International Finance class. Please respond to each student with a paragraph
The current events article that popped out to me from the Chapter 6 Mini Case assignment, was Hanna Ziady’s article titled, “Consumers Have $5.4 Trillion in Excess Savings. That Could Unleash a Global Spending Boom.”
The article begins by addressing how consumers have been ‘stockpiling’ excess savings throughout the pandemic. The amount of savings was said to have been “equal to 6% of global GDP, according to Moody’s Analytics (Ziady 2021).” The U.S. maintains the largest share of excess savings of 12% of their GDP, followed by the UK, which settles around 10% of their GDP. This is no surprise, as North America and Europe were among the main countries where lockdowns and government support was more prominent. Paired with the border lockdowns and stimulus money, the wealthier homes have stashed the funds that they would have normally utilized for travel and/or entertainment, and the medium to lower class homes saved to last until global herd immunity. “The combination of an unleashing of significant pent-up demand and overflowing excess savings will drive a surge in consumer spending across the globe as countries approach herd immunity and open up (Quote by Mark Zandi, Chief Economist; Ziady 2021).” Intertwined with the excess saving margins, the majority of households also utilized the government stimulus funds to pay down debt instead of shifting towards spending. The anticipated surge of excess savings spending has been forecasted to be around one-third of what has been deemed ‘excess savings.’ However, as we move closer to the reality of looser travel restrictions, open access to all forms of entertainment, and the removal of pandemic barriers, economists foresee a surge of this ‘excess savings’ spending. Keep in mind, this extra spending could spark inflation, resulting in the central banks to raise rates to taper spending. Regardless, there could be a new shift once herd immunity is reached, which could be a balance between households realizing their excess savings as wealth, changing the dynamic of the data.
This article relates to our Chapter 6 Mini Case, which highlights how Japan has been seen as a country with a history of saving. The more wealth that is stashed and saved, not circulated back into the economy or globally, may influence how the country’s central bank has to manipulate the currency-denominated interest rates low enough to promote a certain shift.
Link from MyPearson: https://pearsonfinancenews.wordpress.com/2021/04/26/consumers-have-5-4-trillion-in-excess-savings-that-could-unleash-a-global-spending-boom-finance-news-for-april-17-2021-april-23-2021/ (Links to an external site.)
Moffett, M. H., Stonehill, A. I., Eiteman, D. K. (2018). Fundamentals of Multinational Finance. [6th Ed.]. Pearson Education. New York, NY.
Ziady, H. (2021 April 19). Consumers Have $5.4 Trillion is Excess Savings. That Could Unleash a Global Spending Boom. Article posted to cnn.com. Retrieved on 2021 June 21 from https://www.cnn.com/2021/04/19/business/consumer-saving-spending-boom/index.html (Links to an external site.)
I was able to find an article talking about the impact of a failed EU and UK Brexit deal before they eventually agreed to a deal. The article talked about how the British pound would head for a crash if the 2 sides would be able to come to an agreement. It was predicted that the British pound would’ve fallen by 10% or more if there would be no deal. At the time, the pound was trading at $1.35 but analysts worried if it looked like a deal was unlikely that the pound could quickly fall to at least $1.20. If it would’ve fallen below $1.20 it would’ve pushed the pound to its lowest level since a shock flash crash in late 2016. This would likely have a negative effect on the exchange rate of the pound as British consumers would have to pay more for food and other imports. Due to the pandemic, the UK was facing a growing jobs crisis and was in its worst recession in more than 300 years. Economists predicted that the damage that would’ve been caused by a no-deal Brexit would be worse in the long run than the pandemic.
Riley, Charles. “Pound Heading for a Crash If Britain Fails to Get a Brexit Trade Deal.” CNN, Cable News Network, 11 Dec. 2020, www.cnn.com/2020/12/11/investing/brexit-no-deal-pound/index.html.
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