The US Economic Headwind from 'Corona Money Printing'... Reaching Limits in Driving GDP Growth

$3.6 Trillion Injected by Federal Government Backfires on This Year's Growth
Goldman Sachs: Fiscal GDP Stimulus Effect Reduced from 6 Percentage Points to 2 Percentage Points

File photo. Photo by Asia Economy DB

[Asia Economy Reporter Kim Hyunjung] The large-scale fiscal support by the U.S. federal government in response to COVID-19 is turning into an economic backlash, the Wall Street Journal (WSJ) reported on the 20th (local time).

According to WSJ, the U.S. real gross domestic product (GDP) for the fourth quarter of last year, adjusted for inflation, increased by 5.5% compared to the previous year, marking the highest level since 1984. This was supported by the $3.6 trillion (approximately 4,307.4 trillion KRW) in fiscal spending poured in by the U.S. federal government since the COVID-19 pandemic. This includes enhanced unemployment benefits, monthly child tax credit payments, and support for state and local governments.

However, these support measures have already expired or will soon expire. Despite some calls for additional support, Congress is not considering any separate large-scale aid packages.

David Mericle, Chief Economist at Goldman Sachs, analyzed that the U.S. COVID-19 support packages implemented since 2020 raised the U.S. GDP level by just under 6 percentage points through the fourth quarter of last year. He expects the fiscal stimulus effect to decrease to less than 2 percentage points by the end of this year.

He further explained, "This represents a significant retreat in the level of fiscal support for the economy. While other factors may offset this and the economy will continue to grow, it means there are many issues to be resolved."

Goldman Sachs forecasts that GDP will grow by 2.2% in the fourth quarter of this year compared to the same period last year. The WSJ January economist survey average was 3.3%.

Asset management firm Natixis projected an even lower growth of 1.5%, which Chief Economist Joseph LaVorgna attributed to the reduction in fiscal support.

However, there is also an expectation that savings accumulated from past fiscal support will act as a "buffer." Nomura Securities estimated that as of the end of last year, Americans held $2.4 trillion in cumulative excess savings from COVID-19 fiscal support.

Robert Dent, Chief Economist at Nomura Securities, forecasted, "Consumers sitting on excess savings early this year will partially offset the negative impact caused by fiscal burdens."

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