#usa – Page 2 – Martin Wheatcroft

ICAEW chart of the week: BRICS+

The ICAEW chart of the week returns from its summer holidays to look at the planned expansion of BRICS from five to 11 countries.

Venn diagram showing the G20, G7, BRICS, and BRICS+:

G20 in green, encompassing G7 in teal with USA, Japan, Canada and UK plus in blue with dotted line around Germany, France, Italy and the European Union (the EU members of the G7).

Then five countries in G20, but not in the G7, BRICS or BRICS+, being Korea, Australia, Mexico, Indonesia and Türkiye.

Tne BRICS+ in purple with Argentina and Saudi Arabia followed by BRICS in orange with Brazil, Russia, India, China and South Africa. Still in the BRICS+ purple, but outside the G20 green are Ethiopia, Iran, Egypt and UAE.

Sources: G20, G7, BRICS.

Footnote gives share of global GDP: G20 86%. G7 52% (USA 26%, EU 17%), KAMIT 7%, BRICS 25%, BRICS+ 28%.

“The BRICs” was originally coined by Jim O’Neill in 2001 as an abbreviation for Brazil, Russia, India and China, four fast-growing economies that he predicted would come to dominate the world economy.

This investment shorthand evolved into something more substantive in 2006 when ministers from the four countries got together on the sidelines of a meeting at the UN. Leader summits started in 2009, followed by the addition of South Africa in 2011, which resulted in the capitalisation of the final ‘s’ to form BRICS.

BRICS has developed over time to become a counterweight to the G7, providing an alternative forum for leaders of these five major nations to discuss common concerns such as economic development, currency stability, climate change, and tackling drug trafficking and organised crime. BRICS has been increasingly important to Russia since its ejection from the G7 (then the G8) following its invasion of Crimea in 2014 and to China as relations with the G7 have deteriorated over the last decade.

The most recent summit (the 15th) was on 22-24 August 2023, at which it was announced that six additional countries would be joining on 1 January 2024 to bring the number of members to 11.

Our chart this week takes the form a Venn diagram to illustrate how BRICS, and the expanded “BRICS+” grouping (pending a new official name), fit with two other major intergovernmental organisations where leaders meet on a regular basis – the G7 and the G20.

It starts with the G20, a grouping of 19 nations and the European Union that together represent 86% of the global economy. Within this sit the eight members of the G7 group of advanced economies, representing 52% of the global economy: the USA (26%), Japan (4%), the UK (3%), Canada (2%), Germany (4%), France (3%), Italy (2%) and the European Union (17% including Germany, France and Italy). The five BRICS nations represent 25% of the global economy comprising: Brazil (2%), Russia (1.7%), India (4%), China (17%) and South Africa (0.4%).

The diagram is complicated by the expanded BRICS+ as although invitees Argentina (0.6%) and Saudi Arabia (1.0%) are also members of the G20, the other four new members – Ethiopia (0.2%), Iran (0.3%), Egypt (0.3%) and the United Arab Emirates (0.5%) – are outside the G20. These new members together represent 3% of the global economy, taking the expanded BRICS+ to 28%.

Squeezed between the G7 and BRICS+ are five G20 members that together make up around 7% of the global economy that are not in either grouping, being (South) Korea (1.6%), Australia (1.6%), Mexico (1.8%), Indonesia (1.4%) and Türkiye (0.8%). As yet there is no sign of an intergovernmental organisation for these “KAMIT” nations to complement the G7 and BRICS, although in practice they are often invited as guests to G7 summits in addition to their participation in meetings of the G20.

The attraction of intergovernmental forums such as the G7, BRICS and the G20 is that they enable national leaders to engage directly with their counterparts on a wide range of topics, in contrast to the often narrower focus and more formal diplomatic structures of treaty-based international organisations such as the Organisation for Economic and Co-operation Development (OECD), the World Bank or the Organisation of American States (OAS) for example.

Their informal nature gives national leaders more flexibility to (for example) change their memberships without lengthy treaty negotiations or to work together on pressing issues of mutual concern. However, that informality also makes it difficult to create binding resolutions, which is perhaps why the global alternative reserve currency proposed at the first BRICS summit in 2009 had still not been implemented by the time of the 15th summit this August.

ICAEW chart of the week: US federal financial statements

My 250th chart of the week for ICAEW takes a look at the recently published Financial Report of the United States Government for the year ended 30 September 2022 and how net liabilities have increased by 67% to $34trn over the past five years.

This week’s chart takes a dive into the latest financial statements of the United States Government for the year ended 30 September 2022 that were published on 16 February 2023, illustrating how the consolidated balance sheet of the executive, legislative and judicial branches has changed over the last five years.

The federal government reported net liabilities of $20.4trn at 30 September 2017, comprising $3.5trn in assets ($1.9trn non-financial and $1.6trn financial) less $23.9trn in liabilities ($14.7trn debt and interest, $7.7trn employee and veteran benefits and $1.5trn other liabilities).

By 30 September 2022, net liabilities had increased by 67%, from $13.6trn to $34.0trn, comprising $5.0trn in assets ($2.3trn non-financial and $2.7trn financial) less $39.0trn in liabilities ($24.3trn debt and interest, $12.8trn employee and veteran benefits and $1.9trn other liabilities).

The increase in net liabilities is a consequence of net accounting losses of $1.2trn, $1.4trn, $3.8trn, $3.1trn and $4.2trn for the five financial years up to 30 September 2022. These amounts are calculated in accordance with US generally accepted accounting principles (US GAAP) as adapted for government by Federal Financial Accounting Standards (FFAS) issued by the Federal Accounting Standards Advisory Board (FASAB). They differ from cash budget deficits (outlays less receipts) of $0.8trn, $1.0trn, $3.1trn, $2.8trn and $1.4trn over the same period.

Revenue in the year ended 30 September 2022 of $4.9trn comprised $4.0trn from individual income taxes and tax withholdings, $0.4trn in corporate income taxes and $0.5trn in other taxes and receipts. The net cost of government operations amounted to $9.1trn, comprising $7.4trn in gross costs less $0.5trn in fees and charges plus $2.2trn from changes in assumptions. The latter primarily relate to employee and veteran benefit obligations that are on the balance sheet in the US GAAP numbers.

The scale of the negative balance sheet and continued deficit financing highlight just how dependent the US federal government is on its ability to borrow money as needed to meet its financial obligations as they fall due, and why the current challenge in raising its self-imposed debt ceiling is starting to concern markets.

This is the 250th ICAEW chart of the week, a milestone that has crept up on us as we seek to share insights into the economy and public finances that we hope are of interest to ICAEW members and all our other readers. Many thanks for your continued interest and we look forward to providing you with many more nuggets in the future.

This article was originally published by ICAEW.

ICAEW chart of the week: US dollar exchange rates

As the US dollar and euro approach parity, our chart illustrates how the US dollar has soared in value since the financial crisis compared with other major currencies apart from the Chinese yuan.

Step chart on US dollar exchange rates, showing the movements against sterling, the euro and the Chinese yuan between 9 Nov 2007 and 13 Jul 2022:

Sterling: £0.48:$1.00 +75% = £0.84:$1.00
Euro: €0.68:$1.00 +45% = €0.99:$1.00
Yuan: ¥7.41:$1.00 -9% = ¥6.72:$1.00

Source: Bank of England.

Our chart this week is on the topic of exchange rates, illustrating how the US dollar has appreciated by 75% and 45% against sterling and the euro respectively since the financial crisis, only to decline by 9% against the Chinese yuan over the same period.

On 9 November 2007, one US dollar was worth 48p as the pound peaked in value at an exchange rate of US$2.095:£1.00 according to the Bank of England’s exchange rate database. Since then the dollar has appreciated and sterling has fallen to an exchange rate of US$1.195:£1.00 at 13 July 2022, making one dollar worth 84p or 75% more today. This movement reflects a combination of much stronger economic growth in the USA over the last 15 years, higher interest rates, weaknesses in the UK economy, and the position of the US dollar as the world’s reserve currency that makes it an attractive safe haven for investors generally and even more in times of economic turmoil.

The dollar has also appreciated against the euro for similar reasons, albeit by only 45% over the same period. On 9 November 2007, one dollar was worth 68 euro cents when the exchange rate was US$1.468:€1.00, compared with the 99 euro cents it was worth on 13 July 2022 when the exchange rate was US$1.005:€1.00 – having briefly touched parity during the course of that day.

For the poor British traveller this means going to the US is substantially more expensive than it was 15 years ago, with a pound now worth just under a dollar and two dimes, compared with almost two dollars and a dime back then, a whole 90 cents less. The cost of travelling to the EU is also more expensive, with the pound worth €1.18 now compared with €1.43 in 2007, a fall of 17% in relative purchasing power.

All three currencies have depreciated against the Chinese yuan over the same period, as the Chinese economy has continued to grow to become the second largest in the world after the USA. The relative strength of the US economy has restricted the depreciation in the dollar to 9% from being worth ¥7.41 to ¥6.72 over 15 years. This contrasts with a fall of 38% in the value of the euro against the yuan from ¥10.88:€1.00 to ¥6.79:€1.00 and a 48% depreciation in sterling against the yuan from ¥15.52:£1.00 to ¥8.03:£1.00.

Exchange rates are volatile and can move significantly over the course of each minute, hour, day, week, month and year, so the numbers will keep changing. They also don’t reflect the full picture, as inflation, interest rates and economic conditions mean that the value of the dollar, pound, euro or yuan in your pocket will be worth more or less depending on what you want to use it for.

The strengthening of the US dollar over the last 15 years is one of the key elements of the global economic story that has seen the US economy come through the financial crisis and the pandemic in better shape than almost every other developed country. Many commentators believe that this is likely to continue in the near term, especially as Europe is much more directly affected by the Russian invasion of Ukraine.

However, as all professional financial advisers will tell you, past performance is no guide to the future – and your guess about how much one US dollar might be worth in the next fifteen years is likely to be as good as anyone’s.

This chart was originally published by ICAEW.

ICAEW chart of the week: Inflation around the world

This week we look at how inflation is racing upwards across the world, with the UK reporting in April one of the highest rates of increase among developed countries.

Bar chart showing inflation rates by G20 country: Russia 17.8%, Nigeria 16.8%, Poland 12.4%, Brazil 12.1%, Netherlands 9.6%, UK 9.0%, Spain 8.3%, USA 8.3%, India 7.8%, Mexico 7.7%, German 7.4%, Canada 6.8%, Italy 6.0%, South Africa 5.9%, France 4.8%, South Korea 4.8%, Indonesia 3.5%, Switzerland 2.5%, Japan 2.4%, Saudia Arabia 2.3%, China 2.1%.

Inflation has increased rapidly over the last year as the world has emerged from the pandemic. A recovery in demand combined with constraints in supply and transportation has driven prices, with myriad factors at play. These include the effects of lockdowns in China (the world’s largest supplier of goods), the devastation caused by the Russian invasion in Ukraine (a major food exporter to Europe, the Middle East and Africa), and the economic sanctions imposed on Russia (one of the world’s largest suppliers of oil and gas).

As the chart shows, the UK currently has – at 9% – the highest reported rate of consumer price inflation in the G7, as measured by the annual change in the consumer prices index (CPI) between April 2021 and April 2022. This compares with 8.3% in the USA, 7.4% in Germany, 6.8% in Canada, 6.0% in Italy, 4.8% in France and 2.4% in Japan.

The UK’s relatively higher rate partly reflects the big jump in energy prices in April from the rise in the domestic energy price cap, which contrasts with France, for example, where domestic energy price rises have been much lower (thanks in part to state subsidies). The UK inflation rate also hasn’t been helped by falls in the value of sterling, making imported goods and food more expensive.

Other countries shown in the chart include Russia at 17.8%, Nigeria at 16.8%, Poland at 12.4%, Brazil at 12.1%, Netherlands at 9.6%, Spain at 8.3%, India at 7.8%, Mexico at 7.7%, South Africa 5.9%, South Korea at 4.8%, Indonesia at 3.5%, Switzerland at 2.5%, Saudi Arabia at 2.3% and China at 2.1%. For most countries, the rate of inflation is substantially higher than it has been for many years, reflecting just how major a change there has been in a global economy that had become accustomed to relatively stable prices in recent years.

This is not the case for every country, and the chart excludes three hyperinflationary countries that already had problems with inflation even before the pandemic, led by Venezuela with an inflation rate of 222.3% in April, Turkey with a rate of 70%, and Argentina at 58%.

Policymakers have been alarmed at the prospect of an inflationary cycle as higher prices start to drive higher wages, which in turn will drive even higher prices. For central banks that has meant increasing interest rates to try and dampen demand, while finance ministries have been looking to see how they can protect households from the effect of rising prices, particular on energy, whether that be by intervention to constrain prices, through temporary tax cuts, or through direct or indirect financial support to struggling households.

Here in the UK, both the Bank of England and HM Treasury have been calling for restraint in wage settlements as they seek to head off a further ramp-up in inflation. They hope that inflation will start to moderate later in the year as price rises in the last six months start to drop out of the year-on-year comparison and supply constraints start to ease, for example as oil and gas production is ramped up in the USA, the Middle East and elsewhere to replace Russia as an energy supplier, and as China emerges from its lockdowns.

Despite that, prices are likely to rise further, especially in October when the energy price cap is expected to increase by 40%, following a 54% rise in April. This is likely to force many to make difficult choices as household budgets come under increasing strain.

After all, inflation is much more than the rate of change in an arbitrary index; it has an impact in the real world of diminishing spending power and in eroding the value of savings.

This chart was originally published by ICAEW.

ICAEW chart of the week: Global population

The ICAEW chart of the week looks at how the estimated global population of almost 8bn people is distributed around the world.

Bubble chart showing estimated global population of 7,995m in 2022: South Asia 1,894m, East Asia 1,671m, South East Asia 682m, Pacific 43m, Africa 1,419, Europe 592m, Middle East 357m, Eurasia 246m, North America 511m, South America 443m and Central America & Caribbean 97m.

UN projections show that the planetary population will reach approximately 7,955m in June this year, a 1.0% increase over the 7,875m estimate for June 2021.

The largest region on our chart is South Asia, which has 1,894m inhabitants, including 1,411m in India, 216m in Pakistan, 173m in Bangladesh, 40m in Afghanistan and 31m in Nepal. This is followed in size by the 1,671m people living in East Asia, including 1,432m in mainland China (currently the most populous country in the world), 126m in Japan, 52m in South Korea and 26m in North Korea.

Africa is the third largest region with 1,419m inhabitants, with 482m living in Eastern Africa (including Ethiopia 118m, Tanzania 67m, Kenya 56m, Uganda 50m, Mozambique 34m and Madagascar 29m), 424m in Western Africa (including Nigeria 217m, Ghana 32m, Côte d’Ivoire 27m and Niger 26m), 254m in Northern Africa (including Egypt 106m, Sudan 46m, Algeria 45m and Morocco 38m), 190m in Middle Africa (including the Democratic Republic of the Congo 95m, Angola 35m and Cameroon 27m), and 69m in Southern Africa (of which 60m are in South Africa).

Excluding Russia and Belarus, Europe has 592m people, including 444m in the 27 countries of the EU (including Germany 83m, France 66m, Italy 59m, Spain 46m and Poland 38m), 68m in the UK and 43m in Ukraine, although these numbers are all before taking account of the several million Ukrainians who have been forced to flee the war and are living temporarily in other countries.

Eurasia, comprising the Commonwealth of Independent States of Russia, Belarus and the ‘stans’ of central Asia, has 246m inhabitants (including Russia 143m and Uzbekistan 34m), while the Middle East has an estimated 357m people (including Turkey 85m, Iran 85m, Iraq 44m, Saudi Arabia 36m and Yemen 32m.

North America has 511m inhabitants (USA 336m, Mexico 137m, Canada 38m), while 97m live in Central America (52m) and the Caribbean (45m), and 443m live in South America (including Brazil 217m, Colombia 51m, Argentina 46m, Peru 34m and Venezuela 34m).

South East Asia has 682m inhabitants, including 277m in Indonesia, 113m in the Philippines, 100m in Vietnam, 70m in Thailand, 56m in Myanmar and 34m in Malaysia. A further 43m people live in the Pacific region, of which 26m are in Australia.

Although the rate of global population growth was projected to slow significantly in recent years, from 1.3% a year in 2000 when the population was 6.1bn, to 1.0% a year currently and to a forecast of around 0.7% in 20 years’ time, that still means that the number of people on the planet is expected to grow to around 9.8bn in 2050, placing even greater demands on natural resources than today.

This highlights just how important achieving net zero and environmental sustainability is to the lives and wellbeing of future generations.

This chart was originally published by ICAEW.

ICAEW chart of the week: G7 economic growth

The latest IMF economic forecasts put the UK at the bottom of the pile in 2023, but our chart this week elevates the UK to fifth place out of seven by looking at average growth for the four years from 2020 to 2023.

Chart presenting economic growth for the G7 in 2020, 2021, 2022, 2023 and the average over four years.

USA: -3.4%, +5.7%, +3.7%, +2.3%, average +2.0%
Canada: -5.2%, +4.6%, +3.9%, +2.8%, average +1.4%
Germany: -4.6%, +2.8%, +2.1%, +2.7%, average +0.7%
France: -8.0%, +7.0%, +2.9%, +1.4%, average +0.7%
UK: -9.3%, +7.4%, +3.7%, +1.2%, average +0.6%
Japan: -4.5%, +1.6%, +2.4%, +2.3%, average +0.4%
Italy: -9.0%, +6.6%, +2.3%, +1.7%, average +0.2%

Recent media reports have contrasted the government’s boast of being the best performing economy in the G7 in 2021 with the latest forecasts from International Monetary Fund (IMF) that suggest the UK economy will be bottom of the same league in 2023. Our chart this week attempts to take a step back and look at the overall picture by illustrative average economic growth by the G7 nations over the four years between 2020 and 2023.

These numbers are based on the IMF’s World Economic Outlook and the accompanying World Economic Outlook Database that were published on 19 April, setting out economic forecasts for the world economy over the next few years.

According to the IMF, the USA is the best performing economy in the G7, with average annual economic growth of +2.0% over the period from 2020 to 2023. An economic contraction of 3.4% in 2020 was more than offset by a rebound of 5.7% in 2021, followed by forecast growth of 3.7% in 2022 and 2.3% in 2023. Canada is not far behind, with an average growth of 1.4% over the four years, comprising respectively -5.2%, +4.6%, +3.9% and +2.8% in 2020, 2021, 2022 and 2023.

Germany and France fare pretty similarly to each other, with Germany projected to experience marginally above 0.7% average growth and France marginally below. The patterns are different, however, with Germany having suffered a less severe economic hit during 2020 followed by moderate growth (-4.6%, +2.8%, +2.1%, 2.7%), while France was hit much harder by the pandemic followed by a much stronger rebound before a return to lower growth in 2023 (-8.0%, +7.0%, +2.9%, +1.4%).

The UK is in fifth place in this league table, but at 0.6% average economic growth over the four years selected this is only slightly less than Germany and France. With an economic contraction in 2020 of 9.3%, the UK suffered more severely from the pandemic than the other members in the G7 (although this is partly because of differences in statistical methodologies) but then saw the biggest rebound in 2021 with growth of 7.4%. Growth this year is forecast by the IMF to be 3.7% before falling to an (unfortunately) more typical level of 1.2% in 2023.

Vying for the wooden spoon are Japan and Italy, with Japan continuing a long period of low growth and a slower recovery from the pandemic than the others to average 0.4% a year (-4.5%, +1.6%, +2.4%, +2.3%). Italy secured the bottom position by virtue of being hit hardest by the pandemic and having less of a rebound than others (-9.0%, +6.6%, +2.3%, +1.7%), a net average growth rate of 0.2% over the four-year period.

For those that follow this particular league table, there is a hope that slightly stronger growth than the IMF has forecast could move the UK up one or two places above France and/or Germany. However, the bigger concern for most of us is about the downside risks to the global and UK economies from the war in Ukraine, rampant inflation, and a global cost of living crisis. These may put back even further any hope of returning the UK and other developed economies to a pre-financial crisis path of moderate economic growth.

This chart was originally published by ICAEW.

ICAEW chart of the week: US proposed federal budget 2023

Our chart this week illustrates the $5.8tn federal budget for the 2023 fiscal year proposed by President Biden to Congress for approval – a process that will not be straightforward.

Chart illustrating the 2023 US federal budget proposal.

Receipts $4.6tn + Deficit $1.2tn = Outlays $5.8tn.

Receipts comprise social security $1.5tn, income taxes $2.3tn, corporate taxes $0.5tn and other $0.3tn.

Outlays comprise welfare $3.7tn (social security $1.3tn, healthcare $1.4tn, veterans $0.2tn, income security $0.8tn), net interest of $0.4tn and federal government spending of $1.77tn (defence $0.8tn, non-defence $0.9tn).

The US Office for Management and Budget (OMB) has just published President Biden’s proposal for the Budget of the United States Government, Fiscal Year 2023, which commences on 1 October 2022.

Federal spending proposed of $5.8tn comprises $3.7bn of ‘mandatory’ spending, primarily on welfare programmes, $0.4tn on debt interest, and $1.7tn of ‘discretionary’ spending. Welfare spending includes $1.3tn on social security, $1.4tn on healthcare (Medicare and Medicaid), $0.2tn on support to veterans, and $0.8tn on income security and other programmes.

This is a $60bn reduction from the $5.9tn forecast for the current financial year ending on 30 September 2022, with increases in social security ($99bn), Medicare and Medicaid ($67bn), interest ($39bn) and defence ($29bn), offset by a reduction of $280bn in income security (primarily pandemic support) and $14bn in non-defence departmental spending. This compares with the $6.8trn spent in the fiscal year ended 30 September 2021 at the height of the pandemic.

Receipts are forecast at $4.6tn, comprising social security payroll taxes of $1.5tn, federal income taxes of $2.3tn, corporate taxes of $0.5tn, and other taxes $0.3tn, resulting in a deficit of $1.2tn to be funded by borrowing.

Receipts are forecast to be $201bn higher than the $4.4tn forecast for the current financial year, with social security receipts up $64bn, income taxes up $82bn and corporate taxes up $118bn, offset by a fall of $63bn in other receipts. This primarily relates to economic factors as the US emerges from the pandemic but, as has been publicly reported, also involves higher taxes on ‘billionaires’, among other tax measures.

With pandemic income security and furlough programmes no longer required, the deficit has fallen from $2.8tn in 2021 to $1.4tn in the current year and a proposed $1.2tn in the next, before increasing to $1.8tn in 2032, reflecting increases in both receipts and spending over the coming decade.

The budget documents prepared by the OMB focus in particular on the major plans to improve infrastructure embodied in the bipartisan Infrastructure Investment and Jobs Act 2021, as well as further investment in defence, in lowering health and social care costs for individuals, in improving housing, pre-school and college education, and in reducing energy costs by combating climate change. The OMB suggests that there is some prudence in the budget given the uncertainties about whether proposed tax rises will obtain political support from within Congress, with an indication that this will be used to reduce the federal deficit even further if all the proposed tax rises are enacted into law.

For President Biden, this is his last budget proposal before the mid-term elections in November, when there is a possibility that the Democrats might lose control of one, or even both, houses of Congress. This makes it particularly important to his ability to deliver his domestic agenda.

This chart was originally published by ICAEW.

ICAEW chart of the week: Government borrowing rates

Our first chart of 2022 highlights how the cost of government borrowing remains extremely low for most of the 21 largest economies in the world, despite the huge expansion in public debt driven by the pandemic.

Government 10-year bond yields: Germany -0.13%, Switzerland -0.07%, Netherlands 0.00%, Japan 0.09%, France 0.23%, Spain 0.60%, UK 1.08%, Italy 1.23%, Canada 1.59%, USA 1.65%, Australia 1.79%, South Korea 2.38%, China 2.82%, Poland 3.87%, Indonesia 6.38%, India 6.51%, Mexico 8.03%, Russia 8.38%, Brazil 10.73%, Turkey 24.21%.

Our chart of the week illustrates how borrowing costs are still at historically low rates for most of the 21 largest national economies in the world, with negative yields on 10-year government bonds on 5 January 2022 for Germany (-0.13%) and Switzerland (-0.07%), approximately zero for the Netherlands, and yields of sub-2.5% for Japan (0.09%), France (0.23%), Spain (0.60%), the UK (1.08%), Italy (1.23%), Canada (1.59%), the USA (1.65%), Australia (1.79%) and South Korea (2.38%).

This is despite the trillions added to public debt burdens across the world over the past couple of years as a consequence of the pandemic, including the $5trn added to US government debt since March 2020 (up from $17.6trn to $22.6trn owed to external parties) and the more than £500bn borrowed by the UK government (public sector net debt up from £1.8trn to £2.3trn) for example.

Yields in developing economies are higher, although China (2.82%) and Poland (3.87%) can borrow at much lower rates than Indonesia (6.38%), India (6.51%), Mexico (8.03%), Russia (8.37%) and Brazil (10.73%). The outlier is Turkey (24.21%), which is experiencing some difficult economic conditions at the moment. Data was not available for Saudi Arabia, the 19th or 20th largest economy in the world, which has net cash reserves.

With inflation higher than it has been for several years, real borrowing rates are negative for most developed countries, meaning that in theory it would make sense for most countries to continue to borrow as much as they can while funding is so cheap. However, in practice fiscal discipline appears to be reasserting itself, with Germany, for example, planning on returning to a fully balanced budget by the start of next year and the UK targeting a current budget surplus within three years.

For many policymakers, the concern is not so much about how easy it is to borrow today, but the prospect of higher interest rates multiplied by much higher levels of debt eating into spending budgets just as they are looking to invest to grow their economies over the rest of the decade. Despite that, with the pandemic still raging and an emerging cost of living crisis, there may well be a temptation to borrow ‘just one more time’ to support struggling households over what is likely to be a difficult start to 2022.

This chart was originally published by ICAEW.

ICAEW chart of the week: US Infrastructure & Jobs Act

My chart this week looks at the $550bn of incremental funding over five years allocated by the US Infrastructure & Jobs Act just passed by Congress.

Chart showing $550bn in incremental investment over five years, with $110bn allocated to roads & bridges, $66bn railroads, $65bn power grid, $65bn broadband, $63bn water, $47bn resilience, $39bn public transit, $25bn airports, $21bn environment, $17bn ports, $15bn electric vehicles and $11bn safety.

The $1.2tn US Infrastructure & Jobs Act authorises $550bn in incremental spending over five years on top of existing infrastructure investment planned by the federal government on highways, railroads, electricity networks, water, public transit, airports, and ports across the US. Passed by Congress with some bipartisan support it aims to renew the nation’s infrastructure and stimulate the economy as the US emerges from the pandemic.

The White House describes the Act as delivering “no more lead pipes, high-speed internet access, better roads and bridges, investments in public transit, upgraded airports and ports, investment in passenger rail, a network of electric vehicle chargers, an upgraded power infrastructure, resilient infrastructure, and investment in environmental remediation.”

The incremental spending can be broken down as follows:

$110bn for roads and bridges – rebuilding the crumbling highway network, transportation research, funding for Puerto Rico’s highways, and ‘congestion relief’ in American cities
$66bn for railroads – upgrades and maintenance of the passenger rail system, and freight rail safety
$65bn for the power grid – investment in power lines and cables, and in clean energy
$65bn for broadband – expanding broadband in rural areas and low-income communities, including $14bn to reduce internet bills for low-income citizens
$63bn for water infrastructure – including $15bn for lead pipe replacement, $10bn for chemical clean-up, and $8bn for water facilities in the western half of the country to address ongoing drought conditions.
$47bn for resilience – a Resilience Fund to protect infrastructure from cybersecurity attacks and address flooding, wildfires, coastal erosion, and droughts along with other extreme weather events
$39bn for public transit – upgrades to public transport systems nationwide, new bus routes, and public transport accessibility for seniors and disabled Americans
$25bn for airports – major upgrades and expansions at airports, including $5bn for air traffic control towers and systems
$21bn for the environment – to clean up polluted ‘superfund’ and other brownfield sites, abandoned mines, and old oil and gas wells
$17bn for ports – half to the Army Corps of Engineers for port infrastructure, with the balance to the Coast Guard, ferry terminals, and to reduce truck emissions at ports
$15bn for electric vehicles – including $7.5bn on electric vehicle charging points, $5bn for bus fleet replacement in low-income, rural, and tribal communities, and $2.5bn for zero- and low-emission ferries
$11bn for safety – mostly highway safety improvements, but also for pedestrian, pipeline, and other safety areas

The plan was for a combination of tax rises, economic returns on the investments made and savings from other areas (including unused pandemic-relief) to fully cover the cost of these investments, however, many of the proposed tax increases did not make it to final bill and the independent Congressional Budget Office (CBO) estimates that there is less unused pandemic-relief available than originally thought. The CBO estimates that the fiscal deficit will be $350bn higher over the next five years.

The Act is the economic infrastructure element of President Biden’s “Build Back Better Framework”, with the separate $1.75tn Build Back Better Bill covering social infrastructure (including more than a million homes for low-income families) and large amounts for social programmes. These include universal pre-school for three- and four-year olds, free community college, expanded healthcare through Medicare (for over 65s) and Medicaid (for low-income families), lower prescription drug costs, tax cuts for children and childcare support, and paid family leave. There is also some money for tax cuts for electric vehicles and other climate incentives, although more ambitious plans such as forcing utilities to phase in renewable energy are believed to be less likely to make it into the final legislation. The Build Back Better Bill does not have bipartisan support and so requires all 50 Democrats in the Senate and almost all the Democrats in the House of Representatives to agree if it is to pass.

Whether the other elements of the Build Back Better Framework come to fruition remains to be seen, but President Biden will definitely be pleased that he can chalk up this major legislative achievement.

This chart was originally published by ICAEW.

ICAEW chart of the week: G7 economies

Our chart this week illustrates how in representing more than half of the world economy, decisions taken by the G7 can have a significant impact on the entire planet.

The G7 summit hasn’t formally started yet, but Group of Seven (G7) ministers and their guests have already started to meet ahead of the main event next month, albeit subject to quarantine restrictions.

The #icaewchartoftheweek illustrates how important this gathering is by highlighting how the seven major democratic nations and the European Union that together comprise the G7 represent more than half the global economy – and even more than that, once four invited guest nations are included.

Circular 'sunburst' chart showing G7 nations (USA, Japan, Germany, UK, France, Italy and Canada plus remaining EU nations), G7 guest nations (India, South Korea, Australia and a spoke for South Africa) and the rest of the world (China, Russia and Brazil followed by all the rest).

Overall, the G7 economies are forecast by the IMF to generate £35.9tn of economic activity in 2021 at current prices, 54% of forecast global GDP of £66.8tn. This comprises the economies of seven individual member nations: the USA (£16.3tn), Japan (£3.8tn), Germany (£3.1tn), the UK (£2.2tn), France (£2.1tn), Italy (£1.5tn) and Canada (£1.3tn), together with the 24 other EU member states (£5.6tn).

The guests invited to the 47th G7 summit in Cornwall are expected to generate a further £4.9tn or 7% of global GDP in 2021, bringing the total economic activity represented at the summit to £40.8tn or 61% of the total. They are India (£2.2tn), South Korea (£1.3tn), Australia (£1.2tn) and South Africa (£0.2tn).

Not represented at the G7 are China (£12.2tn), Russia (£1.2tn) and Brazil (£1.1tn) and around 160 other nations across the globe (£11.5tn in total).

The G7 summit presents an opportunity for the 11 national leaders and 2 EU representatives involved to shape the direction for much of the world, with discussions expected to range from saving the planet through to transparency in financial and non-financial reporting.

This chart was originally published by ICAEW.