Elusive growth and Covid reality

Elusive growth and Covid reality

by Pininvest Analysis

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Early December cuts to 2021 growth projections by the Organization for Economic Cooperation and Development (OECD) in the U.S. and in Europe have been a wake-up call, putting paid to hopes for a V-shaped recovery in late 2020 - early 2021

2021 U.S. growth projections are down from 4% to 3.2% and Eurozone projections down from 5.1% to 3.6%, while China is expected to comfort its position of strength (+8%)

Back to back with these estimates, on Dec. 2, the Fed's Beige Book reported a slowdown in November in parts of the Midwest and Northeast as coronavirus cases proliferated, summarizing overall economic activity by stating

"...optimism has waned –many contacts cited concerns over the recent pandemic wave, mandated restrictions (recent and prospective), and the looming expiration dates for unemployment benefits and for moratoriums on evictions and foreclosures"

Concentrating the minds on Capitol Hill in Washington, the waring partisan factions of U.S. Congress finally appear ready to open the spigot - again - with a compromise which satisfies no one and, while the concern about deficits piling up is shared by many, alternative options are nowhere in sight

The comparison between Covid-driven stimulus policies of the largest economies (outside China) - in % of gross GDP - puts the current U.S. engagement in perspective

source - Mauldin Economics (Dec.20) - from Grant Williams newsletter

The bipartisan compromise bill of approx. 908 billion, announced on Dec. 2, would increase allocated funds by 4.2% of gross U.S. GDP (on top of the 12.1%  of GDP current Covid stimulus) - and with the dire economic projections, the proposal is likely to pass muster (in our opinion)

The fact remains that the German simulus funding dwarfs the engagement of every other major economy, putting its European counterparts (France and the United Kingdom) in the shade

Germany made provisions for stimulus borrowing of €217.8 billion ($258 billion) in 2020 and plans to take on additional debt of €96.2 billion ($114 billion) in 2021.

After years of budgetary discipline, the country can afford to, with debt expected to rise to 72% of GDP by the end of the current year - a far cry from France's debt burden rising to 115% and UK's debt from 85% to 100% of GDP, and a stark reminder of Germany's dominance