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August 2, 2021

Slow growth shows stimulus diminishing returns in US – leading macroeconomic influencers

America’s disappointing second quarter GDP reveals staggering effect of stimulus plans.

Economists expect the GDP growth to slow to 3.5% annualised in the second half of 2021, owing to the diminishing impact from the fiscal stimulus, surging prices, the Delta variant spreading in the south and saving rate lower than expected.

Danielle Lacalle

Danielle Lacalle, an economist, investment manager and professor of global economics, retweeted an article on the slow growth in the US showing diminishing returns of the Covid stimulus. He also opines that the disappointing quarter GDP is a concern as the slowdown is likely to be sudden and will leave a trail of debts.

The US economy recovered at a 6.5% annualised rate in the second quarter of 2021, and gross domestic product (GDP) is now above the pre-pandemic level. Economists believe this is good news, but fiscal and monetary stimulus have to be considered.

The Fed buying $40bn of mortgage-backed securities (MBS) and $80bn in Treasuries every month, along with deficits expected to run above $2tn, is indicative of not just a staggering diminishing effect of the pandemic stimulus, but also an increased short-term impact of the programmes.

Andrea Garnero

Andrea Garnero, labour economist at the directorate for employment, labour and social affairs of the Organisation for Economic Co-Operation and Development (OECD), retweeted on US unemployment rate being stubbornly high. At the same time, employers are struggling to retain their staff post pandemic, as employees act on the pent-up demand for job changes. Studies suggest that the balance of power in the US labour market is unusually slanted in favour of workers.

The Covid-19 pandemic has caused people to relocate, and to rethink their careers, contributing to a greater mismatch of the available job opportunities to the available workers.

Studies suggest that there are about 6.7 million fewer Americans working today than there were before the pandemic. The unemployment rate has also risen to 5.9%, compared to 3.5% in February 2020. However, on the positive side, about 16 million net jobs have been filled since April 2020.

A number of factors are holding workers’ from returning to their jobs, including risks relates to the Covid-19 disease, childcare issues, comfortable financial safety nets, and the enhanced unemployment benefits that are currently ending across states.

Prof Mthuli Ncube

Prof Mthuli Ncube, finance minister of Zimbabwe and former chief economist and vice president of the African Development Bank, shared an article on Zimbabwe’s unstoppable economic growth despite the raging global Covid-19 pandemic. Finance and Economic Development Minister Professor Mthuli Ncube reviewed the country’s economic growth target, which is expected to rise from 7.4% to 7.8% due to multiple gains documented this year.

Additionally, despite the effects of the pandemic on the service and hospitality sectors globally, progress has been unrelenting in some sectors, such as the agricultural sector which is expected to reap a record 34% growth in 2021. This is further expected to eliminate the country’s reliance on costly food imports that amounted to approximately $200m in 2020.

 

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