US stresses G7 nations to boost their economies – leading macroeconomic influencers
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US encourages G7 nations to boost their economies – leading macroeconomic influencers

08 Jun 2021

US has stated that it is too early for G7 nations to withdraw the massive pandemic economic support packages.

US encourages G7 nations to boost their economies – leading macroeconomic influencers
Credit: Dilok Klaisataporn, Shutterstock.com.

Despite rising inflation and record peacetime borrowing, the US message to the world is for countries to continue to stimulate their economies, as regaining the growth lost during the pandemic was not enough impetus for a full recovery.

Faisal Islam

Faisal Islam, economics editor at BBC News, tweeted on Janet Yellen, the US Secretary of Treasury having rightly pointed at US being the first G7 nation to regain economic output lost during the Covid-19 pandemic due to robust vaccinations and fiscal support packages at the G7 Finance Ministers’ meeting recently held in London.

President Biden looks likely to support Yellen’s message at the Leaders’ Summit in Cornwall later this week, for all G7 nations to boost their economies, and for all nations including the UK, to not even talk about withdrawing fiscal support.

Yellen further stated that G7 economies have the fiscal space to speed up their recoveries and also return to pre-Covid growth paths. Therefore, it is urgent to not withdraw support too early, and to focus on structural investments in climates problems, poverty, and inequality.

James Sproule

James Sproule, chief economist of Handelsbanken in the UK, retweeted a discussion on return to workplaces post Covid, increased government spending, inflation, shopping habits, and the impact of Brexit on businesses in 2021. He states that what countries may have reached is a state of late pandemic equilibrium, which implied that people were spending 25% less time in office than normal, not only in the UK but across the European Union (EU). Public transport is the real key he states because if that is broken down a little more, countries will experience a rise in footfall.

He further adds that public finances are hard hit by the pandemic. Historically, he states the UK is below what it is witnessed during war times, but definitely more than seen otherwise. He also states that it is important to understand where inflation comes from and which areas are currently experiencing inflationary pressures. For instance, the number one runaway area for inflation in the UK since the last decade is education. In general, inflation exists in those areas where there is difficulty in bringing more competition in the market.

Sproule also highlights that areas that have been disproportionately hit by the pandemic are restaurants and hotels and entertainment. And there is also the question of working from home and who is working from home, which has been sector independent in the UK such as education, real estate activities, IT workers, and professional services.

Dean Baker

Dean Baker, senior economist at the Centre for Economic and Policy Research (CEPR), shared an article on consumer price index (CPI) and how the rate of inflation in medical care has slowed down sharply. As a result, if prices are controlled, it can help in holding inflationary pressures. Baker opines that sharp bounces in the economy led April’s inflation in the price of numerous items that experienced price declines during the pandemic.

He also added that the big uncertainty is for the index of used cars, which jumped 10% for April that accounted for 0.3 percentage points of the rise in the overall CPI. Meanwhile, rent and medical care were two areas which experienced rapid inflation. Rental inflation; however, fell sharply from about 3.5% before the Covid-19 pandemic to below 2.0% in recent months. Experts believe that if it remains low it will reduce the risks of a continuous rice in prices.