Stimulus seen as global tonic

Growth effects of $1.9t relief package to reach beyond US, experts say

The United States' massive stimulus spending in response to the coronavirus pandemic is forecast to lift economies around the globe, though in some regions more than others.

Global economic growth is expected to rise by 1.1 percentage points to 5.6 percent as a result of the relief aid－packaged in a $1.9 trillion bill signed by US President Joe Biden on Thursday, according to an analysis from the Organization for Economic Cooperation and Development, or OECD.

"This will not only boost the US economy, but it will fuel global growth through increased demand in the US and from the US to the rest of the world," OECD Chief Economist Laurence Boone said of the stimulus at a presentation in Paris.

The relief package also includes $11.55 billion in international spending.

"We see potentially significant positive spillovers in terms of global growth," International Monetary Fund spokesman Gerry Rice told reporters on Thursday. "Most countries should benefit from stronger US demand … So this will help global growth and recovery."

The OECD expects global output to rise above pre-pandemic levels by the middle of this year after major economies showed greater resilience at the end of 2020.

The organization raised its world growth forecast for 2021 to 5.6 percent from the 4.2 percent predicted late last year and more than doubled its outlook for the US, to 6.5 percent. In 2020, global output dropped 3.4 percent.

Markets in Asia have seized on hopes that US-China relations could brighten after the Biden administration last week announced a meeting with top Chinese diplomats in Alaska on March 18.

On Thursday, the Organization of the Petroleum Exporting Countries increased its global oil demand forecast by up to 200,000 barrels and also raised its forecast for global economic growth by 0.3 percentage point to 5.1 percent. The cartel mentioned the US stimulus in its outlook.

There is, however, a growing divergence between sectors and geographies.

The growth rate in 2021 forecast for the US is closer to China's 7.8 percent than the eurozone's 3.9 percent. Europe is on a more gradual path with ongoing government restrictions and "relatively mild "stimulus, said the OECD, which slightly lowered the outlook for France and Italy for the year.

The European Central Bank said after its monetary policy meeting on Thursday that it would ramp up its pandemic emergency bond buying, to ease market concerns about a rise in government borrowing costs and inflation.

Major trading partners

The US stimulus also will lift its major trading partners, boosting growth by 0.5-1 percentage point in Canada and Mexico, and between 0.25 and 0.5 percentage point in the euro area and China, the OECD said.

Emerging markets also could become casualties of the relief bill, as rising US bond yields are likely to cause a reversal of capital flows from the developing world, economists warn.

The OECD said there are "sizable risks" to the outlook as faster vaccine deployment could further boost spending and confidence, but virus mutations could inhibit the fight against the pandemic.

Wall Street and public-sector economists have upwardly revised forecasts for US economic growth due to the massive relief package and the vaccine rollout. But they also worry that too much stimulus could lead to an overheated economy, inflationary pressures and rising interest rates.

Coming on top of the $900 billion relief package approved by Congress in December, Biden's $1.9 trillion package means that the US economy would get fiscal stimulus of around 13 percent of the country's GDP in 2021, according to Desmond Lachman, resident fellow at the American Enterprise Institute and a former official at the International Monetary Fund.

"My view is that US market interest rates, like the 10-year Treasury bond rate, will now rise significantly because of the (new) stimulus," Lachman said.

Agencies contributed to this story.