BlackRock Investment Institute

Macro insights

Tracking the restart

Vaccine rollouts and the ensuing economic reopening hold the key to shaping the restart. Improving virus and vaccine dynamics should pave the way to a strong consumer-led resumption of activity, in our view.

Evening out

Chart showing GDP paths

Sources: BlackRock Investment Institute, with data from Refinitive Datastream and Haver Analytics, April 2021. Notes: The chart shows the actual (solid lines) and projected paths (dotted lines) of real GDP. Projections are based on the latest available Reuters consensus estimates and include the estimated impact of U.S. fiscal stimulus and European lockdown restrictions.

We see the staggered restart across countries evening out global growth over time as vaccines are rolled out more broadly. The roll-out has been faster than expected in the U.S. and UK. The pace in the euro area is poised to accelerate after a sluggish start. Vaccinations are also picking up in China, where tight management of outbreaks has kept infection rates low. These dynamics translate into a staggered restart in activity around the globe. See the chart. GDP in China already returned to its pre-Covid trend at the end of 2020.

A broad-based revival of consumer spending will underpin the ongoing staggered restart. Consumer spending still remains far short of pre-pandemic levels, with shortfalls of around 20% in some U.S. sectors such as hospitality. We see three drivers boosting consumer spending in coming months. First, reopening will allow pent-up consumer demand to unwind, in particular in the U.S. where it is further strengthening the labor market. Second, we expect the savings rate to normalize as the pandemic-induced hard stop to consumer spending ends. And finally, we see the excess savings accumulated during lockdowns to further fire spending capacity.

The unprecedented monetary and fiscal policy Support helped minimize permanent economic scarring, allowing businesses to open as restrictions are eased. The accelerated restart –is confirming our view that the cumulative loss from the Covid shock will be far smaller than was feared a year ago – and only a fraction of the loss following the global financial crisis (GFC). Current estimates peg the cumulative loss at around 8% in the U.S. and just under 20% in the Euro area. This is less than one-fifth of the losses from the GFC.

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