US Biden plan stimulus for Recovery will impact EURO area

US Biden plan of $1.9tn stimulus programme will boost the US recovery, it will drive global recovery and it will have an impact in euro area. Biden’s Rescue Plan of 1.6 trillion euros for combating the Covid crisis passed by the US House of Representatives and signed into law by US President Joe Biden. is one of the biggest economic stimulus programmes of all time. Europen Central Bank hopes the plan will have a positive impact on this side of the Atlantic.

OECD: American Rescue Plan will drive a global recovery

The interim economic projections for the G20 countries show that the world economy will recover from the record losses in 2020. World’s major economies are GDP – OECD Growth forecasts for 2021 have now become more favorable compared to the forecasts from last December.

ECB President Christine Lagarde said at a press conference on Wednesday:

So, it was voted yesterday. It will be moving into law tomorrow. Hence, it is not embedded in our projections, but we do – and the introductory statement makes reference to the external demand, to the impact that a massive fiscal stimulus will have on our pace of growth that it will have on trade of course. So, we believe that the Biden plan is actually going to have an impact, not to be overestimated though, because clearly there will be a lot of domestic measures that will impact predominantly the US domestic markets, but it will have an impact. An external demand that is addressed to the euro area and to other countries of course will generate probably and will have an impact on our growth projections, and that will indeed be reflected in three months’ time when we produce our June projections.

EU fiscal rules and the way out of the pandemic

One thing that I will say is that the big difference if you will between the Biden stimulus, which as I said, debated, voted by the two houses, signed into law, cheques in the mail and our massive fiscal stimulus here in Europe is that there is a bit of a lag time between the two.

Grants and loans: What the Recovery EU money will be invested in

The Next Generation EU, as we say in the introductory statement, is critically important in order to help stimulate the European economies from a fiscal point of view and is also terribly important for two other reasons: because it needs to address the issue of heterogeneity between countries and between sectors, and it needs to focus on what will be productivity enhancing and moving our economies and our Europe into the future with the focus on digital and green. But there is a time lag between the two, let’s face it. So, while we import a bit of yield increase, the trade movements are going to come, but our own fiscal measures are not kicking in yet. And we need that.

US Biden’s stimulus will affect the whole world

Now, obviously staff here at the ECB have been very diligently looking at the Biden plan and trying to assess on a very preliminary basis what the impact will be on both growth through the trade channel in particular, and also on the inflation expectations and particularly on the inflation outlook. There will be some impact, it’s pretty clear.

That will be reflected in future projections because this has not been taken on board this time around. I think they also want to have a look very carefully at what is eventually delivered after the signing into law of what has been voted by the House of Representatives.

eudebates US Biden plan impact