Bangladesh News

Monday
Oct 16th
Home arrow News arrow Business News arrow Economic stimulus plan could provide short-term US recession relief
Economic stimulus plan could provide short-term US recession relief PDF Print E-mail
Monday, 11 February 2008

Agence France-Presse . Washington

A 150-billion-dollar economic stimulus plan approved by the US Congress will give a shot in the arm to a lagging US economy, possibly mitigating the current downturn, analysts say. The US president, George W Bush, is due to sign the measure next week, clearing the way for tax rebate checks to be sent out in the coming months. The measure also includes business tax breaks aimed at stimulating investment. Economists are divided on the overall impact of the measure.

Agence France-Presse . Washington

A 150-billion-dollar economic stimulus plan approved by the US Congress will give a shot in the arm to a lagging US economy, possibly mitigating the current downturn, analysts say. The US president, George W Bush, is due to sign the measure next week, clearing the way for tax rebate checks to be sent out in the coming months. The measure also includes business tax breaks aimed at stimulating investment. Economists are divided on the overall impact of the measure.

Most say it can help boost critical consumer and business spending, but not until later this year. Some call it an election-year gimmick. Peter Kretzmer, senior economist at Bank of America, said the plan will provide a boost to consumer spending and business investment, but added:

It will not, however, solve housing s problems. At best, it will provide a temporary boost to consumer spending and aggregate demand, Kretzmer said in a note to clients. Some estimates suggest that spending may rise approximately 40 billion dollars over several quarters, with the residual of the rebates used for debt repayment/savings. Because of the temporary nature of the fiscal stimulus package, its multipliers in terms of boosting employment and investment spending are likely to be modest.

Backers of the plan say tax rebate checks of up to 600 dollars for individual taxpayers and 1,200 for couples, plus extra for dependent children, could charge up consumers pressured by sinking home prices and tight credit. Ethan Harris, senior economist at Lehman Brothers, said the rebate effort should act like a well-timed shot of caffeine for the economy, but with a payback after the effect wears off. The rebate comes at an opportune moment, Harris said in a research update.

Our forecast assumes that in the absence of the rebate the economy would go into a shallow recession later this year, followed by a very weak recovery in 2009. Harris said that because the stimulus will wear off, he sees a W -shaped recovery, with the economy flirting with recession again in early 2009.

In the rush to enact a timely package, politicians may have stopped a 2008 recession, but they have ignored a risky letdown after the election. A more skeptical John Wilson, equity strategist at Morgan Keegan, said the stock market sees through the gimmickry.

The market has a tendency to see through the bull and recognize this for what it is, a bipartisan attempt to be seen as taking action that will curry favor with the electorate in an election year, Wilson said. From an economic stimulus perspective, it will have the short-term effect of increasing spending and there will be the Keynesian multiplier effect, Wilson said.

Comments Add New
Write comment
Name:
Email:
  We don't publish your mail. See privacy policy.
Title:
Please input the anti-spam code that you can read in the image.
 
< Prev   Next >