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The recovery of the US economy will be more significant than in the EU

In today's article, we will explain the differences between aid in the US and the EU and what the current predictions in the US and the EU look like, who has benefited more from it, and who will grow faster. The recovery in the American economy is outstanding, and the European economy is a little bit worse.

Fiscal stimulus in G20

In the next graph, we can see a comparison of fiscal stimuli against the consequences of COVID-19 as a percentage of total GDP. Statista created this statistic as of 31.3.2021. It is, therefore, a fresh database. Fiscal aid from the US was significantly higher (26.46%) than aid from EU countries (11.14%). Nevertheless, some countries in the eurozone, such as Germany with 35.87%, put a lot into fiscal stimulus and aid. E.g., also France lagged far behind, and fiscal aid accounted for only 11.14% of its GDP. We can therefore see that there were significant discrepancies between fiscal aid between countries in the euro area but also in the EU. However, it should be mentioned that Germany could afford this aid, as it has been managing a surplus or a balanced budget responsibly for several years, which cannot be said of FR. Only in this example is it evident as a healthy budget and efficient management in good times is beneficial for states.

Fiscal stimulus in G20 Source: Statista

WEI

America bet on the so-called Helicopter money and checks to American households and businesses. We may see slightly higher inflation, but it is likely to lead to better economic growth and consumption. It is also crucial how the vaccination process works in each country. Countries with more vaccinated populations are more likely to open up, so fewer businesses fail, and consumption can recover.

Vaccination, therefore, plays a key role in current economic developments. Another difference is speed. In the US, as a federation, it has its own budget and can react much more flexibly and quickly than the EU and the eurozone. Although it has its own specific budget, it does not have its "budget as one country." Each country has a different budget and a different state of public finances, and therefore the response of individual countries is very different and inconsistent.

NY FED weekly economic index Source: WEI NY FED

Prediction of real GDP growth

Finally, we enclose a projection of the IMF (International Monetary Fund - IMF). Below we can also see the expected comparison of countries of individual economies. E.g. in 2021, the US economy should grow by 5.1 percent and in 2022 by 2.5 percent. The fact that the decline in real GDP in the euro area was more pronounced also awaits growth in 2021 and 2022, but smaller than in the USA. According to these data, it is clear that economically, the euro area is likely to move away from the US again. On the other hand, we can see China, which did not have such a significant economic drop in real GDP in 2020 and its outlook for the future is very optimistic. It is likely that China will overtake the US in nominal GDP this decade.

IMF real GDP projection Source: IMF

WALFIR Technologies is one of the three divisions of WALFIR s.r.o., which is based in Slovakia. The primary interests of this division are analytical, quantitative, and algorithmic...

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