US set for strong economic recovery, will India gain?

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After a gloomy 2020, the world is closely watching the developments in the US, as it presses the pedal on its Covid 19 vaccination drive, critical to put the economy back on track. After a contraction of (-) 3.5 per cent, the US is expected to register a higher-than-expected growth rate in 2021. However, the economic dynamics are set to be altered as the world recovers from the Covid 19 shocks.</p>
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According to Federal Reserve estimates, US’ economic growth is expected to touch 10 per cent in the first quarter.</p>
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“The US economy has roared back to life in 2021, with first-quarter growth set to defy even the rosiest expectations as another fresh influx of cash looms,” a CNBC report said.  </p>
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Earlier in the month, the Organization for Economic Co-operation and Development (OECD) also increased projections for India’s economic growth rate by 4.7 percentage points at 12.6 per cent for 2021-22.</p>
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“Global economic contours will change in the post-Covid world especially in relation to the supply chain network,” EY India’s chief policy adviser DK Srivastava told India Narrative.</p>
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“Activity moved above pre-pandemic levels in China, India, and Turkey, helped by strong fiscal and quasi-fiscal measures and a recovery in manufacturing and construction,” OECD said. However, experts said that India must immediately focus on effective implementation of mass vaccination programme to contain the second wave of Covid 19 pandemic.</p>
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The EY Economy Watch, a study on economic activities around the globe, noted that after a fiscal stimulus of nearly $900 billion amounting to 4 per cent of its GDP that was injected in December 2020, another round of stimulus worth $1.9 trillion — 8.5 per cent of GDP – is expected in the near term. “This may result in a strong recovery in the US with positive demand spillovers in key trading partners including Canada, Mexico, China and the Euro area,” EY said, adding that the recovery in the Euro zone is expected to remain moderate. </p>
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“The US recovery will also have a positive impact on India and given the recent developments on the QUAD front, Washington may be more receptive to importing goods from New Delhi,” Srivastava said.  He added that India on its part is also looking to increase sourcing oil from Washington to address the trade deficit scenario.</p>
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The EY report pointed out that global growth is now projected at 5.6 per cent in 2021 — 1.4 percentage points higher than OECD’s December 2020 forecast reflecting stronger economic activity in the latter half of 2020, increasing efficacy of Covid-19 vaccines along with the announcement of a large stimulus in the US.</p>
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Though global GDP is expected to be above the pre-pandemic level by mid-2021, not all countries will see an even recovery, it said.</p>
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Nirupama Soundararajan, Senior Fellow and Head of Research, Pahle India Foundation, however, said that recovery in the US will have a global spill-over as trade is likely to pick up. “But having said that, we need to see how the US recovery impacts India in other ways. It is critical to see if there is flow of investment into India. The real momentum will pick up only when investments come in. We need capital and depending on how the investment pattern from the US is will determine the overall impact on India,” Soundararajan said.  </p>