Economic Outlook for 2021
S&P Global expects real GDP to grow a modest 3.9% in 2021 (Global Economic Outlook). The expectation is that once the virus containment measures are lifted, and the virus is defeated, the economy will rebound sharply. The analysts do not believe that the US and global economy will take a V-shaped recovery unless big spending is taken on vaccination and infrastructure. W-shaped recovery is more likely, as Covid-19 clusters will keep appearing intermittently in different places, and tremendous public health resources will be spent on completely wiping out the virus, which altogether will slow down the global GDP growth. For instance, S&P Global states that the U.S. should be prepared for 18 months of rolling lockdowns as parts of the economy open and close (Global Economic Outlook). Yet, S&P Global expects US real GDP to grow a modest 4.0% in 2021 with the assumption that recently announced Biden’s 1.4 trillion stimulus package is implemented, adding to the recently approved Trump’s administration’s stimulus package (Global Economic Outlook). Yet, the stimulus package alone cannot fully guarantee that growth, as due to the Covid-19 lockdowns and rising unemployment rates, consumer spending will remain low. FED will be compelled to keep maintaining low interest rates, which will drive more investment into the markets rather than consumer spending. However, some sectors such as IT, cryptocurrency, and healthcare have thrived during the pandemic, despite the GDP contraction of 3.9% over the last year, and S&P 500 finished 2020 with a gain of 16.26%. Stimulus packages like the one offered by the Biden administration might be great news for the markets, spurring higher returns on these already well-performing segments. However, to achieve a full recovery for the global economy and further drive economic growth, additional multipliers will be needed.
First and foremost, the full recovery of the economy will strongly depend on how the states around the world will deal with the virus. It is essential that the states globally implement large numbers of Covid-19 vaccines to reach herd immunity for the populations by Q4 2021. Only with the reduction in the number of Covid-19 cases and so increased in-person interaction and services will the economy be able to start returning to the pre-pandemic normalcy, possibly in mid-2021. One such country is Canada, which is ahead of the game in deploying a large number of vaccines compared to the rest of the world and hopes to get the majority of the population immunized by April 2021. Therefore, Canadian GDP is expected to grow at 5.3% in 2021, which is stronger than the US expectations of 4% (Global Economic Outlook).
Second, multipliers for economic growth never come from creating an excessive budget deficit. Spending programs and monetary policy, such as those targeting reducing unemployment, boosting productivity, expanding consumer purchasing power, and maintaining optimal inflation and exchange rates, are likely to guarantee the most effective V-shaped economic recovery. The 1.3 trillion ten-year investment in infrastructure and the goal of health insurance coverage for 97% of Americans in 10 years by the incoming Biden administration are examples of such spending programs. The investment in infrastructure and healthcare would, over the long run, provide the productivity boost needed to help get the expansion back on track and reduce the unemployment rates, in conclusion spurring further consumer spending and so increasing inflation rates. Indeed, as predicted by S&P Global, the productivity boost from the infrastructure investment could generate a net 713,000 jobs on the books by 2029 and increase per capita personal income by $2,400 (Global Economic Outlook).
Third and lastly, the outcome of the 2020 US Presidential Election has profound implications for the next decade’s world economy. It remains uncertain how the incoming Biden administration can repair the political and ideological discord at home. However, with Democrats in control of the House of Representatives, the Senate, and the presidency, the analysts predict that the new administration will restore the policy practices by the Obama administration, resulting in an American return to transatlanticism and internationalism on the global stage in 2021, both economically and politically.
