State and local governments are expected to face budget shortfalls due to rising healthcare costs and widespread unemployment rates due to the Covid-19 pandemic. Governments may soon be forced to consider cutting spending allocations in other areas, such as education. Macroeconomic influencers share their views on the Covid -19 impact.

Konstantina Beleli

Konstantina Beleli, an economist, shared an article on how the Covid-19 pandemic may impact government budgets at the state and local levels. The article notes that government may be forced to cut budget allocations to areas such as education and infrastructure.

Lockdown measures and social distancing have led sharp decline in sales taxes, which is one of the biggest source of revenue for state governments. The pandemic is expected to result in a budget shortfall of $650bn over the next three years, according to the Center on Budget and Policy Priorities (CBPP). Education and infrastructure investments are expected to the worst affected due to the shortfall.

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Pedro da Costa

Pedro da Costa, Federal Reserve and economy watcher at Market News International, shared a chart from the Peterson Institute for International Economics (PIIE) related to unemployment rates in the US. The chart shows that unemployment rate in the US is not driven by the lack of willingness to work rather it is driven by lack of employer demand.

The PIIE notes that unemployment insurance should be continued taking into account the changes in unemployment rates. Ending unemployment benefits could lead to a decline in GDP by 2.5% in the second half of 2020. Further, a permanent reform of the unemployment insurance system is needed to address the inherent weaknesses, the PIIE adds.

Edward Harrison

Edward Harrison, a banking and finance specialist at Global Macro Advisors, shared an article on how the Federal Reserve’s attempts to assist companies impacted by the Covid-19 pandemic including both weak firms and large organisations, which do not require any assistance.

The steps taken by the Federal Reserve is inflating stock prices and increasing wealth inequality, while directing funds towards poorly operated companies that sustain their business by borrowing cheaply. The article adds that the moves made by the Federal Reserve will only delay a wave of eventual bankruptcies.

Nasser Saidi

Nasser Saidi, president of Nasser Saidi & Associates, shared an article on how the Covid-19 pandemic along with drop in oil prices are expected to result in a decline in growth rate in the Gulf Cooperation Council (GCC) region by 7.1%, according to the International Monetary Fund (IMF).

The article adds that inflation in the US increased by 0.2% due to higher gas and food prices. Monthly deficit in the US also increased to $864bn in June as federal spending tripled and tax revenues declined.