Economics Weekly: U.S. Economic Outlook 2021

Friday, December 4, 2020

It is fairly safe to say that real GDP growth in 2021 will be significantly better than that in 2020, a year that was dominated by two major events—the COVID pandemic and the contested U.S. elections.

The exogenous shock of COVID-19 was unexpected by just about all, with the worst of its economic impact taking place during the second quarter of the year, which resulted in a still-surreal 31.4% (annualized) plunge in GDP. While the NBER—the official arbiter of recession dates—has yet to declare the end of the recession that began in March, its peak-to-trough rule shows the trough was reached in April. This would mean that this was by far the shortest recession on record and breaks the old rule of thumb about two quarters of negative GDP growth.

Meanwhile, with the exception of the Senate run-off races in Georgia on January 5, the election now seems to be over, with the Democrats victorious in the White House but finding themselves disappointed with the Senate and the House of Representatives outcomes. The result of this election has not presented the Democrats with an overwhelming and convincing mandate for the kind of changes that many had hoped for. Hence, in the absence of a “blue wave,” it will be significantly harder for the Biden administration to achieve many of its preelection goals.

In this Economics Weekly, we run through the outlook for growth in the coming year, with the view that the expansion will almost certainly be much greater than in 2020, given the easy comparison, the emergence of a vaccine, fiscal stimulus, still easy monetary policy, and continued low inflation, in addition to significant savings stored up by U.S. consumers. Meanwhile, we also believe there might be some good news with respect to longer-term potential growth as we emerge from this crisis with a more flexible economy than we entered it and have witnessed significant improvements in productivity growth. In short, there are many reasons to be optimistic as we put 2020 to bed and look ahead to 2021.

For a copy of this report or to subscribe to the Economics Weekly or Economic Indicators reports, please contact your William Blair representative.

Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.

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