Overall, global gross domestic product is forecast to decline by 4.4% this year, ... (2020-25). This is partially because of the massive savings that occurred early in the pandemic, when even the unemployed increased savings.5 And job creation, although slowing, is still large enough to add to incomes—and to support consumer spending. Accessed Dec. 22, 2020. This toxic backdrop is derailing the US economic recovery just as Joe Biden prepares to … This forecast does not take into account government efforts to increase renewable energy production in an effort to stop global warming. In March, many businesses expected to shut down or change operations for a few weeks or, at worst, months. Kimberly Amadeo has 20 years of experience in economic analysis and business strategy. Taking action against systemic bias, racism, and unequal treatment, Key opportunities, trends, and challenges, Go straight to smart with daily updates on your mobile device, See what's happening this week and the impact on your business. Some of those reasons, unfortunately, may actually reduce productivity. Get the Deloitte Insights app. The network's industry and economics expertise allow it to bring sophisticated analysis to complex, industry-based questions. Added to that, businesses are likely to adopt practices such as larger inventories to reduce their vulnerability to shocks. Discover Deloitte and learn more about our people and culture. What Is the Current Fed Interest Rate and Why Does It Change? But the US economic forecast in 2020 and … GDP accelerates swiftly once vaccine deployment becomes widespread. View in article, Congressional Budget Office, “Estimated macroeconomic impacts of the American Recovery and Reinvestment Act,” March 2, 2009. In the longer term, businesses will still be looking for people—but perhaps in different industries and occupations. That’s a massive hole. The Deloitte baseline shows the annual federal deficit remaining at over US$2.4 trillion through 2025, the end of our forecast horizon; this is larger than the largest deficit run during the global financial crisis. Dr. Bachman came to Deloitte from IHS economics, where he was in charge of IHS’s Center for Forecasting and Modeling. Third, businesses are likely to consider investing in ways to make their supply chains more robust, including reshoring, diversifying suppliers, and/or increasing inventories of critical products. The U.S. economy is improving after the destruction caused by the COVID-19 pandemic. Sep. 11, 2020, 05:54 AM. Second-quarter GDP therefore fell “only” 9.5% (33% at an annual rate), according to the initial report on July 30. Analysts also have taken a hard look at interest rates, oil and gas prices, jobs, and the impact of climate change. Accessed Dec. 22, 2020. Another possibility, shown in our fast return scenario, sees consumers rapidly returning to their previous spending patterns. Insurance Information Institute. But the International Monetary Fund is downgrading its forecasts for next year, … Percent Change From Preceding Period in Real Gross Domestic Product, Advance Retail Sales: Retail and Food Services, Total, Labor Force Statistics from the Current Population Survey, News Release: Unemployment Insurance Weekly Claims, Dec. 16, 2020: FOMC Projections Materials, Accessible Version, Projections Overview and Highlights, 2019 to 2029. China will overtake the US to become the world's largest economy by 2028, five years earlier than previously forecast, a report says. Schools turning to virtual learning prevent potential workers (especially women) from returning to the labor force, so employment growth slows. The supply shock of the pandemic has clearly raised certain prices. US Forecast Update: US GDP to contract 3.5% in 2020. View in article, Lester Gunnion, Why is the housing sector booming during COVID-19?, Deloitte Insights, November 20, 2020. World Bank Predicts Strong GDP Growth In 2021 Won’t Overcome Weak 2020. "News Release: Unemployment Insurance Weekly Claims." That will likely result in some significant discounting over the next year. COVID-19 has thrown the problem of inequality into sharp relief, straining the budgets and living situations of millions of lower-income households. "Advance Retail Sales: Retail and Food Services, Total." Meanwhile, many workers who assumed disruption would be short-term found themselves tied down at home for what turned out to be most of an entire school year, managing their jobs and children’s education at the same time. This has lifted homebuilder confidence above pre–COVID-19 levels, and by October, housing starts had already made up almost all the ground lost between February and April. That crisis may be many years away, and current conditions argue for waiting. Granted, significant hurdles remain, including many Americans’ reluctance to be vaccinated,4 keeping the possibility of the long slog scenario at a significant level despite the positive vaccine news. Any additional economic recovery is hesitant, and GDP growth remains relatively slow. The economy, then, has avoided the shutdown of large companies for financial reasons, and if that remains the case, economic activity can pick up quickly. COVID-19 may have accelerated this trend. This is on top of the loss of the US$600 unemployment insurance supplement in July. Goldman Sachs on Friday dramatically cut its US economic forecast, saying it now expects GDP to decline by 24% in the second quarter of 2020 … A substantial number of businesses—especially small businesses—have already failed or will not survive, despite the Federal Reserve’s best efforts to keep credit cheap and easily available. Many businesses remain financially healthy and able to borrow and spend to expand capacity when demand picks up. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. Whether or not the specific vaccines in the upbeat November headlines prove to be winners, the likelihood of an effective vaccine being deployed seems to have increased sharply. Although a record, it was not enough to offset earlier losses, including the 5% decline in real GDP at an annual rate in the first quarter, signaling the onset of the 2020 recession. State governments succeed in broadly deploying vaccines by mid-2021, and economic activity then starts to pick up. The Fed now requires banks to plan for the economic impact of increased extreme weather. And unlike in previous recessions, the Fed has prevented significant financial damage to the economy. And notwithstanding the development of several apparently effective and safe vaccines, widespread distribution of these vaccines is unlikely until (at the earliest) summer or fall 2021. The CBO expects federal debt held by the public to equal over 100% of GDP by the end of FY2021. has been removed, An Article Titled United States Economic Forecast It is the biggest expansion ever, following a record 31.4% plunge in Q2, as the economy rebounds from the coronavirus pandemic. Wars are external shocks; so are earthquakes … and diseases. He specializes in financial planning, investing, and retirement. The pandemic dramatically changed patterns of spending, however. Almost a year has passed, with people having to reset expectations and plans every month or two. Businesses now face uncertainty in several dimensions. Quarterly GDP had never experienced a drop greater than 10% since record-keeping began in 1947., In April, retail sales were down 14.7% as governors closed nonessential businesses, but by May sales recovered, increasing by 18.3% as shops and restaurants slowly reopened safely. Worse, the number of people unemployed for a long period of time is growing quickly; long-term unemployment is associated with a number of bad outcomes, including lower productivity (and lower wages) for these workers when they do finally return to work.2. Once the new Congress is seated, a new approach is possible, though most Senate Republicans are on record opposing significant state and local aid, and it’s unclear whether they would allow an extension of unemployment benefits to become law. Consumer spending has been surprisingly strong over the past few months. Fast return to the starting line (25%): A significant relief bill keeps demand growing in the first half of 2021, and then pent-up demand creates a large burst of spending starting in mid-2021 as vaccines are widely deployed. For example, the BLS predicts jobs for wind turbine service technicians to increase by 60.7% from 2019 to 2029. In the longer term, the Fed will want to wean markets off of its aid. The upward revision primarily reflected larger increases in personal consumption expenditures and nonresidential fixed investment. The battle between supply and demand will likely continue through the forecast horizon. In fact, very low interest rates on US government debt indicate that the world wants more, not less, American debt. See: “Funding, credit, liquidity, and loan facilities,” November 20, 2020. Banks remain well capitalized and able to lend, and businesses are solvent and willing to spend money to make money once customers return. But the damage to the economy, from shutdowns and withheld aid, has already been done. It is similar to the May forecast for those two years, except that the projection of growth in the second half of 2020 has been revised downward. Federal Reserve Bank of Richmond. In the baseline forecast, we expect overall demand to remain low, both because of the pandemic and because so many people are out of work. Managing to operate during the pandemic for over a year is a different challenge—and a daunting one. Another part of this story is the Fed’s work in keeping the financial system operating during the pandemic.3 Banks have remained well capitalized, and many companies have been able to borrow at relatively easy terms. One possibility (consistent with our baseline) is that consumers will remain wary for some time. The great layoff of April 2020 saw employment plunge by more than 20 million, with most industries suffering a decline of more than 10%. 1 And employment snapped back somewhat in May and June, especially in accommodation and food services, the hardest-hit industry in the pandemic. It’s likely that President Biden will move quickly to reduce trade tensions, especially with traditional allies. “Dec. And we expect it to overtake the US a full five years earlier than we did a year ago. The need for stimulus depends on how well policy has “frozen” the economy. The disease remains a potent problem in the very short run. “National Income and Product Accounts Tables: Table 1.1.1. Goldman Sachs Group Inc. economists have revised down their estimates for the 2020 US economic growth rate to -4.6% from the previous forecast of -4.4 Interest rates are always the least certain part of any forecast: Any significant news could, and will, alter interest rates significantly. "Chart Book: Tracking the Post-Great Recession Economy." To be clear: The economy remains in troubled territory, fresh optimism notwithstanding. Federal Reserves Issues FOMC Statement, March 15, 2020. The economy recovered in the third quarter (Q3) of this year, expanding by 33.1%. The most striking examples of this are the US withdrawal from cooperation in the World Health Organization, and the unilateral decisions of both China and Russia to deploy their own vaccines before completing testing. Consider, for example, the fact that large airlines remain solvent and ready to expand service when necessary—if that were not the case, recreating airline services once the pandemic is over would be considerably more expensive and time-consuming. Trend gross domestic product (GDP), including long-term baseline projections (up to 2060), in real terms. Before the outbreak of the novel coronavirus, the US economy look… Jul. The Fed's Dec. 16 forecast said that wouldn't occur until at least 2023.. In fact, consumption recovered much faster than our forecast assumed—May’s consumer spending was up 8.1%. View in article, According to a recent poll, just 58% of Americans would agree to be vaccinated against COVID-19; see: R.J. Reinhart, “More Americans now willing to get Covid-19 vaccine,” Gallup, November 17, 2020. National health care expenditures will increase by 5.4% … On the other hand, manufacturing and retail industries will continue shedding jobs, while e-commerce continues to grow. Accessed Dec. 22, 2020. As far out as 2025, unemployment remains high, with the level of GDP about 8% below the level it would have reached had the pandemic not occurred. Accessed Dec. 22, 2020. The US economy is expected to shrink by 4.3% in 2020 before expanding by 3.1% in 2021. Global damage from natural disasters associated with climate change, such as hurricanes, floods, and wildfires, was $150 billion in 2019, down from $186 billion in 2018. Apart from the fact that buyers and sellers have found ways to navigate the restrictions of the pandemic, a few factors have combined to boost housing demand.8 These include the continued strong economic positions of high-wage remote workers, historically low mortgage rates, and more millennials moving into prime home-buying age. "Labor Force Statistics from the Current Population Survey." Until the caseload begins to fall, both official restrictions and people’s fear of the disease will put a lid on economic activity. Moreover, the 30-year fixed-rate mortgage has been below 3% since July. The most critical economic indicator is GDP, which measures the nation's production of goods and services. Pandemic and election could add noise to short-term outlook, but medium-term prospects improving. The Deloitte Global Economist Network is a diverse group of economists that produce relevant, interesting, and thought-provoking content for external and internal audiences. The recovery would be stronger if vaccines are rolled out fast, boosting confidence and lowering uncertainty. World Bank Predicts Strong GDP Growth In 2021 Won’t Overcome Weak 2020. Accessed Dec. 22, 2020. And the big employment gains may be at an end. We expect it to become an upper-income economy during the current five-year plan period (2020-25). Board of Governors of the Federal Reserve System. The decline in economic activity has translated into a decline in tax collections. But companies will likely begin to reduce their dependence on foreign suppliers, or attempt to have a portfolio of suppliers rather than a single source, even if the single source is the cheapest. But Biden’s campaign position papers suggest that the new administration will likely tamp down the traditional free-trade emphasis of previous Democratic presidents such as Clinton and Obama.10. Health Care Costs Will Continue to Increase. About half of those jobs have returned, but employment remains about 10 million below the prepandemic level. At the same time, we are lowering our 2021 growth forecast … There are questions about the financial system and the ability to fund new investments. Potential GDP remains about 2% below the prepandemic trend in 2025. DTTL (also referred to as "Deloitte Global") does not provide services to clients. 06 October 2020 Chris Varvares Joel Prakken, Ph.D. Until medical interventions render COVID-19 considerations moot, spending is likely to continue to shift away from activities that consumers perceive as risky—entertainment, food service, accommodation—and toward consumption that can take place in a socially distanced way. Goldman Sachs upgrades third-quarter US GDP forecast to 35% after stronger-than-expected August jobs report. The March recession ended 128 months of expansion, the longest in U.S. history. In Q2, the economy contracted by a record 31.4%. But this is likely several years away. The Fed’s operations have been one of the bright spots of the response to the pandemic. U.S. oil prices will also rise in 2021., The EIA's energy outlook through 2050 predicts rising oil prices. "Federal Reserve Press Release, Sept. 16, 2020." All agree that 2020 will … Under those conditions, a stimulus (which we have not assumed) would be useful. The fed funds rate controls short-term interest rates. The firm on Friday dramatically cut its US economic forecast and is expecting gross domestic product will decline by 24% in the second quarter of 2020 due to the coronavirus pandemic. View in article, “As of November 9, 2020, 21 states and territories held about US$40.2 billion in federal loans to pay UI benefits.” See: GAO, “COVID-19: Urgent actions needed to better ensure an effective federal response,” November 30, 2020. Those practices will also raise prices—and reduce productivity. Accessed Dec. 22, 2020. View in article, Steve Rosenthal and Theo Burke, Who’s left to tax? Bureau of Labor Statistics. Efforts to reshore parts of the supply chain, and to build more robust manufacturing systems, will likely mean that jobs will become available in manufacturing and related industries. This cautiously positive outlook is based on experts' reviews of the key economic indicators, including gross domestic product (GDP), unemployment, and inflation. The World Bank’s growth forecast for 2021 would be indicative of a … Replacing and/or resurrecting those businesses once the pandemic is over will require more resources and investment than if they had remained operational. Email a customized link that shows your highlighted text. Since state governments cannot run deficits, without federal aid they may need to accelerate the budget-balancing layoffs and program shutdowns they have already begun. Slowing population growth means that the demand for housing will grow relatively slowly after the initial jump in housing construction as the pandemic impact subsides in the baseline. How to entice people to switch to manufacturing from, say, food service, and accommodation? U.S. Energy Information Administration. In the third quarter, goods accounted for 34% of consumer spending (up from about 31% before the pandemic), with services falling correspondingly to 66% of spending. We anticipate no problem over the forecast horizon. The promise of a vaccine raises the question of how consumers will behave once the coronavirus is no longer a threat. The lack of opportunities in the old areas will help, but many businesses in manufacturing may need to invest substantial effort—and perhaps higher wages—to attract workers, even as unemployment remains high. State governments will need financial help for managing COVID-19–related spending and, especially, for deploying vaccines as they become available. The United States may, therefore, see relatively high levels of investment in this recovery. In 2020, the U.S. experienced damage from both hurricanes and wildfires, as it has in past years. Copy a customized link that shows your highlighted text. NEW YORK (Reuters) - The forced closure of businesses across the United States and surge in unemployment due to the coronavirus pandemic will force U.S. … Our fast return scenario assumes that economic growth is much faster, and the economy quickly returns to full employment, even without a major stimulus bill. 6, 2020, 09:27 AM Goldman Sachs economists lowered their third-quarter US GDP growth forecast to 25% from 33% on Saturday, citing weak consumer services spending and … Following Senate Majority Leader Mitch McConnell,11 we think it is important to distinguish between relief measures that prevent the economy from worsening during the pandemic and stimulus measures designed to help the economy reach full employment when the pandemic is over. But the US economic forecast in 2020 and for the next 5 years, is bolstered by strong investment, low taxes, strong consumer wealth and spending, and the fact consumers can't buy China's shut in production. In the midst of the pandemic, the US-China trade war shows no sign of abating. Simply select text and choose how to share it: United States Economic Forecast Accessed Dec. 22, 2020. Constant price estimates of GDP are obtained by expressing values of all goods and services produced in a given year, expressed in terms of a base period. "Federal Reserve Announces Extensive New Measures to Support the Economy." “Annual Energy Outlook 2020,” Page 6. As long as the disease remains a significant issue, demand in the most affected industries will continue to lag. The Congressional Budget Office suggests that the multiplier, or bang for the buck, of federal spending on GDP is higher from direct federal spending, or transfers to state and local governments, for infrastructure than for tax cuts.16 An effective stimulus will likely focus on those areas. Accessed Dec. 22, 2020. State and local governments face a significant funding problem. The United States economy will look about the same in 2020 as it did in 2019, but will improve in 2021. International trade presents the greatest uncertainty to the … First, many businesses will need to spend on safety equipment that will neither improve productivity nor add to profits. According to the data, the average Brent oil price could increase to $183 per barrel in 2050, adjusted for inflation to 2019 dollars. Overall, the BLS expects total employment to increase by 6 million jobs between 2019 and 2029.. Even though a wave of millennials entering home-buying age might boost the housing sector in the short to medium term, long-run fundamentals ensure that housing does not become a key driver of economic growth in our forecast. This page has economic forecasts for the United States including a long-term outlook for the next decades, plus medium-term expectations for the next four quarters and short-term market predictions for the next release affecting the the United States economy. In fact, consumption recovered much faster than our forecast assumed—May’s consumer spending was up 8.1%. Recent data imply third-quarter real GDP growth near 33%, stronger than anticipated previously. Recent data imply third-quarter real GDP growth near 33%, stronger than anticipated previously. China is the only major global economy that will have expanded in 2020. For example, requirements for cleaning and social distancing will likely raise prices of restaurant meals, airplane travel, schooling, and many services—such as day care—over the next year. Our baseline scenario assumes that the damage is sufficiently critical that growth—particularly employment growth—will be restrained after an initial period of recovery, and that the economy will remain 2% below the prepandemic trend during the five-year forecast horizon. Schools meet virtually, and some parents leave the labor force to manage their children’s schooling. Richard Drew/AP. Vaccine development is undeniably good news for consumers and businesses. Second, government policy may encourage reshoring in “strategic” industries, especially medically related industries such as instruments and pharmaceuticals, arguing that it’s worth some inefficiency to obtain better national control over these areas in a future crisis. Accessed Dec. 22, 2020. View in article. Promoting more efficient labor markets might help to speed the recovery—but it would mean admitting that the prepandemic economy will never return. Several features of the current recession suggest that postpandemic growth could be quite rapid: On the other hand, there are reasons to expect the economy to require additional aid: Our baseline assumes that—after an initial acceleration as vaccines are deployed in mid-2021—economic growth is relatively slow. View in article, The Fed has helpfully provided a full annotated list of borrowing facilities on its website. March 2020 Update: While the Corona Virus scare is punishing China's economy, the US seems to caught an economic flu, driven by media reports. All of these will likely help prevent extreme events from shutting down production but reduce efficiency and add to costs in normal operation. View in article, Alexander Bolton, “McConnell says $2T bill is ‘emergency relief’ and not a ‘stimulus’,” Hill, March 25, 2020. Roger Wohlner is a financial advisor and writer with 20 years of experience in the industry. The core inflation rate is predicted to be 1.4% in 2020, and slowly rise to 1.8% in 2021, 1.9% in 2022, and 2% in 2023. These permanent changes may also leave capital stranded—invested, for example, in a surplus of aircraft if travel does not recover. Second-quarter GDP … In March 2020, the FOMC held an emergency meeting to address the economic impact of the COVID-19 pandemic, which lowered the fed funds rate to a range of 0% and 0.25%., And on Sept. 16, 2020, the FOMC announced it would keep the benchmark rate at its current level of .1% until inflation reached 2% over a long period of time. In a world of high unemployment, businesses will have little pricing power but will face higher costs. It restarted its quantitative easing (QE) program, and soon expanded QE purchases to an unlimited amount. One important question is whether businesses will rebuild their supply chains to create more resilience in the face of shocks such as the pandemic and the change in US trade policy. Bureau of Labor Statistics. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the "Deloitte" name in the United States and their respective affiliates. Research from the Richmond Fed estimates that, if the country continues to produce emissions at a high rate, climate change could reduce the annual GDP growth rate by up to a third of the historical average.. Forecast is based on an assessment of the economic climate in individual countries and the world economy, using a combination of model-based analyses and expert judgement. This encouraged us to revise up our forecast for growth in 2020 from -4.0% to -3.5%. Also see: Kathy Frankovic, “Half the public are willing to get vaccinated against COVID-19, the highest level yet,” YouGov, November 30, 2020. View in article, Issi Romem, “The silver tsunami: Which areas will be flooded with homes once Boomers start leaving them?,” Zillow, November 22, 2019. We view this scenario as the most probable. "The Impact of Higher Temperatures on Economic Growth," Page 4. View in article, Neil Irwin, “These ‘little land mines’ could prevent a summertime boom,” New York Times, December 1, 2020. Businesses are likely to respond to the recent trade policy volatility. The silver tsunami: Which areas will be flooded with homes once Boomers start leaving them? DTTL and each of its member firms are legally separate and independent entities. Bureau of Labor Statistics. There were 820 natural disasters in 2019, compared to less than 600 a year between 1980 and 2006.. A well-designed relief bill would address three main issues: As of the end of November, the chances of a significant lame-duck relief bill passing seem slim. For that reason, it is around double the widely-reported data you typically see in news articles. The growth rate of real gross domestic product (GDP) measured by the U.S. Bureau of Economic Analysis (BEA) is a key metric of the pace of economic activity. We won’t know until recovery really gets underway. But we’ve included an optimistic scenario in this forecast, one that assumes that pent-up demand quickly boosts sectors such as travel, food and accommodations, and recreation services once the threat of the pandemic goes away. The coming months will show the extent—and suggest the direction of the recovery. Federal Reserve Board. Even after the third quarter’s rapid growth, GDP remains 3.5% below its peak in 2020 Q4. "Labor Force Statistics from the Current Population Survey." Although the pandemic is a global phenomenon, leaders have made major decisions about how to fight it—in both health and economic policy—on a country-by-country basis. The Fed's target inflation rate is 2%. The core inflation rate—the Fed's preferred rate when setting monetary policy—strips out volatile gas and food prices. At this point, investors show no sign of concern about US debt. Companies in areas such as these will not only be faced with higher costs—they will lose the ability to exploit economies of scale. Thanks to Lester Gunnion, who played a key role in developing and producing this forecast. Other declines will occur in the postal service, agriculture, and some information-related industries.. It predicts crude oil prices will average $43 per barrel in the fourth quarter of 2020, and $49 per barrel in 2021 for Brent global. There was a cost, of course: the Fed’s intervention in many different markets. This suggests that households will maintain a higher level of savings, and that consumer services spending will recover slowly. American companies will continue to source from China in the coming years. 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