Will stimulus plans go global?
Efforts outside the US tend to amount to 1.5 percent of GDP or less, one tally finds.
Barack Obama's economic stimulus plan is expected to reach historic proportions, but what the world could really use right now is something even bigger: similarly ambitious plans from the rest of the world.Skip to next paragraph
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That's what many economists prescribe as the best path out of a slump that has turned global in scope.
America is at the epicenter of the downturn, which helps explain why President-elect Obama and his team are readying a spending package that may be equal to about 2.5 percent of US gross domestic product in 2009, as well as a similar amount in 2010.
But other nations also face considerable risks of job loss and political turmoil. Their near-term need for stimulus also meshes with a longer-term imperative: From Asia to Germany, many nations would benefit from a shift toward stronger domestic consumption and less reliance on exports to the United States.
"Ideally, they should be doing the heavy pulling," says Sherle Schwenninger, an economic policy expert at the New America Foundation in New York. "Because of the collapse of the US consumer, the US is not in a position to be the principal demand locomotive for the world, as it has been for these past 20 years."
So far, however, planned stimulus efforts outside America generally amount to 1.5 percent of GDP or less, according to a tally done by the investment bank Morgan Stanley.
"There are really only two countries that are serious about fiscal stimulus. The US is one. China is the other," says Nariman Behravesh, chief economist at IHS Global Insight, a forecasting firm in Lexington, Mass. China's stimulus is similar, as a share of GDP, to what the Obama team appears ready to push for.
The stakes are high. In most nations, the economy depends partly on the health of their trade partners. Even in the US, with its large trade deficit, exports have represented an important contribution to GDP.
One danger is that, if 2008 was about financial-market shock waves, this year will reveal the full social impact on jobs and consumer incomes. A recent report by economist David Rosenberg at Merrill Lynch warns that geopolitical tensions and trade protectionism – as nations try to defend precious jobs – could be the dominant risks in 2009. He says countries including Brazil, Russia, and India have already moved to raise import tariffs or other barriers on some goods.