As many countries around the world continue to struggle to recover from the blow that the coronavirus pandemic dealt to their economies, one of them has emerged especially stronger.
With its rapidly growing economy, strong labor market, and low inflation, the United States is in an advantageous position compared to European and other countries around the world.
In terms of GDP, it recorded an increase of 3.3% in the fourth quarter of 2023, far exceeding the expectations of 2% of economists. In fact, over the year the US reached 2.5%, outperforming all other advanced economies and is on track to do so again in 2024.
“It’s holding up much better than other countries,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “It seems that the engine of the American economy continues to rev when those of other nations misfire.”
Below we explain three reasons that have contributed to this recovery.
1. Pouring trillions of dollars into the economy
When the Covid-19 pandemic brought in-person work and social life to a standstill, countries had to grapple with how to keep their citizens stuck at home, including many who lost their jobs or couldn’t work.
In March 2020, Congress rushed to pass a $2.2 million economic stimulus bill to sending money into the pockets of American workers, families and businesses. Two other laws followed to keep small businesses afloat and the workforce employed.
It was the largest injection of federal money into the American economy in history.
About $5 billion went into the hands of everyone, from individuals earning $600 more in weekly unemployment benefits to cash-strapped state and local transit agencies.
“I think a whole generation of policymakers came out of 2008 and 2009 with the lesson that if you don’t act big and bold, problems will last a long time,” says Aaron Terrazas, chief economist at Glassdoor.
“If you are indecisive, you prolong the pain. So I think that’s one of the reasons why the fiscal response was much stronger this time.”
This stimulus continues to be credited with supporting consumer spending, which represents 70% of economic activity. This spending capacity despite high inflation has been an incentive.
Some of the money put in households’ pockets ended up in excess savings, an emergency fund that Americans can dip into when needed, Ryan Sweet said.
The magnitude of the American rescue eclipsed that of other countriesalthough some, like Japan, Germany and Canada, also did it in a big way.
European countries, for their part, have a stronger social safety net than the United States and were able to adapt existing programs without increasing spending. But this short-term advantage couldn’t make up for the huge difference in the size of the stimulus.
2. A flexible labor market
High inflation has been a painful experience for many Americans and has conditioned their view of how the economy is doing. But the strength of the labor market has boosted disposable income, which is the driver of consumer spending.
The unemployment rate in the US is below 4% as of February 2022, which is on par with historic lows. And while prices rose sharply, real wages did too. Low-income households have recorded some of the highest real wage growth.
The US has also enjoyed a productivity rebound in 2023, growing at its fastest pace in years.
According to Julia Pollak, chief economist at ZipRecruiter, this was helped by the flexibility of labor legislation, which allowed companies to reduce their workforce at the beginning of the pandemic. This caused short-term pain for workers, but it allowed companies to adapt to the moment and invest in new technologies.
He cited the example of hotels that laid off workers and have not rehired at pre-pandemic levels.
“They’ve just changed a lot. They have introduced self-billing and mobile billing technology. “They have reduced the frequency of room cleaning and eliminated room service, because now customers tend to prefer takeout services like Uber Eats anyway, and pick up orders and deliveries,” he explained.
Hotels have shed a lot of weight and now look fitter, with less intense staffing, Pollack said. a change that has allowed them to survive and that, he says, can benefit workers in the long term.
The United States enjoys another advantage: the ability to replenish its labor market, especially through immigration, at a time when the retirement of the generation of the baby boom has slowed population growth.
The European approach favored paying companies to keep workers on the payroll when closures paralyzed businesses. The UK’s furlough scheme, for example, paid employees 80% of their salaries and lasted more than 18 months.
In the United States, unemployment was more severe, but laid-off workers were able to qualify for expanded unemployment benefits, which sent money directly into their pockets.
3. (In)Energy dependence
The US is a net energy exporter and, experts say, that has contributed to the strength of its economy.
When Russia invaded Ukraine in February 2022 and energy prices soared, Europe absorbed the impact much more than the United States.
Germany, a major European manufacturing center, imported much of its natural gas from Russia through its Nord Stream pipeline. It was inevitable that his productivity would suffer.
The rise in energy prices triggered inflation in Europe, in which experts called a “double shock”: the pandemic and then Ukraine.
The war in Ukraine had a much bigger impact on energy prices in Europe than in the United States, said Ben Westmore, who oversees monitoring of the U.S. economy for the Organization for Economic Co-operation and Development (OECD). in English).
Gas prices in Europe between early 2021 and 2022 soared by about 20%, he says, while in the US it was only 3-4%.
He points out that in European countries there has not only been a greater increase in prices, but also a greater propensity for companies to pass these increases on to consumers.
“Both factors have contributed to US inflation moderating more quickly than in many countries, especially in Europe,” he said.
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