Understanding the global role of the US economy

Published on VOXeu, by M. Ayhan Kose, Csilla Lakatos, Franziska Ohnsorge, Marc Stocker, Feb 27, 2017.

A growth surge in the world’s largest economy could provide a significant boost to global activity. In contrast, uncertainty about the direction of US policies could have the opposite effect. This column investigates spillover channels linking the US and the global economy. An acceleration in US growth would have positive effects for the rest of the world if not counterbalanced by increased trade barriers. However, policy uncertainty could hamper global growth, and could have particularly bad effects on investment growth in emerging and developing economies … //

… How large are global spillovers from US growth and policy shocks?

A surge in US growth – whether due to expansionary fiscal policies or other reasons – could provide a significant boost to the global economy. Shocks to the US economy transmit to the rest of the world through three main channels.

  • An acceleration in US activity can lift growth in trading partners directly through an increase in import demand, and indirectly by strengthening productivity spillovers embedded in trade.
  • Financial market developments in the US may have even wider global implications. US bond and equity markets are the largest and most liquid in the world and the US dollar is the currency mostly widely used in trade and financial transactions. This makes US monetary policy and investor confidence important drivers of global financial conditions (Arteta et al. 2015, IMF2015).
  • Given its role in global commodity markets (the US is both the world’s largest gas and oil consumer and producer), changes in US growth prospects can affect global commodity prices. This affects activity, fiscal and balance of payment developments in commodity exporters.

Estimates indicate that a percentage-point increase in US growth could boost growth in advanced economies by 0.8 of a percentage point, and in emerging market and developing economies by 0.6 of a percentage point after one year (Figure 2.A). Investment could respond even more strongly. A boost to investment could come for instance from fiscal stimulus measures – but the effect would largely depend on the circumstances of the implementation of these measures, including the amount of remaining economic slack, the response of monetary policy, and the adjustment of household and business expectations to the prospect of higher deficit and debt levels. A faster tightening of US monetary policy than previously expected could, for instance, lead to sudden increases in borrowing costs, currency pressures, financial market volatility, and capital outflows for more vulnerable emerging market and developing economies … //

… How important is the global economy for the US? … //

… Acceleration or uncertainty?

Given its size and the strength of its ties with the global economy, shocks to the US economy are transmitted globally through many channels. On the one hand, an acceleration in US growth could be expected to have positive effects for the rest of the world, if not counterbalanced by increased trade barriers or an unexpected tightening of global financing conditions. On the other hand, persistent policy uncertainty could hamper growth throughout the global economy, and could have particularly adverse effects on investment growth in emerging market and developing economies, which have already showed weakness in recent years (World Bank 2017).

(full text, 3 figures, references).

(Editor’s note: the findings, interpretations, and conclusions expressed in this article are entirely those of the authors. They do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent).


30 Spanish cities march in solidarity with refugees, against Fortress Europe (PHOTOS, 2 VIDEOS), on RT, Feb 26, 2017; and on Google Images-search;
related: Fortress Europe, on Google Images-search;

The Saudi-Yemen War:

  • Yemen War, between Internal and External Interests, on The Huffington Post, by Afrah Nasser, Feb 25, 2017: … Next week marks the sixth anniversary of Yemen’s 2011 uprising. Many will take the opportunity to reflect on the merits and the failures of the uprising, and that will inevitably will be through an eye tainted by the ongoing war. For me, I reflect and try to understand how did we get here today. German political theorist, Hannah Arendt once said, “revolutions are the only political events which confront us directly and inevitably with the problem of beginning”, and that is what the uprising anniversary should do – confront us with the problem of beginning;
  • Originally printed in german as: Krieg im Yemen, Bürgerkrieg mit Countdown, auf WOZ, von Afrah Nasser, 9. Feb 2017: bald zwei Jahre dauert der Konflikt auf der Arabischen Halbinsel bereits. Eine schnelle Lösung ist nicht in Sicht – auch, weil Länder wie die USA und Deutschland ein Interesse an seinem Fortbestehen haben … meistens liegt das Hauptaugenmerk auf der Geopolitik, auf der Frage, wie der Jemen zum Schauplatz eines Stellvertreterkriegs zwischen Saudi-Arabien und dem Iran wurde …;
  • After nearly 2 years of bitter conflict, Yemen is on the brink of a humanitarian catastrophe, on UNHCR;
  • In a testing environment, Emirates Defence Industries Company is focused on the UAE, on Gulf News/Companies, by Ed Clowes, Feb 19, 2017: despite a string of joint ventures in recent years, company’s director reaffirms commitment to the UAE’s armed forces and to increasing efficiency;
  • Saudi Arabian-led intervention in Yemen, a military intervention was launched by Saudi Arabia in 2015, leading a coalition of nine Middle Eastern countries, to influence the outcome of the Yemeni Civil War (main article: Yemeni
  • Civil War, 2015–present);
  • on YouTube-search;
  • on Google Images-search;

Off Grid communities in Europe:

and some off grid worldwide:

… and this:

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