Home Consequences of US stimulus on emerging economies: an Indian perspective

GEAB 156

The monthly bulletin of LEAP (European Laboratory of Political Anticipation) - 15 Jun 2021

Consequences of US stimulus on emerging economies: an Indian perspective

The author of this analysis is an Indian member of our network of contributors. He casts an emerging country’s glance on these huge American stimulus plans.

The over $5 trillion stimulus plans signed by US Presidents Donald Trump and Joe Biden are aimed to boost consumer confidence, rebuild infrastructures and fuel the US economy to achieve the post-Covid target of 2% GDP growth. This plan will redirect international dollar cash flows to the US and generate a negative impact on emerging economies. Indeed American and/or USD FDIs as well as exports to the US have been central in the development of these economies. Our assumption is that in the post-Covid global economy, the US dollar will rise against emerging economies’ domestic currencies. Their dependence to the US, and most importantly to the dollar, will be strongly impacted, resulting in a decrease of their competitiveness on the global market. In the short term, it is a very dangerous perspective for their economic models; in the long term, it could result in a loss of power for the dollar in the global economy since the emerging countries will have no choice but to establish a stronger control on foreign capital flows, refocus their efforts on domestic capital investment, and diversify their currency foreign assets.

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