Markets have already taken off on Biden's helicopter money. How the "rescue plan" will affect Ukraine and the world

Author

Diana Polunina

The US Congress has approved the American Rescue Plan, a major $1.9 trillion stimulus package for the country's economy. President Joe Biden has already signed it during the appropriate ceremony at the White House.

The new American Rescue Plan involves payment of $1,400 to every American who earns less than $75,000 a year, an increase in unemployment benefits until September 6 ($300 weekly extra charge), rental subsidies and additional funding for the food stamp program. The program also increases and expands tax deductions for children (from $2,000 to $3,000 for children under 7 years old), and their amount will not depend on income. $130 billion have been allocated for additional funding for schools in the context of a pandemic, $350 billion—to stimulate business in states and districts. In addition, funds have been allocated for testing and vaccination against coronavirus and so on. CNN estimates that roughly 90% of American families will eventually receive aid.

How Biden's two trillion will affect the global economy and markets

After Biden signed the document, the Dow Jones and S&P 500 market indices reached new historical records. Nasdaq is also growing, CNBC writes. Thus, The Nasdaq Composite Index that takes into account the shares of the largest players in the technology market, rose 2.5% to 13,398.67 points (Tesla shares rose 4.7%, Apple, Facebook, Alphabet, and Netflix rose by at least 3% each).

The S&P 500, in turn, rose 1% to a record 3,939.34. The Dow Jones Industrial Average rose 0.6% to 32485.59 (the highest ever).

The Organization for Economic Cooperation and Development, in turn, predicts that the US economic stimulus program will add about 1 percentage point to the growth of the global economy in 2021. And that will help it return to the "pre-pandemic" level in the middle of this year. Thus, the average growth of the G20 economies will reach 6.2%, China's GDP may increase by 8%, and world GDP by 5.6%. At the same time, according to the organization, the increasing US government bonds yield will cause capital outflow from emerging markets with obvious consequences for the national currency rates. Countries that are late with vaccinations will suffer the most from this.

How the American Rescue Plan will affect Ukraine

Ekonomichna Pravda (Ukraininan media outlet) claims that the additional portion of money that will "pour out" on the financial market will whet investors' appetite for risk, which is good for the Ukrainian authorities, since it will become easier to raise funds to cover 246 billion UAH of the current budget deficit. The publication writes that for this it is not necessary to carry out reforms and continue cooperation with the International Monetary Fund.

According to Dragon Capital investment analyst Serhiy Fursa, the pause that the Ukrainian authorities have with the IMF is the result of the fact that foreign markets are very good. Ekonomichna Pravda adds that the Ukrainian authorities have no motivation to cooperate with the IMF, but the situation may change and the country may be left with a hole in the budget and without support.

"If the volume of stimulus leads to the economy overheating, then developing countries, especially the poorest, will be the first to feel the deterioration of market sentiment. As a result, the opportunities for attracting capital in national currencies will sharply decrease and borrowings in hard currencies will significantly rise in price," says Oleksandr Martynenko, Head of Corporate Research at the ICU group. This will affect the implementation of the state budget and the hryvnia exchange rate that will be falling.

Context. This program is the third economic stimulus program in the United States since the start of the pandemic and the first under President Joe Biden. He presented a plan for a new stimulation of the state's economy under the economic crisis for $1.9 trillion, called the "American Rescue Plan" in mid-January 2021.