BlackRock Investment Institute

Macro insights

The path of the U.S. Covid-19 rebound

Positive news on Covid vaccines has boosted the outlook for the activity restart in 2021, yet near-term headwinds have grown. Rising infection rates and tighter restrictions in the U.S. are accompanied by growing risks of a premature end to key support measures. The economic restart could stutter in the near term – but activity should rebound by mid-2021 as effective vaccines become widely available, in our view.

U.S. GDP and GDP forecasts, 2019-2022

Sources: BlackRock Investment Institute, Refinitiv, with data from Haver Analytics, November 2020. Notes: The solid orange line shows the path of real GDP, indexed to 100 in the fourth quarter of 2019. The dotted orange line shows the implied level of GDP based on our estimate of restriction measures in coming quarters. The yellow dotted line shows the consensus expectation of real GDP as of April 2020, immediately after lockdown measures were first introduced.

Our estimate of tighter U.S. restriction measures points to a mild contraction in Q1 2021. A contraction would be especially likely if there is no additional fiscal stimulus agreed before year-end. There is a rising risk of permanent scarring if fiscal support is not extended. But we should see a more pronounced rebound in activity through the middle of 2021 as vaccines enable a broad restart. The political case for further fiscal support such as furlough programs is also boosted by vaccines – as policy makers now know they are building a bridge to somewhere.

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