What Are the Pros and Cons of Fiscal Stimulus?

Economic stimulus policy means that the government will use a series of methods such as debt and expanded money supply to stimulate the economy in the short term.

Economic stimulus

Economic stimulus policy means that the government will use
The success of the economic stimulus package has stabilized both the Chinese economy, the economies of neighboring countries, and the global economy. He then pointed out several directional traps in the economic stimulus package.
The first trap is the timing of the stimulus plan. The implementation time of the solution is too short to achieve the effect, but if the implementation time is too long, it will bring more problems and will aggravate the specific traps and problems mentioned later.
The second trap is the direction of economic stimulus. This direction may be right
1. Overseas
Foreign scholars generally believe that the time for the withdrawal of the economic stimulus plan is not yet ripe.
1. The exit path of western countries' economic stimulus plans
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After each financial crisis, countries have implemented large-scale economic rescue policies to help the countries with crisis damage resume economic development. This is understandable. However, some policies have brought about the "sequelae" that restrict economic development. On the one hand, whether the rescue policy is in line with the development trend of the economy, on the other hand, it is largely because the timing of the withdrawal of the economic stimulus policy does not match the pace of economic recovery.
(1) The Great Crisis of 1929
This is an economic crisis that has had a devastating effect on the economy in the history of the United States. During the great crisis, the US stock market plummeted, and a large number of
As a non
Premier Wen Jiabao of the State Council met with the Chairman of the Euro Group, the Prime Minister of Luxembourg and the
On January 25, 2010, the World Bank released the "Global Economic Outlook 2010" report in Beijing that China has become the engine of economic growth in East Asia and the Pacific. It is expected that China's economic growth in 2010 will be 9%, which is higher than the 8.7% previously forecast.
The report pointed out that due to the impact of the financial crisis, global GDP fell by about 2.2% in 2009. The growth rate is expected to reach 3.2% in 2010. However, as the impact of fiscal stimulus policies is gradually weakening, the pace of world economic recovery will also slow down.
In the short term, China's rapid economic recovery is the most striking. "This is mainly due to China's stable macroeconomic environment and the powerful measures taken by the Chinese government," said Hans Timo, director of the World Bank's Forecasting Bureau.
He predicted that China's inflationary pressure in 2010 will not be too great, but the issue of asset bubble prices should be paid attention to. He suggested that China gradually withdraw from the stimulus policy, "because withdrawal too early or too late will bring adverse factors to the economy."
Japan used to stimulate the economy too much and did not choose to withdraw at the appropriate time, which triggered more than 10 years of negative growth.
This situation also exists globally. Too early or too late to exit the stimulus policy will cause the second economic recession (negative economic growth), but "the possibility of a temporary economic bottoming again is unlikely."
Positive exports increase to offset decline in investment
The World Bank Forecasting Bureau predicted in 2009 that the forecast value of China's GDP growth rate in 2010 is 8.7%.
However, recently released statistics show that China s economic growth rate was 8.7% in 2009, especially the strong economic growth in the fourth quarter, which reached 10.7%. Raised the economic forecast for 2010.
Han Weisen, the chief economist of the World Bank's Representative Office in China, explained that the third carriage of economic growth, consumption, showed a stable and neutral situation, while the other two carriages showed a trend of elimination and growth.
"We judge that the outlook for the global economy's exports in 2010 is better than last year, and China's net exports will also pick up as the world economy recovers; investment is the opposite. Investment in crisis situations last year rose too fast and is unlikely to continue Such an increase will show a certain decrease, "he said.
The National Bureau of Statistics has so far not given the contribution rate of investment, consumption, and exports to the economy in 2009. It is generally believed that the contribution of exports to the economy in 2009 was negative, and the contribution of investment to the economy was the largest, followed by consumption.
In 2009, China s annual nominal investment growth rate was more than 30%, and the actual growth rate was even faster. For the year, exports totaled US $ 117.20 billion, a decrease of 16.0%; the import and export balance was US $ 196.1 billion, a decrease of US $ 99.4 billion from the previous year. The total retail sales of consumer goods for the year was 12,534.3 billion yuan, an increase of 15.5% over the previous year.
However, Hans Timo emphasized that the rapid growth of Chinese investment was mainly obtained when credit was too accommodative, which made economic growth more dependent on capital rather than labor, and this growth had certain problems.
Especially after the consumer price turned positive in November 2009, inflationary pressure will not increase greatly, but problems such as the real estate bubble are becoming increasingly apparent. "This is an important reason for the gradual withdrawal of stimulus policies," he said.
Phasing out of economic stimulus
In response to questions from our reporter, Hans Timo said: Although China's economic development has inherent growth potential, in the medium and long term, economic growth cannot always be pinned on the government's fiscal stimulus policies. "A gradual withdrawal will be the best way. Because economic stimulus policies always have a certain limit."
The failure of Japan's economic stimulus in the late 1980s is a good example. At that time, the Japanese government implemented several economic stimulus plans in succession, hoping to quickly revitalize the economy through public construction projects and loan programs. However, the results were disappointing. From 1996 to 2002, the Japanese economy remained stagnant, with a slight increase in GDP per capita of 0.2%. Continued economic stimulus did not ultimately increase Japan's economic growth rate.
The main reason for this is that economic growth has not been transformed into a pull through services and consumption. Therefore, the effect of the government's economic stimulus is not significant.
Hans Timo believes that the biggest driving force in the initial stage of economic recovery is usually the government, but with the gradual recovery of the economy, private capital must replace government investment as the main driving force of the economy, so as to ensure the sustainable recovery And growth. Otherwise, there will be a spiral decline in the economy and the risk of a bubble.
However, the retreat of economic stimulus cannot be too rapid, because the recovery of private capital requires a process. If private capital is not ready, the economic stimulus policy will completely retreat and it will also lead to another crisis in the economy.
Hans Timo emphasized that "the adjustment of stimulus policies is not necessarily related to the speed of economic recovery, and the timing of withdrawal of economic stimulus policies should depend on the fiscal space of each country."
For example, despite the fiscal stimulus in Eastern European countries, the economic recovery is still slow, and their fiscal space is already small, and retreat can be considered. China's government finances still have some room for effective stimulus policies.
Hans added that it is not difficult to explore when China withdraws from the stimulus policy. The key is how to ensure the realization of the medium and long-term goals of China's economic development and how to promote the development of the service industry to avoid the economy's excessive dependence on heavy industries.
Han Weisen also said that people often pay too much attention to how to stimulate the economy, but we should also see that the stimulus itself has a disadvantage. In the long run, China must find a suitable alternative to stimulus policies.

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