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The US stimulus package and its impact on the global economy

Published on April 29, 2021 by Vipul Gupta

On 11 March 2021, President Joe Biden signed into law the USD1.9tn COVID-19 stimulus package to support financially vulnerable families and speed up US economic recovery. This is in addition to measures such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act of March 2020 and the Consolidated Appropriations Act of December 2020.

The package provides the following:

  • USD750bn for pandemic control and vaccination, aid to state and local governments and federal spending

  • USD600bn including the USD1,400-per-person cheques as direct help for families, and expansion of child tax credit

  • USD400bn as aid to vulnerable households including unemployment allowances of USD300 a week

  • USD150bn to support small businesses via loans and grants

Impact on the USD

The various fiscal stimulus measures undertaken by the US government over the past year have weakened the US Dollar Index to lows of around 90 points from highs of 102. Ideally, the USD1.9tn stimulus package should result in a decline in the USD, as an increase in supply and the subsequent decrease in demand would push its value lower. However, markets are forward-looking, and if traders do not expect more stimulus after this package, the USD should head higher. The US Dollar Index has recently ticked up slightly from the low of 90 points.

Impact on US GDP growth and the global economy

In April 2021, the IMF raised its global economic growth forecast to 6% for 2021 from 5.5% estimated earlier. This was the second upgrade in three months. 6% would be the highest rate of growth in nearly four decades; this is significant, as it would be on the back of the 3.3% contraction last year.

The latest stimulus package is expected to boost US GDP in 2021 to pre-pandemic levels. The IMF expects the US, aided by the fresh stimulus package and good progress in vaccinations, to grow 6.4% this year (up from 5.1% previously expected). Estimates are that additional spending would help US GDP gain two percentage points in 2021-22. The stimulus should help reduce unemployment and drive demand, increasing production, and ultimately boosting GDP.

The US stimulus package is expected to have a significant demand spillover for the global economy. Benefitting from increased demand from the US and vaccine rollouts, advanced economies are expected to expand 5.1% in 2021 (up from 4.3% expected earlier) and emerging markets 6.7% (up from 6.3%).

There is a concern that growth could lead to inflation and the Federal Reserve (Fed) would soon have to increase interest rates to counter it. To allay such fears, the Fed has repeatedly assured that it will refrain from doing so to speed up the recovery. At its March 2021 meeting, the Fed left the target range unchanged at 0-0.25% for federal funds, and indicated it would not hike rates through to 2023.

The IMF’s estimates of a faster recovery and improved growth are supported by other forecasts. The Organisation for Economic Co-operation and Development (OECD), in its March 2021 report, expects “global output to rise above pre-pandemic levels by mid-2021 after major economies showed greater resilience at the end of 2020, evidence of vaccine efficacy grows and governments add extra demand stimulus”. The OECD has revised its global growth forecast upwards to 5.6% for 2021 from 4.2% and nearly doubled its forecast for the US to around 6.5%. It indicated that the USD1.9tn package and other measures would help US GDP gain 3-4% in 2021 and add one percentage point to global output. Similarly, the UNCTAD revised its global economic growth estimate for this year to 4.7% in its report published on 18 March 2021. This is conservative but still ahead of its September 2020 forecast (4.3%), thanks in part to a faster rebound in the US.

The IMF expects global growth of around 4.4% in 2022, compared to 4.2% estimated earlier. Its latest estimates show the world economy will still be about 3% smaller in 2024 than expected before the pandemic.


Although the pandemic continues to impact the world economy, growth prospects have improved with vaccination rollouts and fresh US stimulus boosting consumer spending. We expect the stimulus package to bolster the US economy and global recovery.

How Acuity Knowledge Partners can help

Banks have a significant role to play in helping businesses and economies return to pre-pandemic levels and in boosting growth. This would require innovative problem solving and expertise. We have been partnering with leading global banks to provide innovative solutions, efficiently setting up flexible teams, managing portfolios and supporting them in implementing stimulus programmes such as the Paycheck Protection Program (PPP). Our proprietary suite of Business Excellence and Automation Tools (BEAT) provides intelligent automation capabilities using artificial intelligence and machine learning. We have the deep domain expertise required to build customised tools for the banking industry, and our team of experts has a good understanding of the US banking industry, lending trends and regulatory framework.







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About the Author

Vipul Gupta has over 14 years of experience in working with leading global organizations in the banking and commercial lending domains. His expertise spans a broad range of credit analysis, financial modelling, portfolio management, leveraged lending, industry coverage and onshore client-facing roles. At Acuity Knowledge Partners, he leads a large portfolio management team for a mid-size US bank. He has previously led specialized leveraged lending credit analysis team covering diverse industries. Vipul holds a MBA finance and a Bachelor in Mechanical Engineering.


Priyank Khetwani

05-May-2021 07:15:10 am

Developed countries instead of focusing on their local issues should focus on global goal of curtailing Covid pandemic. Many countries don\'t have enough budget to sponsor their own vaccination program so they are going to charge people for vaccination. Many issues of blood clotting has also made vaccination programs appear scary to people. A vaccinated person not only saves himself but he also saves the people who are going to come in his contact in future. There positive externality to vaccination programs. So social benefit of vaccination is greater than private benefit, and as per economics positive externalities are always under-produced. So what can be solution to this problem? Developed countries can channelise funds to vaccination programs globally via any international organisation like UN. And vaccinated people can be encouraged by getting prize or cash rewards instead of paying for vaccines worldwide. A person in poor country can also be reason for spreading covid globally. So no one should be left out from vaccination programs even if he is poor. A vaccinated person is beneficial to global community in all regards.

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