Covid-19 pandemic may increase China’s deficit to historic high, according to leading macroeconomic influencers

GlobalData Thematic Research 29 May 2020 (Last Updated May 29th, 2020 07:29)

Covid-19 pandemic may increase China’s deficit to historic high, according to leading macroeconomic influencers

Economies across the world have announced stimulus packages to deal with the impact caused by the Covid-19 pandemic. Although these packages are essential, they are not reaching the people who need it the most and increasing the deficit-to-GDP ratio.

Adam Posen

Adam Posen, president of the Peterson Institute for International Economics, shared a tweet on China’s deficit-to-GDP ratio. The article notes that China had a policy of placing a 3% ceiling on its deficit-to-GDP ratio.

The Covid-19 pandemic has broken this ceiling with the ratio exceeding 3.6% of GDP. The pandemic has added RMB1tn ($140.2bn) to the government’s deficit spending.

Mohamed A. El-Erian

Mohamed A. El-Erian, chief economic adviser at Allianz, shared details about the number of unemployment benefits in the US. He noted that 2.123 million people have filed for unemployment benefits in the week ending 23 May bringing the total number to more than 40 million.

El-Erian added that the US GDP contracted by 5% in the first quarter against the previously predicted 4.8%. He noted that the economic downturn in the US is deepening.

Anders Åslund

Anders Åslund, an economist and author, shared a tweet on how the funds from $660bn Paycheck Protection Program, part of the Covid-19 stimulus package, were distributed to companies that have evaded tax payments. The programme was aimed at saving small businesses, which were impacted by the pandemic and help them to pay their workers.

The article notes that bottlenecks in the programme resulted in the non-payment of funds to several small businesses. Further, much of the funds were distributed to more affluent companies that have avoided tax payments. Out of 110 companies that have received funds $4m or more, 46 companies had not paid any corporate tax during the last year, the article added.

Gregory Daco

Gregory Daco, Chief US Economist at Oxford Economics, shared charts on how the Covid-19 pandemic has impacted durable goods orders and shipments in the US. The charts indicate that durable goods orders declined by 17.2% in April and by 29% on a year-on-year basis, while core orders declined by 5.8%.

The charts also indicate that shipments declined by 17.7% on a monthly basis and by 22% on a year-on-year basis, while core shipments declined by 5.4%.