The world economy received a significant blow after the US economy’s gradual decline. As the world continues to grapple with the oncoming changes, the economy faces one of the worst brunts of the change.
The harsh reality may tell you that we are in it for the long run and recessions, unemployment, low GDPs will be marring our livelihood, but the silver lining of this eclipse is that the economy will start recovering from early 2021.
As we know, the significant changes in the world’s largest economy proportionally affect the global economy. A percentage point increase in the US economy would amount to 0.6 of a percentage point increase in developing countries and a 0.8 of a percentage point in developed countries.
According to the Treasury secretary, Steven Mnuchin, the investment of an unprecedented amount of fiscal and expansionary relief into the economy will see a bounce-back of the US economy as early as Fall 2020.
He further cited possibilities of aid to cities and states in future stimulus packages, which was left out of the most recent package. The paycheck protection program successfully aided small businesses.
The US has the world’s single largest economy, accounting for almost a quarter of global GDP (at market exchange rates), one-fifth of global FDI, and more than a third of stock market capitalization.
It is the most important export destination for one-fifth of countries around the world. The changes in US monetary policy and investor sentiment play a significant role in driving global financing conditions (World Bank 2016).
Before the outbreak, stock indices were hitting new highs, and unemployment was at its lowest in over half a century according to the data of the World Economic Forum.
The US unemployment rate was 3.5% in February, a level not seen for over 50 years. As the business cycle phase of US surges, so will the 80% cycle of other countries’.
Global spillovers bore the severe impact of the US economy’s landslide. The slow but steady recovery of the US economy will be dependent on two factors:
- role in global commodity markets (the US is both the world’s most abundant gas and oil consumer and producer), changes in US growth prospects can affect global commodity prices.
- Market developments of US bonds and Equity funds will boost the rest of the world as the US dollar is the currency most widely used in trade and financial transactions.