Dickson C. Igwe
Throughout the second half of the year, the US economy is expected to operate alongside a number of stress factors: the surging pandemic, racial tensions, and political factionalism.
The US economy is the biggest uncertainty in global economic growth. As the world’s largest economy, the US recession will directly drive down the growth rate of the global economy.
Since the US maintains close economic and trade ties with most of the major economies around the world, its recession will lead to a reduction in global demand, further causing contractions in global trade and investment.
The US has rolled out a series of policies to monetize its financial deficit in a bid to stimulate economic growth amid the fallout of the pandemic. This has actually aggravated financial risks in the country, and cast a shadow over further economic growth.
The US’ failure to effectively manage the coronavirus pandemic has become the most critical variable in the global economy.
Instead of flattening the curve, the US, during the past months, has been speeding along a path to higher numbers of infections through the irresponsibility of Donald Trump and his band of Republican followers.
Today, the USA is reported to have over 25 per cent of the world’s total confirmed cases: not good by any means.
Meanwhile, the horrid death of George Floyd triggered massive anti-discrimination demonstrations in the US, which added pressure against epidemic prevention.
The country is also struggling with contradictions between the need to quarantine and lockdown large parts of the economy and the desire to reopen the economy. Viruses don’t have a nationality, and if the rate of infections in the US continues to rise, the global economy will surely take yet another hit.
The US economy relies heavily on consumption. It is also the world’s largest consumer of finished products. With COVID-19 ripping across the US, skyrocketing unemployment has resulted in sliding consumption which in turn is causing a decline in exports from its trade partners.
The US’ huge debt and a suspected stock market bubble has damaged the confidence of global investors.
In order to tackle the fallout of the pandemic, the US government has launched massive stimulus packages, and the US Federal Reserve has pledged unlimited quantitative easing, drastically accelerating the US’ deficit.
Massive QE could ease a liquidity crisis and pressure on small businesses in the short term, however, it won’t boost the economy’s internal growth. Instead, it could create further systemic economic risks and pose dangers for financial markets.
According to World Bank data, US GDP reached $21.43 trillion in 2019, accounting for 24.42 per cent of the world’s GDP. Based on the IMF current estimates, the US economy is expected to contract 8 per cent this year, meaning it could cause global growth to decline by about 2 percentage points.
Although market institutions have forecast a potential recovery of the US economy in the second half of 2020 following a plunge of 32.9 per cent in the second quarter, those forecasts were based on a better containment of the virus. The current rate of infections is not at all reassuring.