By Tom Fairless
The U.S. could help drive a powerful global economic recovery
this year, as it plays a more central role in the comeback than
after the financial crisis, reflecting the unusual nature of the
Covid-19 shock and the flexibility of the American economy.
The world economy is likely to grow by around 6% this year,
according to Oxford Economics, the fastest rate in almost half a
century, as vaccine campaigns allow pandemic restrictions to be
lifted and businesses to snap back.
For the first time since 2005, the U.S. is expected this year to
make a bigger contribution to global growth than China, said the
research firm. After the 2008 financial crisis, the global economic
recovery was powered by China, as the U.S. experienced the weakest
revival since the Great Depression.
Since the U.S. economy is about one-third larger than China's,
its contribution to global growth will be larger than China's if,
as expected, both grow roughly at the same rate this year.
"The U.S. is going to play the role of the global locomotive
again in 2021," said Catherine Mann, global chief economist at
Citibank. She added though that the international situation would
temper the country's economic growth.
The U.S. economy contracted 3.5% last year and is expected to
grow about 7% this year, according to Goldman Sachs. China grew
2.3% last year and is expected to grow 8% this year, the bank
JP Morgan economists expect the U.S. to surpass its precrisis
trend growth rate by the middle of this year, while China has
already returned to its pre-pandemic trajectory but won't exceed
it. Europe and some emerging markets will lag through next
Weak population and productivity growth could weigh on China's
output over the coming years, said Joerg Kraemer, chief economist
at Commerzbank. Beijing policy makers have signaled that they plan
to gradually withdraw stimulus measures this year and focus on
reining in debt and heading off a real-estate bubble.
The U.S.'s economic resilience reflects the nation's rapid
rollout of Covid-19 vaccines, an expected $1.9 trillion spending
package, easy money from the Federal Reserve and pent-up savings.
American households are sitting on $1.8 trillion in excess savings,
according to Oxford Economics.
Meantime, in the U.S. and elsewhere, the downturn hasn't been
characterized by the bursting of asset bubbles or accumulated debt,
unlike previous economic crises. That should hasten the recovery,
Global trade has already exceeded precrisis levels, as people
stuck at home ordered products online through the pandemic. And
corporate equipment spending has rebounded faster than in the
previous two economic recoveries, largely due to generous
government support, according to JP Morgan.
Bank credit to businesses grew at an annualized rate of 80% at
the height of the pandemic last year in the U.S., eurozone, Japan
and U.K., JP Morgan said. That compares with a 13% slump in bank
credit during the financial crisis in 2009, the lender said.
Market ripples from the strong U.S. recovery could hurt regions
that are lagging, such as Europe and some emerging markets. Rising
investor confidence is pushing up U.S. and global borrowing costs
and strengthening the greenback, a headache for governments that
have borrowed heavily in dollars.
European Central Bank officials have sounded the alarm about
rising bond yields. They will gather Wednesday and Thursday to
consider whether to increase their emergency measures, which
include a EUR1.85 trillion, equivalent to $2.2 trillion,
Across Europe, the rollout of Covid-19 vaccines has been
sluggish, and governments aren't contemplating fresh spending on
the scale of the U.S., partly due to concerns about debt. Retail
sales in the eurozone unexpectedly slumped more than 6% in January
compared with the same month last year as a number of countries
extended lockdown restrictions. U.S. retail sales increased 7.4%
over the same period.
In Germany, more than 7% of manufacturing staff were on furlough
in February, even though production has almost returned to its
precrisis level, suggesting that some furloughed workers may be
redundant in future.
Kion Group, a Frankfurt-based manufacturer of forklift trucks
and warehouse equipment, had its biggest order intake ever last
year despite the pandemic, propelled by strong demand for internet
shopping in North America and Europe.
"China is not only back where it was but at record levels for
industrial output. North America, with all the money put into the
system, is not far behind. Europe is lagging," Kion Chief Executive
Gordon Riske said.
If the Democrats' stimulus package is approved, Kion is likely
to face capacity problems as U.S. growth accelerates, Mr. Riske
said. Global investors have started to worry about a sharp uptick
in inflation, which could result from strong growth and
There are risks that could weigh more on the U.S. though. Some
parts of the global economy may recover more slowly than others, or
not at all. Tourism, an important sector across Europe, but also in
Asia and the U.S., is unlikely to rebound until border controls are
eased. New and more contagious variants of the virus mean such
changes may be many months away.
Some businesses may become redundant if behaviors change
permanently. If people continue shopping online or working from
home, city-center retail jobs may disappear forever.
ECB analysts warned in February that the pandemic could lead to
permanently lower economic output globally. Businesses and
governments might invest less, including in research and
development, as they strive to restore their finances, the
researchers said. Capital stock in closed industries like the
airline sector could become obsolete, and it is costly to transfer
resources from one sector to another. In advanced economies, the
labor force might shrink due to discouraged workers or reduced
global migration. Widespread school closures could hurt workers'
"Historically, recessions put countries on a permanently lower
growth path, and this one is likely to be the same," said Stefan
Gerlach, former deputy governor of Ireland's central bank. "The
last mile is the tough bit."
Write to Tom Fairless at email@example.com
(END) Dow Jones Newswires
March 07, 2021 10:14 ET (15:14 GMT)
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