The Bank of Korea: "US Biden Administration's Fiscal Expansion Positively Impacts the Global Economy"

[Image source=AP Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] The Bank of Korea evaluated on the 24th that the fiscal expansion by the Joe Biden administration in the United States will have a positive impact not only on the US but also on the global economy as a whole.

On the same day, the Bank of Korea analyzed the "Key Contents and Ripple Effects of the Biden New Government's Fiscal Policy" in its 'Overseas Economic Focus' and made this statement.

The Bank of Korea identified the characteristics of the Biden administration's fiscal policy as ▲ proactive economic stimulus in response to the novel coronavirus disease (COVID-19) ▲ expansion of infrastructure and manufacturing investment ▲ financing through large-scale government bond issuance.

President Biden, as the president-elect at the end of last year, led the passage of a $900 billion economic stimulus package and recently announced an additional fiscal stimulus package worth $1.9 trillion. The method of raising these funds significantly affects not only the fiscal soundness of the US but also the status of US Treasury bonds as safe assets and the international financial market.

The Bank of Korea stated, "With the active fiscal expansion and policy shift anticipated since the launch of the Biden administration, the additional stimulus package will alleviate consumption contraction in the first half of this year," and added, "From 2022 onwards, infrastructure investment, etc., will have a positive impact on growth." It further noted, "The new government's fiscal expansion will lead to increased import demand within the US due to the activation of US consumption and investment, positively affecting not only the US economy but also the global economy."

The Bank of Korea analyzed that the $900 billion executed at the beginning of the year will serve as a bridge for economic growth until the vaccine's effects become fully effective. Major investment banks (IBs) such as JP Morgan and Citi estimate the contribution of the $900 billion stimulus package to the US economic growth rate to be between 2.0 and 2.7 percentage points.

With the realization of the 'Blue Wave' (Democratic Party control of the White House and both houses of Congress), it is expected that major policy pledges such as infrastructure investment and tax increases will be implemented starting next year. International credit rating agency Moody's analyzed that due to the Blue Wave, the average annual growth rate during President Biden's term (2021?2024) will be 0.7 percentage points higher than in scenarios where Congress is divided between the two parties.

Meanwhile, the Bank of Korea does not see a high possibility of a sharp increase in debt due to fiscal expansion becoming a reality. The Bank of Korea explained, "The actual scale of fiscal execution is expected to be smaller than the original pledge, so the concern over a sharp increase in government debt is unlikely to materialize," and "Given the continuation of structurally low interest rates, the possibility of a fiscal crisis in the short term is very low." However, it added, "If the global COVID-19 pandemic prolongs or there are setbacks in the passage of major fiscal bills, it may take a considerable time for the US economy to return to the pre-crisis growth path."

This content was produced with the assistance of AI translation services.