The year will change on 31 but the course will not improve until well into spring and although a notable advance is expected, it is possible that it also knows little after a year as devastating as the one we left behind
We will have a pandemic in 2021 due to the lack of control of infections, hospitalizations and deaths at the end of year of the COVID, in addition to the closures of geographic areas. Although it is expected that at some point the vaccine will reach all corners, the disease will continue to be the first economic variable for months.
President-elect Joe Biden said the past 22 December that the “darkest” days in the battle against COVID are “ahead of us, not behind.”
How COVID is managed will be decisive in how it is rebuilt or built. Exiting the economic hole will be the matter of many more months, perhaps years in which the next challenge will be climate change.
Economists do not trust immediate improvements in the US given how it closes 2020 and indeed they are expecting a very bad entry into the new year, in line with Biden’s advisory regarding the health issue. And that counting on the highly anticipated (for months) fiscal stimulus.
The one approved by Congress on 21 December lacks the ambition to deal with a crisis that is the gravest since the Great Depression and has revealed the grotesqueness of social inequalities. But it can be a bridge of transition to new aid that will depend a lot on the elections in Georgia on January 5, since since the CARES Act was approved the 27 of March unanimously, the Republican majority has been very reluctant to join the task of revitalizing a semi-paralyzed economy.
On January 5, Republicans will stake the majority in the Senate. If the Joe Biden government loses it, it will have a better chance of taking measures to alleviate the crisis.
The composition of the Biden government suggests that strong fiscal support is favored. In fact, when he welcomed the $ 900 fiscal support package, 000 million just approved, the president-elect clarified that more has to be done than that.
Avoiding further deterioration is also essential so that the economy can be relaunched with more force in the middle of the year, which is something that it is expected to be achieved when the vaccine is more universalized.
But it should be noted that this does not mean that all lost jobs and all income will be immediately recovered that evaporated, the business plans that fell apart and the bills that have been left unpaid.
Wall Street banking economists count on the effects of the vaccine and more stimuli when forecasting an improvement in the economy between 5% and 6% at the end of the year, a significant change given the contraction expected by the IMF of 4.4% for 2020.
The economists of IHS Markits believe that a stimulus or recovery injection of more than $ 900, 000 could raise GDP by 5%, but without it and if there are more closures to contain the latest rise in contagion, real GDP will hardly be able to take off beyond 3% and with risks.
But this growth it won’t bring a shower of jobs. A report by economists published by Bankrate indicates that the expectation is that unemployment will be high in 2021 with a rate around 6%. If the active population that has been reduced during the crisis (those who work and those who actively seek employment) does not rise, even that 6% is worse than it seems.
Therefore, there is more investment and public support, including that provided by the Federal Reserve with low interest rates and money flowing. It is something that has given wings to investors who enjoy rises in the stock markets that seem to reflect the economy of another planet.
The Federal Reserve itself is more moderate in its forecasts, growth of no more than 4% and an unemployment rate of around 5.5% are expected. In November it was 6.7%.
The president of the monetary authority, Jerome Powell, who has been advocating all he could for a major economic stimulus, does not believe that rates will be raised again and interest above 0% where they are before 2023.
Oxford Economics analysts expect private activity to see an advance in 2021 but they do not believe that all areas will benefit equally.
Beyond COVID, 2021 is the year in which Donald Trump leaves the government and it is expected not only a greater intervention as was done after the Great Depression and the Great Recession, but also the removal of the obstacles such as import tariffs (a tax for intermediate consumers and final) have put development.
In his year-end report Gregory Daco, from Oxford Economics thinks that Biden “will bring more certainty but free trade will not return.” For this economist the risks are in an excess of fiscal austerity and the debt of the private sector, but he points out as opportunities the digital transformation, the improvement of tourism, and an open position in the face of immigration and the threat of climate change.