Kick-starting economy: U.S. way head in spending

By Remitbee - Aug 21, 2020

K.T. Jagannathan

Mere numbers make no sense. Comparative numbers, however, help us arrive at some sort of a meaningful conclusion. The COVID-19 has seen many governments across the globe to announce massive fiscal stimulus. India-based Motilal Oswal Financial Services Ltd. (MOFSL), a SEBI (Securities and Exchange Board of India)-registered research analyst, has come out with quick take on the fiscal stimulus by various governments.

It has used data from seven advanced economies (France, Germany, Japan, Italy, Spain, the U.K., and the U.S., which account for over 80% of all advanced economies. It has also used data from 10 emerging and developing economies (Brazil, China, India, Indonesia, Mexico, Russia, South Africa, South Korea, Taiwan, and Turkey). These 10 countries account for 75% of all emerging and developing economies. Together, these 17 nations account for 80% of the global GDP (gross domestic product).

Striking difference

The difference in the fiscal support to economies is strikingly significant between advanced economies (AEs) and the emerging and developing economies as a group.

A perusal of the stimulus package of these 17 nations indicates that the global fiscal spending (weighted by respective nominal GDPs) grew 51% YoY in 2QCY20, up from 5% in 1QCY20 and the previous high of 15% YoY in 2QCY09. The fiscal spending in advanced economies almost doubled. However, it increased by only 5% YoY in emerging market economies. Since government spending declined for the second consecutive quarter in China, growth in fiscal spending in emerging and developing economies (excluding China) was 17% YoY in 2QCY20. This is nothing exceptional compared to the previous quarters.

U.S. leads the pack

Among advanced economies, the U.S. government’s spending more than doubled (+130% YoY) in 2QCY20, and was by far the highest. This was followed by 82% YoY growth in Japan. Among emerging and developing economies, the highest fiscal spending growth was posted by Brazil at 52% YoY, followed by Russia (30%). China and Mexico are the only two nations, where fiscal spending declined YoY in 2QCY20. This was despite the fact that government receipts declined faster in advanced economies compared to emerging and developing economies (as a whole group or excluding China). Total government receipts in the former declined 29% YoY in 2QCY20, while it fell only 10% in EMEs. Excluding China, government receipts declined 23% YoY in E&DEs. Interestingly, government receipts declined the most (47% YoY) in India, followed by a 40% fall in the U.S. in 2QCY20. Turkey is the only nation where government receipts have increased in 2QCY20.

``Eventually, these differences may play a pivotal role in deciding the fate of economic recovery over the short term,” the report said.

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