How the American Economy Is Affecting the World


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The US president Donald Trump in his interview quoted that America's economy is 'roaring back' to the original glory that it had but I think the reality will be more defined by the numbers rather than quotes. However, another important question that arises in our mind is why we should be discussing the economy of some other nation, when we are not so much in a better place either?

Well, you will be surprised to know that even a small change in America's economical cycle affects retailers and customers all around the world, including India.


Why Learning About US Economy Is So Important to Us?

Well, you see there are various reasons why this superpower's economy is of utmost importance. To begin with because of its size and inter-contentedness, developments in the American economy affect other economies around the world.

Well for instance if the economy of the US setbacks even for 0.5%, the other economies may face a 10-50 time multiplier effect as they directly or indirectly have the American economy as a part of their investments and returns.

Other than that American economy accounts for almost a quarter size of global GDP or gross domestic product, well in layman's term GDP is an indicator that gives information about the size of the economy and how it is performing. Also, the American economy is one-fifth of global FDI.

Also, the American economy is more than one-third of stock market capitalization, which means whatever you invest in the stock market is largely dependent on the American economy, no matter which economy's stock market it is.

Now various economic events define whether the economic reforms introduced by a nation are either an asset or a liability and some of the major points that will help you all to have a fair idea about the American economy are mentioned below.



Employment

As you all are aware a nation can only be called economically successful if its employment rate is greater than its unemployment rate, but the reality and figures are not indicating good news for the American economy.

At the start of April 2020, America's unemployment rate stands at 14.7% which till time has somewhat eased to 13.7-14%. Now, these numbers may not look numerically very meaningful to you guys but for economists, this is the reason for America's first recession after 2009.


Gross Domestic Product

Well you all must remember when we said that American economy almost holds a quarter in global GDP, well now is the time to face the truth according to economists country's GDP is heavily affected due to the setbacks caused by COVID-19 pandemic.

In the second quarter of 2020 reports are GDP has decreased at an annual rate of 32.9%. While for the first quarter of 2020 it was reported at a 5% fall.



Economic Growth

Well, you all know that with time and effort everything grows which is a universal truth which holds for financial variables like economic growth, but here again, the president's statement of the economy is recovering stands nothing more than a lie.

Why I am saying so because according to the economy department of America 'the American economy sink in 32% at an annual rate in the April June quarter.'

Well if we talk about monetary figures then the ongoing corona pandemic has swept close to 8 trillion dollars (imagine the number of zeroes) of the economic growth. In long run, almost 16 trillion dollars is expected to be off-grid for the American economy.

Well, the statement of the President is itself contradicted by the fact that senate republicans have released 1 trillion dollars for emergency relief funds while the fund falls short by 3 trillion dollars which was proposed by the respected department.

Well, the gap stands huge for democrats and republicans to bridge.



Consumer Spending

Consumer spending accounts for 70% of American economic growth. So even a small downturn in consumer spending can create deflation and also the contraction of the economy can happen.

The commerce department of America in its earlier press release said consumer spending of the US economy dropped 7.6% in just 3 months of the starting of the year. Currently, consumer spending stands at 8.2% for the American economy in May 2020.

Well, all these data’s, figures and statistical values are affected due to the activities caused by the COVID-19 pandemic, and some of the impacts are listed below:

Closing off international boundaries which declined both import and export rate for America as well as for its neighboring nations.

Although, premature opening allowed the economy to grow but only for a shorter period as the number of cases rose government was forced again to put back restrictions which in turn induced more tolls on the already affected public health sector.

Deflation which you all must remember is also responsible as it reduces the value of goods and services being sold. That encourages people to wait to buy until prices lower, which in turn reduces the demand causing the recession.

Well, whatever be the reason for keeping an eye on the world's largest economy is essential to understand its long term effects on other economies as well.


Written by - Yash Bundela

Edited by – Adrija Saha

 


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