With the open stimulus negotiation in the United States (US) Congress, IHS Markit revises up the forecast country' GDP growth in 2021 from 3.1 to 4.3 percent, said the chief economist - Photo by the White House Office

JAKARTA (TheInsiderStories) – With the open stimulus negotiation in the United States (US) Congress, IHS Markit revises up the forecast country’ GDP growth in 2021 from 3.1 to 4.3 percent, said the chief economist. The new package, said Joel Prakken, will offset the negative impact on spending of the recent surge in infections alongside with the promising news on vaccines.

“With negotiations over fiscal stimulus now gaining bipartisan support, we now expect agreement on a three-month extension of emergency unemployment programs, and an enhanced unemployment benefit of US$300 per week, to be reached before Christmas,” Prakken stated.

In the official statement, Bureau of Economic Analysis (BEA) estimates that real GDP grew 7.4 percent (33.1 percent at an annual rate) in the third quarter (3Q) of this year, the largest single quarter of economic growth on record and roughly twice the prior record of 3.9 percent (16.7 percent at an annual rate) set in the first quarter of 1950.

This growth follows the most severe pandemic-induced contraction on record in the second quarter of 2020, which occurred as the government mandatorily shut down all but nonessential services, and Americans made sacrifices to slow the pandemic. The US’ GDP in a single quarter has now recovered two-thirds of the economic output lost due to the pandemic during the first half of the year.

In the recovery from the 2008 – 2009 recession, it took four times as long to regain the same share of lost economic output. The nonpartisan Congressional Budget Office in July projected a second quarter contraction roughly in line with the actual decline that occurred, though the agency projected a third quarter growth rate of just 4.0 percent (17.0 percent at an annual rate).

Since the pandemic hit every major economy around the world, the United States experienced the least severe economic contraction of any major Western economy in the first half of 2020, with the Euro Area economy’ contraction being 1.5 times as severe as the contraction of the US economy.

It said, a resurgence in consumer spending, which accounts for two-thirds of GDP, supported the third quarter GDP growth and reflects both the reopening of America’ businesses and the confidence of consumers to spend on goods and services once more. Consumer spending in the services sector alone accounted for nearly half of GDP growth in the third quarter.

Greater third quarter spending on recreation, food, and accommodation services—sectors acutely impacted by lockdowns—alone accounted for one-fifth of total GDP growth in the third quarter. The growth in the 3Q, and the particular strength of American consumers, also reflects the swiftness and magnitude of the aid the Administration provided directly to America’ families, workers, and small businesses.

The $2.7 trillion in stimulus that the CARES Act and other pandemic-related legislation supplied is roughly 13 percent as a share of GDP. Total personal income rose above, and still remains above, pre-pandemic levels. Personal income excluding the government transfers provided for in the CARES Act, however, decreased from pre-pandemic levels.

Without this income support, the resurgence in consumer spending would likely not have been as strong. Having added back 11.4 million jobs since April with more than five in 10 jobs lost in the pandemic recovered, total wages and salaries increased 5 percent in the third quarter and are now just 1.4 percent below pre-pandemic level.

IHS Markit added, without additional fiscal stimulus in United States (US), the recent surge in COVID-19 infections and the re-imposition of measures to contain the virus by some states and localities would undermine the economic recovery early next year. But, the prospective inoculation by midyear of much of the population with unexpectedly effective vaccines will unleash consumer spending in late 2021 and early 2022.

Written by Editorial Staff, Email: theinsiderstories@gmail.com