Connect with us

Hi, what are you looking for?

COURTESY/ AFP

World

US stimulus offers ‘significant’ boost to global economy: IMF

WashingtonUnited States, March 12 – US President Joe Biden’s stimulus program is being hailed as both boosting domestic growth and spurring the global recovery, but the IMF warned that policymakers will need to be alert to risks posed by the massive spending as well as low interest rates.

The package, which Biden signed into law on Thursday, will inject $1.9 trillion in aid into the pandemic-damaged economy by funding small businesses, extending unemployment benefits that were due to expire in days, and sending direct payments of as much as $1,400 to many Americans starting this month.

That spending will expand US GDP by five to six percent over three years, according to the IMF’s preliminary estimates.

And higher demand will help other countries sell more products to American consumers, the fund’s spokesman Gerry Rice told reporters Thursday.

“We see potentially significant positive spillovers in terms of global growth,” he said. “Most countries should benefit from stronger US demand… so this will help global growth and recovery.”

However, he cautioned that with low interest rates, policymakers worldwide should be on the alert for a sudden shift in borrowing costs.

That has been a growing concern for financial markets in recent weeks as accelerating Covid-19 vaccine rollouts offer hope of a rapid recovery, but also sparked fears that growth could ignite an inflationary spiral that would force the Federal Reserve to raise interest rates sooner than expected.

The concerns have sent stock markets reeling in recent sessions, especially tech shares, which are more likely to be hindered by rising lending rates.

 

Advertisement. Scroll to continue reading.

– Monitoring risks –

 

Fed Chair Jerome Powell has repeatedly tried to calm financial markets, saying that policymakers have no intention of reining in stimulus or raising the benchmark interest rate until inflation is holding solidly above two percent and employment has recovered.

He acknowledged that inflation could jump this year compared to the depressed rates during the pandemic restrictions in 2020, but said those price spikes are likely to be “transitory.”

Brian Deese, director of the White House National Economic Council, said the administration is focused on the recovery but monitoring inflation.

“This is a risk, like many, that we are going to constantly monitor and keep our eye on,” Deese said on CNN when asked about one private forecast that projects 2.8 percent inflation this year.

Some economists including former Treasury secretary Larry Summers and former IMF chief economist Olivier Blanchard cautioned that the rescue package could add too much fuel to the economy.

But the White House has downplayed those risks, and Deese said “we still have enormous slack in the economy.”

The IMF, too, has largely dismissed inflation worries, saying the rate this year could increase to 2.25 percent — which is unlikely enough to trouble the Fed.

But Rice said the risks mean the Federal Reserve and other major central banks must communicate “clearly” about their outlook and policy plans “to avoid any unwarranted tightening of financial market conditions.”

Advertisement. Scroll to continue reading.

 

– Back to full employment –

 

As he signed the measure, Biden called it “historic” and said it “is about rebuilding the backbone of this country.”

Deese said the administration will begin sending stimulus checks to many Americans later this month.

Added to the other measures, the plan could return US employment to its pre-pandemic level a full year earlier than previous estimates of a 2024-2025 recovery, he said.

Deese called the lost jobs one of the “most harrowing” remnants of the crisis, and a fast recovery will help workers who are often excluded from the labor market, including racial minorities.

“We are certainly hopeful that we’ll see strong and robust growth this year, which is what we need to actually get back to full employment quicker and get out of what is still a very serious jobs hole,” Deese said.

Jobs have returned across the United States as businesses have slowly reopened but millions are still unemployed.

New applications for regular US unemployment benefits continue to decline, but totaled 712,000 last week, and nearly 1.2 million claims were filed last week if special pandemic programs are included, the Labor Department reported.

Advertisement. Scroll to continue reading.

More than 20 million people were receiving some form of benefit as of February 20, and last month’s employment report showed the economy is still short 9.5 million jobs compared to a year ago.

The Organization of Economic Cooperation and Development (OECD) recently upgraded its forecast for US growth to 6.3 percent — nearly double the previous forecast — and global growth to 5.6 percent due to rising vaccinations and the stimulus plan.

The IMF in February projected world growth of 5.5 percent this year, and US GDP expansion at 5.1 percent, but the fund will update those forecasts early next month at the start of its spring meeting.

Click to comment
Advertisement

More on Capital Business

Executive Lifestyle

NAIROBI, Kenya, Mar 12 – The country’s super wealthy individuals are increasing their holding of bonds, gold and cash, a new report by Knight...

Ask Kirubi

NAIROBI, Kenya, Mar 9 – Businessman and industrialist Dr. Chris Kirubi has urged members of the public to exercise extreme caution when making any...

Ask Kirubi

NAIROBI, Kenya, Mar 24 – Businessman and industrialist Dr. Chris Kirubi is set to own half of Centum Investment Company PLC, following a go-ahead...

Ask Kirubi

It is without a doubt that the COVID-19 pandemic has caught the whole world by surprise. Although its full impact is yet to be...

Kenya

NAIROBI, Kenya, Jun17 – Kenya’s tea leaves manufacturer Kericho Gold, has been awarded the Superbrands Seal by Superbrands East Africa for their quality variety...

Headlines

NAIROBI, Kenya, Mar 18 – Commercial Banks have been ordered to provide relief to borrowers on their personal loans, with loans eligible from March...

Coronavirus

NAIROBI, Kenya, Apr 13 – As the local telecommunications industry gears up to roll out 5G networks in the country, the Communications Authority of...

Coronavirus

NAIROBI, Kenya, Mar 22 – Airtel Kenya is offering free internet access for students in order to enable continued learning at home in the...