest rates will reverse some capital flows that have financed fragile economies and supported the dollar, especially if the US recovery will be at odds with the evolution of other rich countries, according to FT.

The most exposed countries are in a better position today than in 2013, when the Fed suggested that it would start slowing its asset purchases and emerging market currencies fell. Many of them have set up reserves to protect themselves against capital outflows and to reduce their dependence on external financing (denominated in dollars).

However, FT notes that for many poor countries, rising interest rates will be felt in the form of higher government deficits and current account deficits, and in the context of high interest costs, some governments will have difficulty covering the debt burden.

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