Will US Economy Lead the Way on Global Growth?

The current expectation is that global growth will rebound in the next several months—perhaps hitting a rate of more than 6.0%. While this is not a record level of activity, it is better than what has been recorded in the last few years and certainly better than last year.

The major driver for this growth will be from the U.S. That is a marked contrast from the last recession. The more that economists examine the recession in 2008 and the one in 2020, the more obvious it has been that the former collapse was far worse than the latter one, especially as far as the US is concerned.

The financial sector failure led to the 2008 recession. This led to a very slow and halting recovery. It was well into the decade before there was anything approaching a real rebound. At the moment, it appears that the recovery from the 2020 debacle will be swift. Most of the projections are showing what amounts to a classic “V” recovery with growth slated to be in excess of what it was at the start of the recession. The other contrast between the recession in 2008 and the one in 2020 is that the engine of global growth is likely to be the U.S. and not China as was the case in 2008.

As powerful as China has become in the last 10 to 20 years, the fact is the U.S. still has the world’s largest economy and one that is a third larger than that of China. Furthermore, far more nations are dependent on the U.S. than are dependent on China. The world may buy a lot from China, but it doesn’t sell nearly as much to China as it sells to the U.S.

Both nations are expected to grow at approximately the same rate, China at between 7.0% and 8.0% and the U.S. between 6.5% and 7.5%. If the two are matched closely in terms of growth rate, the additional size of the U.S. market makes it more important to global growth in general.

This has a whole host of implications, and there are more than a few caveats. The factor that will play the biggest role will be the pace of recovery from the pandemic. Data at the moment is promising as progress continues as far as vaccine distribution. However, concerns stem from decisions by some states to reduce or eliminate restrictions. Are these lifting too soon?

The fear is another surge in the virus will take place as the more easily transmitted version has taken hold in the U.S. and could spread fast. This would reverse much of the progress as far as number of cases, number of hospitalizations and numbers of fatalities. The only thing worse for the economy than a delayed resumption of normal activity would be the need to institute another lockdown.

The impact on trade relations could be significant as well. If the U.S. is growing at a rate this rapid, we are looking at numbers that are nearly three times better than the 20-year norm. The U.S. has been growing at around 2.5% per year for the last 20 to 25 years, and now it is expected to hit at least 6.0%. That is going to translate to a lot of demand.

Every nation on the planet is going to want to get a piece of that growth. That gives the U.S. an unusual amount of trade leverage. If access is granted to these imports, it will offer the U.S. an opportunity to get trade access in return. There will also be a significant increase in U.S. demand for commodities to satisfy the demands of industry as it sees a resumption of demand. One question that will hang over the year of recovery will concern how consumers choose to spend their money. If the rush is back to services, there might actually be a decline in demand for manufactured goods and even imports.

Nothing about this recession was normal. As has been pointed out numerous times, it was an imposed recession, a lockdown designed to deal with another problem. As the pressure begins to lift, the odd nature of this recession will persist. We went into this situation in chaos, and we will exit in just as much chaos. Every state will react differently. Some states have already lifted restrictions and mandates, and some have reimposed them. Most are somewhere in the middle. Millions of people have abandoned any pretense of complying, and millions are still hunkered down. As more and more people get vaccinated, the impatience will grow even before the risk fades; and at some point, a level of threat will become acceptable. The virus will never go away; it will simply be less prevalent, and the decision will have to be made to tolerate some impact.

This article was written by Chris Kuehl, PhD for NACM's eNews. The article is used with permission.

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