BlackRock Investment Institute

Macro insights

The long return to trend

Global activity should return to its pre-Covid level next year – sooner than expected at the end of the first quarter, we believe. We view the Covid shock as similar to a natural disaster, to be followed by a quick rebound. News of effective vaccines shows it is possible to build a bridge to a post-pandemic world. Better anchoring of expectations and appropriate policy support should help limit economic scarring. If this happens – despite accelerated structural change – the global economy should be able to avoid a decade-long deleveraging cycle with declining trend growth as we saw after the global financial crisis, in our view.

U.S. nominal GDP and projection, 2019-2025

Sources: BlackRock Investment Institute and Bloomberg, December 2020. Notes: The green line shows actual nominal U.S. GDP in trillions of dollars. The yellow line shows the most bearish of the latest consensus forecasts compiled by Reuters. The dotted line shows the pre-Covid growth trend. There is no guarantee that any forecasts made will come to pass.

U.S. activity could return to its pre-Covid peak before the end of 2021, in our view. Getting back to the pre-Covid trend – key to limiting the cumulative loss in GDP to a fraction of the GFC – will likely take longer. See the chart. The most bearish consensus forecasts show it will likely take until the end of 2025 for nominal GDP to reach its pre-Covid trend. Yet the discrepancy with the pre-Covid trend may become negligible by as soon as late 2023. 

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