The outlook continues to be clouded by COVID-19, but a team of economists at the University of Michigan sees encouraging signs that could bring economic life back to near normal by the end of 2021.
However, a lot will depend on how easily a vaccine will be available by next summer.
The U.S. Annual Economic Outlook, released Thursday morning, said real gross domestic product is expected to rise 4.2% in 2021.
Real GDP is expected to decline 3.6% year-on-year in 2020, according to MU’s forecast.
âRegardless of what happens in the short term with the virus, I think the recovery will be quite vigorous once we have a large deployment of a vaccine,â said Daniil Manaenkov, US forecasting specialist for the research seminar. UM in quantitative economics, in a statement.
The negative risks, he argued, are mostly short-term and can only influence the timing of the recovery.
“But then again,” he said, acknowledging the shocking disruption of the economy in 2020, “it could be our own fatigue from predicting gloomy words.”
The forecast was prepared by Manaenkov and MU economists Jacob Burton, Gabriel Ehrlich, Tereza Ranosova and Aditi Thapar.
UM forecasts assume that a vaccine will be available to frontline workers by early 2021, with wider availability by next summer.
What’s new this winter?
The US recovery is expected to continue through the winter at a slower pace, but not necessarily across the country. Continued strong growth in warmer states could dominate a potential economic contraction in cooler northern states, which will likely impose restrictions to deal with seasonal spikes in new cases and hospitalizations in winter.
Michigan, for example, launched a three-week hiatus on Wednesday that restricts many activities, including temporarily closing indoor meals and ending in-person classroom instruction at high schools and colleges.
Researchers at the University of Michigan are expected to release their economic forecast for Michigan on Friday.
What are the others planning?
UM’s appeal is close to the point of view of economists elsewhere.
Moody’s economist Mark Zandi, for example, predicts that real GDP will decline 3.6% this year and increase 4.1% in 2021. Zandi said his assumptions are based on adopting a plan. $ 1.5 trillion budget bailout in February 2021 and a coronavirus vaccine. which could be widely released by mid-2021.
The depth of the COVID-19 recession in early 2020 – and the unknowns associated with the pandemic – create far less certainty when it comes to economic forecasts. It’s unclear, for example, whether the U.S. economy would head into a double-dip recession if the rise in new COVID-19 cases sharply reduced economic activity this winter.
“We expect to go through the next few quarters with positive momentum, but we recognize that the effects of a double-dip recession in the United States could be particularly damaging, reinforcing long-term changes in the behavior of individuals and businesses.” , according to a report. published by Comerica Chief Economist Robert Dye.
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“Tightening social mitigation policies will hurt European economies. The Bank of England expects a double-dip recession in the UK. The European Central Bank fears a similar outcome for the European Union,” notes the Comerica report. Comerica economists forecast real GDP growth of 3.8% in 2021 and a decline in year-on-year GDP growth of 3.6% in 2020.
Where does UM see signs of hope?
Encouraging signs include strong home sales, remarkable growth in the third quarter and strong demand for new cars and trucks.
On housing, the available supply of homes for sale has not kept up with demand, according to the UM report. Due to supply shortages, housing starts rebounded strongly over the summer to reach 11% year-over-year growth in September.
The overall US economic recovery so far has been bifurcated, as some groups are doing very well while others are not.
“The burden of this recession has been distributed extremely unevenly,” according to the UM report.
Who is still in pain?
The highest-income consumers, noted the UM researchers, who typically buy new cars and trucks have been protected from job and income losses. Many well-paying jobs did not lose their pay during the last recession because they were able to work from home as social distancing measures were put in place to combat the spread of the coronavirus.
Those who were able to continue working may have benefited from historically low interest rates and a rebound in the stock market.
Low-wage workers in restaurants, hotels, bowling alleys, movie theaters and elsewhere in the service sector of the economy have felt much more financial hardship. They paid the price for the first try without a job.
âUnfortunately, a more complete recovery and the return of jobs in the service sector will have to wait until 2021,â the report said.
What are the major trends to come?
The UM forecast gives a snapshot of what consumers can expect in terms of job prospects, car sales, mortgages and other factors. Here is an overview:
A new hope of recovery in V. Growth in the third quarter of 2020 at a quarterly rate of 7.4% was overwhelmingly positive and shattered most expectations, UM forecasters noted, providing a basis for future growth.
Slow growth ahead in some areas. Investment in intellectual property is expected to remain stable in 2020 and slow growth is forecast for 2021, reflecting lower spending in the entertainment industry. Challenges remain linked to research and artistic production.
More people will work. UM forecasts indicate that the US unemployment rate is expected to decline slowly and steadily from 6.9% in October to 5.6% by the end of 2021. The unemployment rate in the United States is expected to decline. United States to 5.1% by the end of 2022.
Mortgage rates could increase slightly. The conventional 30-year fixed rate mortgage could reach 3.1% by the end of 2022, compared to the 2.8% expected in early 2021. Low interest rates will continue to stimulate the housing market.
Sales of cars and trucks are accelerating. Sharp declines in the first half of 2020 led to a slowdown in sales of light vehicles to 14.5 million in 2020. But sales of cars and light trucks are expected to reach 16.3 million vehicles in 2021 and 16.7 million in 2022. .