US Infrastructure Bill Expected to Contribute 0.2 Percentage Points to Next Year's Economic Growth Rate

WSJ "Infrastructure Bill to be Implemented Over 10 Years... Short-Term Effects Minimal"
Goldman Sachs "Employment Market Impact to Peak by Late 2025"

United States Capitol [Photo by AFP Yonhap News]

[Asia Economy Reporter Park Byung-hee] The approximately $1 trillion (about 1,145 trillion won) infrastructure bill agreed upon by both the US Democratic and Republican parties is expected to have a minimal short-term impact on the US economic growth rate, according to a report by The Wall Street Journal (WSJ) on the 8th.

Alec Phillips, Chief Economist at Goldman Sachs Research, predicted that "the infrastructure bill will increase the US GDP growth rate by 0.2 percentage points next year and by 0.3 percentage points in 2023."

Mark Zandi, Chief Economist at Moody's Analytics, forecasted that the infrastructure bill will raise the US economy's productive capacity by 0.04 percentage points. The Congressional Budget Office (CBO) currently estimates the US potential growth rate at 1.9%. Zandi's estimate implies a rise to 1.94%.

The reason the infrastructure bill's impact on the US economy is minimal is primarily due to the relatively small scale of new spending. Of the $1 trillion, only about $550 billion is new expenditure. Compared to the $6 trillion spent by the US federal government over the past year since COVID-19, the fiscal injection scale has significantly decreased.

Additionally, the infrastructure bill is fundamentally a long-term plan, so its short-term economic effects are inevitably limited. Once passed, the $1 trillion will be spent over 5 to 10 years starting next year.

Previous stimulus laws involved direct cash deposits into personal accounts, increased unemployment benefits, or support for small businesses?measures that produced immediate effects. For example, the $1.9 trillion stimulus bill passed by Congress in April, known as the "American Rescue Plan," was estimated by the CBO to increase the fiscal year GDP growth rate by 4.9 percentage points. The CBO projected the US economic growth rate to be 7.4% this year but expected it to fall to 3.1% and 1.1% in 2022 and 2023, respectively, after the short-term stimulus effects dissipate. The CBO's growth rate forecasts did not include the stimulus effects of the infrastructure bill.

While the infrastructure bill's short-term effects are minimal, there is analysis suggesting its long-term effects could be promising.

Chief Economist Zandi stated, "Although it is not a bill for the next-generation nationwide highway system, I believe it is sufficiently meaningful." He added that the infrastructure bill's impact on the labor market will peak by the end of 2025, at which point it is expected to create 660,000 new jobs. In the decade before the pandemic, the average monthly job increase in the US was 188,000. The White House expects the infrastructure bill to create nearly 500,000 new jobs in the manufacturing sector alone over the next four years.

However, the WSJ noted that accurately estimating the economic effects of long-term fiscal spending is very difficult. Since long-term investments involve multiple structural changes in the economy, quantifying their impact is challenging.

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