June 18, 2025

The Hutchins Roundup brings the latest thinking in fiscal and monetary policy to your inbox. Have something you'd like us to include in the next Roundup? Email us and we'll take a look.

This edition was written by Sarah Ahmad, Emily Araujo, Alex Conner, Chase Parry, and David Wessel. 

Chinese growth numbers more reliable post-COVID

William Barcelona and co-authors of the Federal Reserve Board construct an alternative measure of GDP growth for China, finding that recent official growth estimates, which hover around China’s 5% growth target, do not appear to be overstated. After the Great Financial Crisis, officially reported growth in China became unusually smooth—between 2014 and 2019 the variance in the growth rate was almost zero—and growth became less correlated with related indicators like industrial production, retail sales, or the authors’ alternative GDP measure. The authors show that this trend reversed during COVID; official growth is now as volatile as that of other nations and tracks related indicators, including the alternative GDP measure, much more closely. The authors argue that strong production and exports has kept up growth in China, despite the turmoil in the property market.

Industrial policy in wealthier nations is growing and focuses on export promotion

Réka Juhász of the University of British Columbia and co-authors use a machine learning model to classify industrial policy as described by the text of government policy statements. They define industrial policy as “deliberate government action with the purpose of altering the composition of the domestic economy” and find that it is on the rise. The authors also find that, contrary to some expectations, industrial policy is more often employed by wealthier states and especially utilized within industries when a country holds a comparative export advantage. Additionally, contemporary industrial policy is dominated by subsidies and export-oriented measures, often in the form of trade financing. These policies are utilized almost ten times more often than tariffs.

Default risk increased less in 2025 debt limit episode than in past crises

Using data on credit default swap (CDS) markets from the recent 2024-2025 debt ceiling episode, Luca Benzoni and Marisa Wernick from the Federal Reserve Bank of Chicago find the default risk in the CDS market was lower as the government approached the statutory debt ceiling in 2024-5 than in early episodes. For example, the probability of default peaked at 1.2% in April 2025, compared to 6% in 2011 and 4% in 2013. The authors note that while the CDS market is smaller in size and largely inactive, it is useful to determine the risk of a technical default—when payments are delayed for a short period due to hitting the statutory debt limit.

Unemployment rate for young people with a Bachelor's degree is rising

Chart courtesy of the Wall Street Journal

Quote of the week

"We are witnessing a profound shift in the global order: open markets and multilateral rules are fracturing, and even the dominant role of the US dollar, the cornerstone of the system, is no longer certain. Protectionism, zero-sum thinking and bilateral power plays are taking their place. Uncertainty is harming Europe’s economy, which is deeply integrated in the global trading system, with 30mn jobs at stake," says Christine Lagarde, President of the European Central Bank. 

"But the shift under way also offers opportunities for Europe to take greater control of its own destiny and for the euro to gain global prominence. At present, the euro is the world’s second most-used currency, accounting for 20% of global foreign exchange reserves, compared with 58% for the US dollar.

Increasing the euro’s global status would bring tangible benefits: lower borrowing costs, reduced exposure to currency fluctuations and insulation from sanctions and coercive measures.

But such a step towards greater international prominence for our currency will not happen by default: it must be earned. As in previous periods, today’s concerns about the dominant currency are not yet triggering a major shift towards alternatives. Instead, they are reflected in a rising demand for gold. For the euro to reach its full potential, Europe must strengthen three foundational pillars: geopolitical credibility, economic resilience, and legal and institutional integrity."

Join us for an event

The Hutchins Center on Fiscal and Monetary Policy invites you to watch the livestream of  "The House Financial Services Committee agenda: A conversation with Representative French Hill (R-Ark.)" on Monday, June 23, 2025 from 1:30 pm to 2:30 pm.

About the Hutchins Center on Fiscal and Monetary Policy at Brookings

The mission of the Hutchins Center on Fiscal and Monetary Policy is to improve the quality and efficacy of fiscal and monetary policies and public understanding of them.