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U.S. worries about inflation, but growth in other regions faces sustained damage

Investors need to keep in mind that other parts of the world are not approaching a pandemic recovery when rethinking, given the potential for overheating of the US economy.

The global economic outlook is improving due to increased vaccination. On Tuesday, the Organization for Economic Co-operation and Development (OECD) raised its forecast for global gross domestic product (GDP) growth from the December forecasts of 4.2% and 3.7% to 5.8% this year and 4.4% next year.

Given that Washington’s fiscal transfer has given the average American household more disposable income than before, the market is at least afraid that the economy could overheat. Inflation has skyrocketed in the United States and is also on the rise in the euro area, hitting a three-year high of 2% in May, according to Tuesday data. A survey of purchasing personnel in the manufacturing sector recorded the highest number ever and pointed to a shortage in the supply chain.

But this concern about excessive economic growth is a first-world issue, and even one biased.

The United States is the only major country where Wall Street predictors’ expectations for 2025 GDP are currently higher than in January 2020. In other developed economies that accept fiscal activity, such as Canada, Japan and Germany, the economy is 0.8% to 0.5% smaller than pre-pandemic forecasts. In the UK and France, this figure is close to 4%.

The inequality is the largest among emerging countries. After avoiding some of the early effects of Covid-19, these countries are now heavily exposed to Covid-19. India has been significantly downgraded by forecasters after the second wave. They now believe that 2025’s GDP will be 9% lower than previous estimates.

In a report on Tuesday, the OECD said that most of the losses in economic production could be caused not by lack of demand, but by a “permanent” decline in the ability to produce goods and services, the so-called scarring. But it also identifies the most injured of the poor, with limited access to vaccines and difficulty in deploying financial measures without offending the monetary market. Increasingly, the other countries that the OECD sees significant losses on the supply side are those that rely on tourism. The industry is not really vulnerable to permanent damage, despite the current dire situation.

The “potential GDP” calculation is known to be very slippery and often reflects recent economic developments rather than growth caps. Fiscal activity today is part of the perception that problems that were once linked to productivity constraints may be due to sluggish spending. Even the current accelerating growth of the United States is well below the pre-2008 trend. This means that abandoning expansion policies too soon risks serious economic damage.

As developed countries merge from a pandemic, encouraging spending surges have created some bottlenecks. Looking further, the greater threat to the global economy remains the lack of demand, not supply.

US Treasury Secretary Janet Yellen told The Wall Street Journal that raising corporate and global minimum taxes will help countries fund programs such as infrastructure and education. (Video 5/4) From / 21)

Write to John Sindreu (jon.sindreu@wsj.com)

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U.S. worries about inflation, but growth in other regions faces sustained damage

Source link U.S. worries about inflation, but growth in other regions faces sustained damage

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