What's driving the global economy's V-shaped recovery?

Reference:CGTN | Updated:22 Mar 2021

Speaking at the China Development Forum on Saturday, Jason Furman, former chair of the Council of Economic Advisers and professor at Harvard University shared two observations after the COVID-19 pandemic and explained why we can see a V-shaped economic recovery now.

The first one is that he highly praised the rapid development of COVID-19 vaccines. Within a year of the virus, many countries have begun to widely vaccinate their citizens. He said that his second observation was that many countries are able to use large-scale fiscal measures to effectively mitigate an impending recession, but added that not all countries have the ability to do so.

Now the United States, the United Kingdom, Japan, and the European Union have largely fallen in gross domestic product. In the United States, it was the largest decline in GDP since 1946, and at the same time, disposable personal income rose, which is the income a household gets not from a job, but in the $1.9 trillion stimulus package they get from the government.

When explaining what's driving the global economy's V-shaped recovery, Furman took the U.S. as an example, where the wedge between the negative GDP and the positive household income puts the economies in a position for a V-shaped recovery, the largest such increase since 1984. The global economy can attain a V-shaped recovery with these conditions: First, people need to be able to safely meet together in a restaurant. Second, people need to have money in their bank accounts, so they can afford to eat in the restaurant. Vaccines are doing the first, and the recent $1.9 trillion stimulus package U.S. President Joe Biden signed is helping the second.

"The OECD expects that the United States by the end of this year, will have output. It is above what was projected prior to the pandemic that might be too optimistic," the professor added.

During the last part of his speech, he also questioned what impact this V-shaped recovery would have on the rest of the world looking through trade channels.

The U.S. fiscal stimulus is unambiguously positive: U.S. incomes go up, it puts upward pressure on the exchange rate. Both of these lead to more exports from other countries, according to Furman. There are other channels too, through interest rates and through balance sheet effects on foreign debt. If an emerging market is not selling a lot to the United States, it has a lot of dollars dominated, he noted.