Global growth implications of US economic stimulus package

US President Joe Biden will implement a significant legislation that will help to define his presidency early on: an unprecedented $1.9 trillion stimulus law that will create public spending to assist those hit badly by the COVID pandemic and to stimulate quick recovery for the US economy.

Designed to jumpstart recovery in US. This legislation involves a massive volume of anti-cyclical spending the likes of which has not been done before in the context of US economic crisis experience.

It reflects to some extent the magnitude of the problem the new US president faces in the domestic economy. It also underscores the shifting ground in assessing the degree of needed government intervention in economic operations.

Once this program of expenditure is unleashed, the US economy will come out on a fast economic recovery track. The reason is simply based on the calculus of resurgence of new government spending in the economy that will stimulate demand for goods.

This is buttressed by the fact that the additional money is put in the hands of the poor and middle income and small businesses. Initially and for the most part, the income transfers will go to the households and small businesses that have been badly impacted by the COVID-19 pandemic economic downturn.

Even as households and small businesses are badly in debt as a result of the pandemic effects on mobility and businesses, the relief they will get out of the stimulus package will free a great amount of new money that will go into demand for goods and services. This will immediately translate into more productive impact on the domestic economy.

The increase in the vaccination rates will move the population toward immunity from the virus, thus helping further the drive toward economic recovery.

Global and regional impact: positive. Domestic surge in economic recovery in the US helps global trade, and hence the world economy. Thus, there is also created a stimulus for recovery of the world economy.

Which countries will benefit from the surge in global recovery? Countries that are in the best position to gain from a resurgence of growth in the US economy are those countries whose economies are strongly linked with the US in trade.

Many countries in East Asia are well-represented in this stimulus chain. The volume of that trade with the US has been most strong among many of our neighbors because of their rapid economic transformation in recent decades.

Implications on the Philippines. The result is that our country could gain from a revival of growth in the US in the current period. The magnitude of our gains can only be secondary to those economies – among many of our neighbors in ASEAN and in East Asia – which account for a high volume of trade linkage with the US.

This will be the case until the country can effectively adopt reforms to strengthen industry and export channels (issues that are currently linked to larger reform measures facing Congress, including those on restrictive provisions of the Constitution).

However, we are still part of the supply chain link in manufacturing, especially in the semiconductor industry, and also in the BPO services sector, so some beneficial impact will be felt by a strong US recovery.

Moreover, since Filipino OFWs are employed in other labor markets that could improve as an impact from any US economic recovery, we feel such impact indirectly through an increase in remittances sent home.

Continued from last week: The vaccination rollout

In the previous week, I wrote about the supply of vaccines reaching the nation. So far, the supply on hand is very little in relation to the immediate needs. As a government, we failed to secure early supplies through purchase from manufacturers or through participation in early trials of vaccines being invented. We waited on the sides.

If a nation of 108 million people were to vaccinate just 30 percent of its people under a strict priority system to protect against the virus, that requires around 32 million doses of supply. But because some vaccines require two doses for effective protection, surely the requirement for vaccine supply is much higher than 32 million doses.

The supplies of vaccines so far have not come from those purchased by the country from suppliers. They were facilitated by Chinese aid and by the Covax facility, through the assistance of WHO. So far, the vaccines amount to just one million doses of Sinovac vaccines from China and AstraZeneca vaccines from the Covax facility.

Just last month, Indonesia adopted additional measures to accelerate vaccination by allowing companies to buy and inoculate its employees and their families in private hospitals. This is in addition to a mass vaccination program that started as early as mid-January this year, well ahead of us. They have access to vaccine supplies on a much larger scale.

The limited supply of vaccines in the country for the moment does not put on open view and experience the large logistical challenges related to mass vaccinations. If and when those supplies are on ready availability, the next problem is how to rollout an orderly, but massive program, since much of the work on vaccination will devolve to local governmental units.

This is one reason why the government should think about empowering the private sector to participate in the vaccination process through consolidation of demand for vaccines and to speed up vaccination.

So far, there are at least two models of private sector efforts to aggregate vaccine demand among private institutions and to facilitate vaccination of the population in the private productive sector.

One of these is the Go Negosyo effort (under Joey Concepcion) and the other, by the Razon group’s ICTSI Foundation that consolidates demand from major firms in the country. Many of the country’s major firms are included in the second group.

If the government is slow in assuring full supply of publicly acquired vaccines, such alternatives would help to supplement the government’s efforts to increase supply of vaccines so as to speed up the rate of vaccination to fight the pandemic.

For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/