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Why America's Economy Is Soaring Ahead of Its Rivals

The US economy is outperforming its global rivals due to a strong dollar, significant GDP growth, and faster productivity gains, particularly in the tech sector. While the US has rebounded quickly from the pandemic and is less affected by geopolitical issues like the war in Ukraine, it faces challenges such as income inequality and rising federal debt. Despite these issues, the US continues to attract substantial investment and maintain its economic leadership over advanced economies.

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28 views2 pages

Why America's Economy Is Soaring Ahead of Its Rivals

The US economy is outperforming its global rivals due to a strong dollar, significant GDP growth, and faster productivity gains, particularly in the tech sector. While the US has rebounded quickly from the pandemic and is less affected by geopolitical issues like the war in Ukraine, it faces challenges such as income inequality and rising federal debt. Despite these issues, the US continues to attract substantial investment and maintain its economic leadership over advanced economies.

Uploaded by

khushi.mehra
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Why America’s economy is soaring ahead of its rivals

With the recent strengthening of the US dollar against most global currencies, the American
economy appears to be unmatched when compared to other advanced economies, such as those
in Europe, as well as countries like Japan, China, and South Korea. Concerns about a potential
recession, which have been prevalent for some time, have largely subsided, and global
investors are increasingly placing significant bets on the US markets.

Since the end of 2019, the US GDP has grown by 11.4%, and in its latest forecast, the IMF
projected a growth rate of 2.8% for this year. While last month’s US election unfolded against
the backdrop of a cost-of-living crisis, the country’s recent economic performance has been the
envy of the developed world.

Several factors contribute to this success. The US has been less impacted by the war in Ukraine
compared to Europe, thanks to its abundant domestic energy resources. Additionally, it has
rebounded more quickly from the COVID-19 pandemic than some G7 nations. However, the
foundation of its impressive growth lies in faster productivity gains—a more sustainable driver
of economic performance over the long term.

Labour Productivity

Labour productivity has been a key catalyst for the American economy to surge ahead of its
peers especially after 1990’s with the tech industry playing a huge role in it.

Since the 2008-09 financial crisis, US labour productivity has surged by 30%, over three times
the rate of growth in the Eurozone and the UK. This persistent productivity gap is reshaping
the global economic hierarchy.

Since the pandemic, the Eurozone's economic growth has been just one-third of the US's, with
output expected to grow by only 0.8% this year, according to the IMF. Similarly, Japan and the
UK have seen modest growth of just 3% over the past five years. Canada's labour productivity
has contracted in 14 of the past 16 quarters and remains 1.2% below its pre-pandemic level.

This prolonged “productivity malaise” since the global financial crisis has been attributed to
weak investment and slow adoption of new technologies.

In contrast, the US continues to outpace nearly all advanced economies in productivity growth,
leaving many others trapped in a cycle of low growth, declining living standards, fiscal
pressures, and diminished geopolitical influence.

A major differentiator for the US is its strength in the tech sector, which has significantly
bolstered productivity. Without the tech sector, EU productivity growth over the past two
decades would have been roughly on par with the US. This comes on the back of huge R&D
investment.

R&D Investment

The global landscape of R&D spending is increasingly dominated by the software and
computer services sector, now surpassing pharmaceuticals, tech hardware, and automobile
manufacturing as the top destination for investment. This sector is led primarily by large US
companies.

Over the past decade, the US has accounted for 83% of venture capital funding within G7
countries. Additionally, it has attracted 14.6% of the world’s greenfield foreign direct
investment in the first 10 months of 2024, a record high. By contrast, Germany's share of global
FDI has fallen to its lowest level in 18 years.

China is the only other major economy making significant progress in tech R&D. With R&D
spend around 2.65% of GDP while Eurozone’s GDP spend was 2.22% of GDP. But the US is
far ahead of both with R&D spending coming up to 3.4% of the GDP.

Conclusion

Despite its economic strength, the US faces significant challenges, including the highest
income inequality among G7 nations, the lowest life expectancy, and the highest housing costs,
according to OECD data. Limited market competition and widespread unstable employment
conditions further exacerbate these issues.

The potential return of a Trump administration has raised concerns among economists, policies
such as tariffs and migrant deportations could deter much needed investment.

Additionally, rising federal debt poses a long-term economic risk as an increasing share of
GDP will be devoted to paying interest on the federal debt. It will be a drain on funds that could
otherwise support investment. Analysts also caution that heightened inflationary pressures
could further discourage investment.

Despite these challenges, the U.S. economy remains well ahead of its peers and shows no signs
of slowing down. This presents a critical moment for other advanced economies, which must
reassess their economic policies to avoid potentially severe consequences.

Link to original FT Article: https://www.ft.com/content/1201f834-6407-4bb5-ac9d-18496ec2948b

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